Foreigners are scooping up houses in New Zealand’s priciest areas while they still can
Late last year, New Zealand’s government announced a plan to ban foreigners from buying existing homes to cool its red-hot housing market. The move appears to have spurred a spree of home buying in pockets of the island nation instead.
The Labour party came to power on promises to make houses more affordable and restrict access to to foreign buyers snapping up properties for investment purposes. The prime minister, Labour’s Jacinda Ardern, said the ban would come into effect early this year. It hasn’t arrived yet, as discussions of changes to the law wind their way through parliament.
New data shows that across New Zealand just over 3% of home buyers were foreigners in the first quarter of 2018. But in some of New Zealand’s priciest areas, namely the suburbs around Auckland, there has been a big jump in foreign buyers at the start of this year.
Across Auckland, 7.3% of buyers weren’t New Zealand residents or citizens, up from 4.1% a year earlier. In the harbor suburb of Waitemata, one in 20 home buyers came from overseas, double the proportion from a year earlier. Auckland areas Henderson-Massey and Kaipatiki also saw the share of foreign buyers double. In Queenstown—the most expensive place to buy a home outside of Auckland—10% of buyers weren’t New Zealand citizens or residents in the first quarter of the year.
Of all property transfers, the largest share of foreign buyers come from China, followed by Australia.
New Zealand’s trade minister David Parker said the data vindicated the government’s proposed ban. Auckland and Queenstown are the two regions where people face the biggest hurdles to home ownership, he stressed.
Since foreign buyers are concentrated in a few areas, it’s unclear how effective the ban will be, but house prices in New Zealand do appear to be decelerating somewhat. In May, the annual pace of growth was 6.9% nationwide, down from 7.3% the previous month.
In Auckland, the average house price was NZ$1,245,086 ($875,188), compared with an average of NZ$677,996 across New Zealand. These are the priciest areas:
|Area||Average value in May 2018||One-year change in value|
|North Shore City||NZ$1,229,088||2.6%|
Melissa McKenzie, property statistics manager at StatsNZ, said the consultation about changes to the Overseas Investment Act might explain the increase in overseas buyers, who are getting their purchases in before it becomes harder for them to buy residential property and land in the country. The figures might undercount foreign purchases, because about 10% of buyers are corporations but StatsNZ doesn’t provide information on where these firms are domiciled or who owns them.
THE APPLICATION FOR AN OVERSEAS INVESTMENT
How the Overseas Investment Office uses information.
The Act requires people who are seeking consent for an overseas investment to apply to the OIO for that consent before the investment is given effect.
GUIDANCE FOR POTENTIAL OVERSEAS INVESTORS
The OIO provides potential applicants with guidance about how to make an application and what information the applicant needs to provide. The OIO says that the purpose of this guidance is for the application to have “the best possible information” about the planned investment.
From October 2015, the OIO made a “Required Information Checklist” available on its website. This checklist was to help applicants determine whether they had provided all of the necessary information with their application. It asked whether the application covered, for example:
- in relation to the investor, “all matters potentially relevant to the good character of the [investor]” noting that “the OIO determines what is actually relevant”; and
- in relation to claims there is benefit to New Zealand, the counterfactual situation (or likely state of affairs without the investment) and supporting evidence.
Before February 2017, a template application letter was available for applicants to use.
From late February 2017, the OIO has provided new and revised application templates on its website.12 The templates are tailored to the various types of application an applicant may wish to make and include substantial guidance on the information applicants must provide. For example, there is a pack for applications about acquiring significant business assets.
The new templates are designed to be clearer about the information the OIO requires from applicants and to reduce the need to request additional information later. The OIO describes the templates in this way:
We request that you use the Application Templates so that you can give us all the information we ask for, in the order we ask for it. Doing this is likely to result in your application being processed more quickly, or without us needing to ask you for more information.
Each template contains guidance notes and links to other information.
As well as the new templates, the OIO has also issued guidance for applicants about what information is required for critical parts of the application. This is guidance about identifying relevant overseas persons and individuals with control, the OIO’s assessment of good character, and making submissions about benefits and counterfactuals. We discuss each of these topics later in this report.
MEETING WITH APPLICANTS BEFORE THEY MAKE AN APPLICATION
The OIO may meet with a potential applicant on request by the applicant or if the OIO considers that an anticipated application warrants a meeting. The OIO has information on its website about pre-application meetings, including what they are, how they work, and why such a meeting might be useful for the applicant.13
The purpose of these meetings is described by the OIO as a way to “help [the applicant] prepare a clearly reasoned application that contains all the information we will need to assess [the] application”. Specifically, meetings are described as an opportunity for the applicant to:
- explain at a high level the application and investment proposal (where applicable);
- ask any questions about presenting specific aspects of the application;
- get feedback about how the application might be improved; and
- ask any questions about the application process.
