IMF Takes a Swipe at New Zealand Ban on Foreign House Buyers
(Bloomberg) -- The International Monetary Fund has criticized New Zealand’s “discriminatory” ban on home sales to foreigners, saying it’s unlikely to improve housing affordability.
“Foreign buyers seem to have played a minor role in New Zealand’s residential real estate market recently,” the IMF said in a statement Tuesday, after concluding its annual Article IV mission to New Zealand. If the government’s broader housing policy agenda is fully implemented, that “would address most of the potential problems associated with foreign buyers on a less discriminatory basis,” it said.
The new Labour-led government has pledged to fix the nation’s housing crisis with a raft of measures, including a ban on foreign speculators buying residential property, removal of tax distortions and an ambitious building program. House prices have surged more than 60 percent in the past decade amid record immigration and a construction shortfall, shutting many out of the housing market.
However, data suggest non-residents buy only a tiny percentage of homes sold, and critics of the law change say it will have the unintended consequence of worsening housing supply by turning overseas investors away.
Proposed changes to the Overseas Investment Act, which the government says will bring New Zealand into line with neighboring Australia, will classify residential land as “sensitive,” meaning non-residents or non-citizens can’t purchase existing dwellings without the consent of the Overseas Investment Office. While non-resident foreigners will be allowed to invest in new construction, they will be forced to sell once the homes are built.
IMF Mission Chief Thomas Helbling said a ban is a “very definitive measure” and could send a negative signal to foreign investors more broadly.
“Foreign direct investment, trade, commerce abroad involves various dimensions, including employee housing,” he told a media briefing in Wellington. “I find it difficult to assess that signal, but that’s one thing perhaps to worry about.”
The IMF’s report is otherwise broadly positive:
- Economic growth to remain around 3 percent in the near term, risks broadly balanced
- Soft landing in housing market should continue
- Monetary policy appropriate; the IMF warns against precautionary further easing or premature tightening
- With household debt still elevated, RBNZ shouldn’t relax mortgage lending restrictions any further
- The country’s fiscal position is “strong” and there is no need for faster debt reduction beyond what the government has already outlined
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