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IMF urges NZ to reconsider foreign home buyer ban to draw investment

Reuters, WELLINGTON

People walk in an apartment building in central Auckland, New Zealand, on Oct. 19, 2011.

Photo: Reuters

The IMF yesterday called on New Zealand to reconsider a controversial plan to ban foreigners from buying residential property, saying that the move could discourage foreign direct investment necessary to build homes.

The IMF offered an upbeat view on New Zealand’s economic outlook, despite a recent slew of soft data, and said the housing market was on course for a soft landing as price gains moderated.

Foreign ownership has attracted criticism as New Zealand grapples with a housing crisis that has seen average prices in Auckland almost double in the past decade and rise more than 60 percent nationwide.

In its annual assessment of member nations’ economies, the IMF said that New Zealand’s ban was unlikely to help much in making housing more affordable.

“This ban on foreign home ownership could discourage potential foreign direct investment that could help build more houses,” the IMF said in a staff report.

Other policies, such as tax incentives and the government’s “Kiwibuild” program to build affordable homes, would be enough to address a shortage of housing, it said.

Many directors of the IMF’s executive board “encouraged the authorities to reconsider” the ban, a summary of IMF discussions showed.

New Zealand authorities disagreed with its assessment on the view the ban was needed to prevent foreign investment driven by “unproductive speculation,” the IMF report said.

While housing prices remain a contentious political topic, their increases have slowed throughout last year on central bank mortgage lending restrictions and foreigners’ weakening demand.

Sky-high prices might also be hurting demand. Housing prices rose by an annual 5.7 percent last month, slowing from 6.9 percent in the previous month, data showed.

Slowing economic growth might further weigh on demand, although the IMF said the outlook was favorable with growth expected to remain at about 3 percent in the near term.

“While housing demand fundamentals remain robust, the soft landing in the housing market should continue, given gradually increasing supply,” it said.

Foreigners bought only about 3 percent of properties nationwide, but targeted hotspots such as central Auckland, where one in five properties were sold to foreigners, government data showed.

The government last month rewrote a proposed law on the ban to relax some regulations on foreign ownership, following concerns the ban could hurt foreign direct investment.

The law is expected to take effect by the end of this year, upon approval by the legislature.

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