What sort of money is fueling Auckland property boom?

‘Kiwi-guy’ keeps repeating that Chinese “hot money” is driving Aucklands property price inflation.

Labour’s move on Chinese hot money flooding Auckland property market is vindicated by real estate outfits:
“Labour’s data pointing to large numbers of China-based buyers speculating on Auckland residential properties did not surprise Barnett.”
http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11487696
The property hustlers know the cat is out of the bag now and are positioning themselves accordingly.

Except that Labour’s data did not determine anything about the number of Chinese-based buyers. Labour pointed to it as probable but provided no data to back up that presumption.

More quotes from that article from Kiwi-guy.

“I believe that overseas investment is good for New Zealand but I believe it should only be in new construction. The overseas investors should have to build new houses, not buy into the existing housing stock. That creates shortages,” Barnett said.

“Then, if overseas investors come to New Zealand and develop houses, they are adding to the housing stock. I think that’s a good thing. But I acknowledge those are not the rules in New Zealand currently,” he said.

The problem with that is Auckland has a shortage of building sections, and the problem their is land price inflation. If overseas investors were forced into new builds only that would do thing to stop land values being pushed up as they would be competing for a limited supply.

“I approve of Inland Revenue’s new rules from October that all buyers must have an IRD number. Those controls are good because property values have traditionally risen over a long term and speculators should pay tax.

“I believe people should be taxed on the profits they make from a business and if it is your business to buy and sell houses, you should have to pay tax on that.”

Speculators are required to pay tax now. If your business is to buy and sell houses then the Government and IRD make it clear that tax is due on any profits. IRD have been increasingly active in enforcing current tax law that covers speculation and trading in property.

Also at NZ Herald is a report on some actual data – Investors head first-home buyers.

New Zealand banks approved three times as many mortgages for investors as they did for first home-buyers over the past year, Reserve Bank figures show.

The Reserve Bank’s lending data showed that in the first half of this year, banks approved 31,123 home loans for investors and 9,890 for first-home buyers.

The average loan size was also larger for investors. Over the past six months, investors were given an average mortgage of $331,427, compared with $317,796 for first-home buyers.

The article looks a bit like a Phil Twyford PR piece as he is quoted prominently. Further down the article a mortagge specialist is also quoted.

Mortgage specialist Bruce Patten, of Loanmarket, said that the figures “matched his experience”, and possibly even underplayed the prominence of investors in the market.

“I wouldn’t say it’s necessarily at the expense of first home-buyers but it’s certainly in competition with first-home buyers,” Mr Patten said.

The proportion of loans going to investors appeared to be increasing as property speculators rushed to buy or sell in Auckland before lending rules were tightened in three months’ time.

“June was the biggest month … the banks had ever seen in terms of processing mortgages,” he said.

“The numbers are horrendous at the moment. The banks are running at absolute capacity.” From October, investors will need to have at least a 30 per cent deposit if they are buying within the Auckland Council limits – a move which could make the market more accessible for first-home buyers.

This demonstrates risks with trying to alter the market through regulation, the market reacts to impending changes.

What to do about it? Should lenders be forced to loan more to first home buyers and less to investors? Even if it could be done it would probably increase lending risks.

And way down the article a property investor points out the obvious.

Property investor David Han says it is easier for those who already own properties to invest in more.

“Banks require security, when you already own properties it makes it easier to get a loan than someone who has nothing,” Mr Han said.

He said he chose to invest in properties because it was “simple” and “straightforward”, unlike other forms of investments.

“To invest in shares or business, for example, banks will look at income projections, business plans … it’s harder to get the bank’s money,” he said.

“When it comes to property, it’s a lot simpler and easier to borrow money because the property also provides better security for the bank.”

Mr Han said the “toughest part” for any would-be property buyer would always be getting a loan to buy their first property.

Especially for first home property buyers in the inflated Auckland market.

