Banks Stop Loaning to Foreign House Buyers

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Forums › Finance and wealth management › Banks Stop Loaning to Foreign House Buyers

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#1571361 13-Jun-2016 22:56

joker97:

When I was in the Cook Islands I dreamt of owning a beach house and living there forever. But alas, foreigners weren't allowed to own anything over there ...

Yep. Nice idea, id like that too. But if you, and me, and 450 million others decided that, the country is taken over by proxy. There is a place for making money and a place to allow citizens to live. In a smaller scenario, you can have both. In the larger scenario its dog eat dog.

mattwnz

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#1571363 13-Jun-2016 23:16

tdgeek:

joker97:

When I was in the Cook Islands I dreamt of owning a beach house and living there forever. But alas, foreigners weren't allowed to own anything over there ...

Yep. Nice idea, id like that too. But if you, and me, and 450 million others decided that, the country is taken over by proxy. There is a place for making money and a place to allow citizens to live. In a smaller scenario, you can have both. In the larger scenario its dog eat dog.

I don't believe NZers can go to China either and buy land. They probably don't believe their luck, that they can just come to another country and buy property like they can.

The problem is that if they stopped foreign ownership, or even foreigners buying existing housing stock, and making them do a new build, it would affect many National voters who own houses.

mattwnz

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#1571367 13-Jun-2016 23:45

oxnsox:
mattwnz:
oxnsox: Fair enough.

The issue in the current market though appears to be the 'investors' taking a hugh profit simply by turning over properties in short timeframes.
Maintenance issues are more a regulatory issue, just as RMA issues are.

Considering the average properties are being kept for in Auckland is just around a year, that is very likely. I wonder if all these people who are flicking on properties are paying their tax on their capital gains.

Isn't that the 'brightline' test(?) where you have to pay tax on the capital gain if you sell within 2 years?

Guess when you're likely making multiples of your deposit (pin) money in a few weeks/months, you can swallow the tax bill.
And the Govt can point and say, yep we can track these people and they're paying the tax on their (capital) gain...... and if pushed they can also say '...capital gains taxes are shown not to work'.

Yes, although that has only recently come in. Not sure if it applies to your own family home though, or just to additional homes you buy. Many people in the past buy, move in, do it up (or don't do it up), then flick it on, and move into their next house. The new rules they have brought in are far too late, and are just to show they they are 'trying'. But remember, according to the PM, there is no housing crisis, and there are lots of house on trademe in Auckland that are affordable (around 500k). Cue Tui advert.

JimmyH

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#1571369 14-Jun-2016 00:01

tdgeek:

Geektastic:

So far, HSBC has no concern....see here

Which needs to be regulated. For OBVIOUS reasons.

I don't get what your reasons are.

HSBC clearly feels that they have the expertise to assess the credit risk of that borrower class and, given their history they are probably right. As long as they aren't posing a systemic risk to our banking system, or exposing a bank that comes under the prudential supervision of the Reserve Bank to excessive failure risk, why would the NZ Government have any interest in making decisions on their loan book for them?

Also, how exactly can the NZ government regulate what at a foreign bank chooses to lend a foreign buyer, even if it wants to?

Fred99

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#1571504 14-Jun-2016 10:23

Pays to note that the RBNZ actions (LVRs and proposed income: loan ratios) are not there to "cool the housing market" though that may have been considered as a secondary benefit to the primary reason - ensuring stability of the banking system. When politicians claim that this is "doing something" (about housing affordability) - it's almost pure spin - they don't want to do anything.

IMO the banks restrictions on loans against foreign income are probably implemented by them to divert RBNZ interference - if the banks didn't act, they'd possibly be forced to act - and if those were RBNZ restrictions they'd probably have a permanency to them that the banks wouldn't like - they wouldn't be able to make policy changes to suit future changes in markets. I don't think it's cynical to suggest that it's a message from the banks to RBNZ to "back-off - we're capable of self-regulation".