In this way, the meetings are to assist the applicant make the application and not to discuss the merits of the application yet to be finalised or made. The OIO does not intend the meetings as an opportunity to review draft applications for consent, provide legal advice, decide how long an application might take, or indicate what the likely outcome of a particular application might be.
During the course of our review, the OIO told us that it intended to meet or talk with potential applicants more often before they submit an application.
A STRUCTURED PROCESS FOR CONSIDERING APPLICATIONS
Once an application has been received, the OIO’s process includes the following steps:
- initial assessment and quality assurance review;
- full assessment and information gathering (if required);
- preparing draft conditions and considering statutory declarations;
- making recommendations to the decision-maker;
- decisions made by the decision-maker about whether consent will be granted;
- notifying the applicant about the decision; and
- publishing the decision.
Until October and November 2016, the first step in the process was allocation of the application to a staff member and an initial assessment of the application. This initial assessment was a quality assurance review where the application was checked to ensure that it contained the information required for a full consideration by the OIO and was accompanied by the prescribed fee.14 The focus of this process was whether the key information had been provided.
If the application did not contain that key information or was deficient in some way, it was returned to the applicant. If the application passed this quality assurance review and more information was required, the OIO would request this information from the applicant.
An issue raised with us by agents of those who had applied for consent was that it was not unusual for the OIO to accept an application for consideration and then ask for a substantial amount of additional information or make multiple requests for information.15 In 12 of the 15 applications we reviewed, the OIO had made four or more requests for information.16 One application we reviewed, albeit sensitive and complex, involved 18 separate information requests during processing. Although such requests can provide OIO with more complete information, they can increase the costs for applicants.
In October and November 2016, the OIO began implementing a more considered review of applications when they are first received. It calls this a “triage review”. The intention is to apply experienced resources to understand the nature and risk in an application at the initial stage, to understand more precisely what information is needed for the application, and to request that information more efficiently. Senior staff, including managers, are involved in the triage review. The triage meetings we observed were attended by managers, a solicitor, and other staff.
This new process involves a more considered assessment of the application before it is allocated for evaluation than might have happened previously. At this point, the OIO assesses how complex the application is (including where the investors are based, the profile of the asset, and the proposed benefits), the level of risk associated with the investment (including the reputation of the investor, the size and value of the asset, and the importance of the asset to the local economy), what resources might be required for the application, and how long it might take to consider the application. This assessment is based on the information received at that time and on the OIO’s knowledge and experience.
At this triage stage, the OIO has also been considering whether the applicant (or investor behind the investment) is of “good character” or what further information might be required to establish good character (see paragraphs 4.21-4.37). To do this, the OIO carries out an internet search of open sources and uses information provided by the applicant with the application.
CHANGES TO ASSESS KEY INFORMATION EARLIER
It is helpful to potential applicants for the OIO to provide guidance about the process so the applicant knows what to expect and what is required of them. For the period relevant to the applications we reviewed (that is, before the changes we described in paragraphs 3.5-3.6), the information on the OIO’s website, and in particular the Required Information Checklist and template letter, provided useful guidance to the applicant about what to provide in their application. We saw evidence in the applications we reviewed that the information asked for by the OIO was generally provided. The OIO relied on that information when initially evaluating the application and later when considering the application.
However, on several occasions in the applications we reviewed, the OIO needed to ask for more information from the applicant and sometimes there were multiple requests.
The OIO sought that information in the interests of being thorough and making the best recommendation. That approach adds to the time taken to process the application and can add cost to the applicant, who is required to obtain and provide the additional information. The process could be more efficient by getting the information the OIO needs when the application is made.
During 2017, after the applications we reviewed had been considered, the OIO has refined the information it provides to the applicant before the application is made and how it processes the application. The various application packs made available to applicants on the website should result in more detailed applications being submitted and the OIO seeing the information it needs to see when the application is made. This is useful to both the OIO (because it can engage with the issues when it first considers the application) and the applicant (who is less likely to be asked to provide more or different information).
The triage process, in which more complete information can be received, allows the OIO to focus on the essence of the application and allocate its resources according to the nature of the application. Like all public entities, the OIO has finite resources and it is good practice for it to be able to allocate those resources efficiently. Doing that relies on good and complete information being available when decisions are made about how to allocate resources.
The refined guidance, pre-application meetings, and triage changes should allow the OIO to receive better information earlier in the application process and allocate its resources effectively, taking that information into account. Whether this process reduces the occasions where the OIO needs to seek more information from the applicant remained to be seen at the time of our review.
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