There’s no easy solution to this, unless people wanting to become property owners look to where houses are more affordable to make a start on the property ladder.

A problem that may always remain is that Auckland wants to be a ‘international’ city, so is likely to be expensive to live in, like Sydney, New York, London etc where first home buyers on average incomes are priced out of the markets.

Is the answer to enforce isolation for Auckland and New Zealand and put strict property price controls in place? Eve to deflate property values in Auckland?

I doubt even Labour would go anywhere near there.

But back to Kiwi-guy’s original point – there is still no data on the proportion of overseas investor money going into the Auckland market – and the Reserve Bak mortgage data shows there is a lot of local money going into the market.

There is still no data on the proportion of Chinese based buyers in the market.

And I haven’t seen any evidence that any Chinese money is “hot money”. Perhaps Kiwi-guy can explain what he means by “hot money” and perhaps he can provide evidence of what proportion of house purchases involving “Chinese hot money”.

Leave a comment

7 Comments

  1. -D

     /  28th July 2015

    “Mr Han said the “toughest part” for any would-be property buyer would always be getting a loan to buy their first property.”
    ——————————————————————————————————-
    Inflated prices, high LVR’s, and prudent bank lending criteria (based on ability to service a loan) are all challenges to be overcome by first home buyers.

    BUT one of the most obvious ways for parents to help young first-home buyers is for the parents to buy the property on their own credit rating backed by their own existing property equity…and then work out “repayment” terms with the kids. Many workable variations are possible.

    Are such intra-family purchases classed as “investments” by the bank? If not, how else could they be categorized?

    I hope someone drills down further on these statistics.

    The Horrid article is woefully lacking in explanation.

    Reply
  2. Alan Wilkinson

     /  28th July 2015
    Reply
    • -D

       /  28th July 2015

      Alan…we could argue over whether this article is “factual” but I certainly wouldn’t consider it very enlightening.

      The first commenter,”Alpha”, points out some of the weakness.

      [Quote:]

      “respondents”

      That is the key word in the article – 4x, with “response” 2x.
      If I want the views of people on a particular matter and I put out 100 questionnaires, but I get 20 replies, those 20 are the respondents. But by no stretch could I conclude that the views of the 20 are a true reflection of the community.

      “the overwhelming majority were NZ Europeans.”

      Which makes the survey meaningless as a guide to property. What it does tell us is something about those who didn’t respond, although such a brief was outside the parameters of the surveyors. And politically incorrect to boot!
      It tells us that migrants from countries where citizens fear the Gov, – usually a dictatorship – are wary of divulging any information about themselves. Hence the survey is meaningless.

      “to provide retirement income. Interestingly tax advantages did not feature”

      You must be joking!

      Tax advantage is the prime driver. First, rapid inflation-driven tax free capital gain, & 2nd, negative gearing to reduce tax liability on their primary income.

      B&T report that the average sale price in Auckland increased by $50k in the 3mths to June 2015. Equates to $200k in a year.
      Pretty powerful incentive!

      [End quote]

      Whether or not you agree with the comments, it doesn’t seem the article adds much either way.

      Reply
      • Alan Wilkinson

         /  28th July 2015

        “Tax advantage is the prime driver.” No, not if you are looking for a retirement income investment and therefore are not planning on selling. Negative gearing without a realised capital gain merely removes from your disposable income two thirds of the increased net outgoings. How is that attractive?

        I think the article is factual and non-emotive. It doesn’t overplay the significance of the data but merely uses it to point to questions that need answers.

        Reply
    • Alan Wilkinson

       /  28th July 2015

      “Tee, a colourful entrepreneur educated at Harvard, admits he is “talking his own book”. As a Malaysian property developer, his Titan Square project in Malaysia stood to benefit from Chinese capital, so he had a vested interest in Australia addressing the problem of excessive Chinese capital inflows in metro property markets here.”

      Ie, he is trying to bounce some Chinese money into his own pocket.

      Reply

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