New Zealand takes the step SA once contemplated, with curbs on foreign property buyers
New Zealand house prices have risen 30% in the past five years, pricing locals out of the market — but critics are not convinced foreign buyers are behind the surge
New Zealand has done something SA briefly contemplated doing, when it passed a law this week banning (most) foreigners from buying existing homes in the country, in an effort to cool a market that is pricing out many locals.
The exceptions are Singaporeans and Australians, thanks to New Zealand’s free trade agreements with those countries.
New Zealanders are also exempt from Australia’s similar restrictions barring foreigners from buying existing homes. In both countries, foreigners may buy properties in new developments.
"The [Australian] government’s policy is to channel foreign investment into new dwellings as this creates additional jobs in the construction industry and helps support economic growth," the government says on its website.
"Foreign investment applications are therefore generally considered in light of the overarching principle that the proposed investment should increase Australia’s housing stock (be creating at least one new additional dwelling)."
Foreigners also have to apply for foreign investment approval to be able to buy a home in Australia. They are subject to vacancy fees if the property is not occupied for at least six months in a year, and individual states also impose their own conditions.
Surging New Zealand house prices — they have risen 30% over the past five years — have helped push home ownership to lows not seen in more than six decades, and tackling the problem was a key campaign pledge for Prime Minister Jacinda Ardern.
But not everyone agrees that banning foreign buyers will fix the problem.
Real Estate Institute of New Zealand CEO Bindi Norwell said foreign buyers made up only a small portion of the market.
"We don’t believe that banning foreign buyers from purchasing property in New Zealand is going to have any impact on house prices, nor will it help young people into their first homes," she told stuff.co.nz.
The policy has also drawn criticism that it is racist, as Chinese buyers have in the past been singled out as a major driver in the Auckland market. Chinese buyers are the biggest cohort of foreign buyers, with Australians second.
SA’s flirtation with curbs
SA toyed with the idea of curbing foreign ownership in the early 2000s, when a booming residential property market looked like it could pose the same problems New Zealand is facing, and land reform was progressing at a snail’s pace.
A proposal on foreign ownership curbs first surfaced in June 2001, when the director-general of land affairs at the time, Gilengwe Mayende, asked the home affairs department for legislation limiting the ownership of South African land by foreigners.
That proposal was prompted primarily by concern about foreigners’ purchases of agricultural land in the Western Cape, and the slow pace of land redistribution.
Overheating markets in major global centres in the early 2000s spilt over into SA, especially Cape Town. That was aided by a weak rand (back when R12 to the pound was considered weak), which meant foreigners could get far more for their money in SA than at home. Despite four interest-rate increases in 2002, housing inflation was in the double digits.
Nonetheless, the debate in SA was focused more on land reform than on overheating urban markets.
In November that year, the ANC denied that the government was planning to curb foreign ownership of land, with then-deputy president Jacob Zuma saying nothing could be decided before a proposed investigation of foreign ownership patterns was completed. The ANC policy conference in December included that investigation in its resolutions on land reform.
A ministerial committee was established to probe the effects of foreign ownership of land in SA, and wrapped up its work in 2004. The debate was one of the central policy focal points that year, with critics arguing that foreign ownership was a red herring, and detracted from more fundamental problems with SA’s land reform process.
By April 2005, the idea of restricting foreign ownership had been dropped — though Thoko Didiza, the land and agriculture minister at the time, told Business Times the government could, in future, consider restrictions in certain areas.
The land reform debate today, of course, has a different focus: expropriation without compensation, and whether the constitution needs to change to make that possible.
India limits foreign property ownership to foreigners resident in India — defined as spending at least 182 days of the year in the country. Foreigners cannot buy agricultural land.
China allows foreigners who have worked or studied in the country for at least a year to buy one residential property.
And, while permanent residence visas entitle foreigners to buy properties in both Australia and New Zealand, other countries including Mauritius and Malta have taken a diametrically opposite approach — making property investment a condition for obtaining permanent residence.