Use overseas dosh for Auckland

It only took five hours for Australian developer Lend Lease to sell 581 apartments off the plan in Darling Harbour. A third went to foreign buyers.

This week's news from Auckland's housing market must have terrified first-home buyers and delighted property owners.

First, Statistics New Zealand reported a record high 48,266 migrants arrived in Auckland in the year to May.

That's more than 130 people arriving every day and turning up at a real estate office to rent or buy a property.

Second, the prospects for significant new house building to help soak up demand look as remote as ever.

The Productivity Commission produced forecasts showing Auckland's housing shortage of 25,000 homes will balloon to 60,000 by 2020, even with the most optimistic forecasts.

The divisions within the Auckland Council over rates increases, debt levels and new infrastructure spending plans darken the outlook, along with continued opposition by ratepayers to more dense housing developments near the city.

Third, banks slashed their mortgage rates to under 5 per cent.

This followed the Reserve Bank's rate cut this month and very weak GDP growth figures that suggested Governor Graeme Wheeler could cut interest rates by a full 100 basis points by Christmas.

Any investor borrowing 70 per cent of the purchase price of an average house can afford to pay $160,000 more for it when mortgage rates drop from 6 to 5 per cent.

In addition, a report from real estate listings service Juwai.com this week estimated that an expected loosening of restrictions on Chinese investors buying overseas property could see an extra US$10.9 billion ($16b) pumped into New Zealand property, which of course means Auckland.

Juwai estimates that in theory US$6.6 trillion could be invested in overseas assets by Chinese domestic institutional investors who have approval to raise funds in mainland China and use the proceeds to invest offshore via a quota system, called QDII.

That includes US$2.2t going into real estate.

It took a conservative estimate that Chinese investors would invest just 5 per cent of their assets in overseas property and only 3.3 per cent of that amount in New Zealand, which led to the US$10.9b estimate.

A less conservative view that estimates a 20 per cent investment in overseas property and 5 per cent of that invested in New Zealand would escalate the potential for Chinese investment in Auckland to US$97b (or $142b).

That equates to about 35 per cent of the total current value of Auckland's property.

"With QDII2 in mind, within five years we might look back and think of the current levels of Chinese cross-border investment as quaint," Juwai CEO Andrew Taylor was quoted as saying.

The 22 per cent slump in the New Zealand dollar against the Renminbi over the past year has made Auckland even more attractive for investors from China.

So how could this threat to demand for Auckland property be turned into an opportunity for first-home buyers and renters?

A look across the Tasman suggests the flood of money coming from China could be put to good use if it is funnelled into new housing developments, in particular apartments off the plan.

Australian developer Lend Lease sold 581 apartments off the plan for its latest Darling Harbour project in five hours last month, including more than a third to overseas buyers. It sold A$600million ($670m) of property at a rate of A$2m a minute.

If Auckland and the Government could convince Aucklanders to allow the building of more overseas-funded apartments near the CBD then it might have a small hope of filling that shortage of 60,000 homes.

They would cost $30b to build so $16b of overseas investment could come in very handy.