Banning foreign investors from buying New Zealand residential property will back-fire on the Government and instead of increasing new residential supply by stopping speculators, it will create a shortage of new homes, lawyers and realtors say.
Auckland District Law Society and Real Estate Institute submissions on the Overseas Investment Amendment Act say the proposed new law will deter much-needed residential developers who are critical to creating new housing stock, particularly apartments.
The submissions were released to the Herald exclusively before being made publicly available on the Parliamentary website, a move expected tomorrow.
"Overseas developers choosing to invest in New Zealand properties often develop residential properties," the lawyers said. "The proposed bill will have a detrimental effect on both New Zealand and overseas developers. The number of new properties being offered in New Zealand is going to be vastly reduced.
"That may very well have the opposite effect that the bill is proposing. If the number of houses in the market reduces and does not keep up with the increasing population, then housing prices are unlikely to decrease as demand will increase while supply stays stagnant," said the detailed 23-page submission, signed by society president Joanna Pidgeon.
"New Zealand is already a comparatively costly place for offshore developers to choose to develop properties. Labour and construction costs are high and construction capacity is stretched, as well as tough construction lending requirements which often leads to delays in the construction of developments.
REINZ, representing more than 14,000 agents, said the new bill might severely reduce property development.
"This in turn may negatively impact housing supply at a time of housing shortage, leading to an increase in property prices and rents," said the submission from REINZ, whose chief executive is Bindi Norwell.
"The proposals in the bill may have the unintended consequences of hindering property development, reducing housing supply and adding pressure to New Zealand's housing and rental property markets," the REINZ submission said.
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Banks require a large number of pre-sales before finance is granted for large-scale developments. Overseas pre-sales would no longer be an option, reducing the pool of potential purchasers and limiting developers' options, REINZ said.,
"The likely flow-on effect is that the number of new properties being completed and offered for sale in New Zealand is likely to be reduced, which may have the opposite effect on the bill's aim. There is already an existing shortfall of built houses over several years and new construction needs to keep up with the increasing population of the country year-to-year otherwise house prices are unlikely to decrease as demand will go up while supply stays relatively stagnant," REINZ said.
The Property Council has also raised issues with the bill, expressing similar fears to those voiced by the society and REINZ. The council expressed concern about the Overseas Investment Office being under-funded and under-staffed, and applications taking months to process.
"Substantially more resourcing" is needed, its submission says. It wants mandatory time limits on applications, "particularly for residential developments of scale". And those big estates should also get priority over other applicants as well, it says.
The draft legislation had gone too far by restricting not only the sale of houses, but also all residential land to overseas persons, "not just overseas speculators", the council says
The bill, introduced to the House by associate finance minister David Parker, has had its first reading and gone to a select committee. That was due to report back with findings on February 20 but that date could be extended now.
The Government needs to have the new law passed before the Comprehensive and Progressive Agreement for Trans-Pacific Partnership comes into effect.
With a March 8 signing date now the target, the select committee is expected to have more time for considering the bill.