Neither the banks nor RBNZ give a hoot about property price inflation, the trading banks make vast profits from the mortgage market, the RBNZ only gets concerned if house price inflation spills over into general inflation - and despite the "wealth effect" of increased house prices, there's been little sign of that - deflation remains the biggest risk at the moment. If you want to see catastrophic deflation - it's hard to imagine anything more certain to cause it with the way things are right now - than a property market crash. That would really close people's wallets and kill demand. Despite lousy interest rates for bank deposits, it pays to note that as mortgage debt has ballooned, term deposits held in NZ accounts have also ballooned. That's interesting IMO - not everybody with surplus cash is taking the risk to invest in property, nor do they seem inclined to want to invest in other markets.

Geektastic

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#1571512 14-Jun-2016 10:35

mattwnz:

tdgeek:

joker97:

When I was in the Cook Islands I dreamt of owning a beach house and living there forever. But alas, foreigners weren't allowed to own anything over there ...

Yep. Nice idea, id like that too. But if you, and me, and 450 million others decided that, the country is taken over by proxy. There is a place for making money and a place to allow citizens to live. In a smaller scenario, you can have both. In the larger scenario its dog eat dog.

I don't believe NZers can go to China either and buy land. They probably don't believe their luck, that they can just come to another country and buy property like they can.

The problem is that if they stopped foreign ownership, or even foreigners buying existing housing stock, and making them do a new build, it would affect many National voters who own houses.

You can buy some land types in China. The likelihood of most NZers wanting to move to China is a lot lower than the other way round regardless of that though!

Geektastic

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#1571513 14-Jun-2016 10:37

Fred99:

Pays to note that the RBNZ actions (LVRs and proposed income: loan ratios) are not there to "cool the housing market" though that may have been considered as a secondary benefit to the primary reason - ensuring stability of the banking system. When politicians claim that this is "doing something" (about housing affordability) - it's almost pure spin - they don't want to do anything.

IMO the banks restrictions on loans against foreign income are probably implemented by them to divert RBNZ interference - if the banks didn't act, they'd possibly be forced to act - and if those were RBNZ restrictions they'd probably have a permanency to them that the banks wouldn't like - they wouldn't be able to make policy changes to suit future changes in markets. I don't think it's cynical to suggest that it's a message from the banks to RBNZ to "back-off - we're capable of self-regulation".

Neither the banks nor RBNZ give a hoot about property price inflation, the trading banks make vast profits from the mortgage market, the RBNZ only gets concerned if house price inflation spills over into general inflation - and despite the "wealth effect" of increased house prices, there's been little sign of that - deflation remains the biggest risk at the moment. If you want to see catastrophic deflation - it's hard to imagine anything more certain to cause it with the way things are right now - than a property market crash. That would really close people's wallets and kill demand. Despite lousy interest rates for bank deposits, it pays to note that as mortgage debt has ballooned, term deposits held in NZ accounts have also ballooned. That's interesting IMO - not everybody with surplus cash is taking the risk to invest in property, nor do they seem inclined to want to invest in other markets.

Anyone who believes that banks act in anyone's interest other than their own is delusional!

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Geektastic

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#1571515 14-Jun-2016 10:37

mattwnz:

tdgeek:

joker97:

When I was in the Cook Islands I dreamt of owning a beach house and living there forever. But alas, foreigners weren't allowed to own anything over there ...

Yep. Nice idea, id like that too. But if you, and me, and 450 million others decided that, the country is taken over by proxy. There is a place for making money and a place to allow citizens to live. In a smaller scenario, you can have both. In the larger scenario its dog eat dog.

I don't believe NZers can go to China either and buy land. They probably don't believe their luck, that they can just come to another country and buy property like they can.

The problem is that if they stopped foreign ownership, or even foreigners buying existing housing stock, and making them do a new build, it would affect many National voters who own houses.

And Green voters who own houses. And Labour voters who own houses. etc.

Geektastic

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#1571517 14-Jun-2016 10:40

tdgeek:

Geektastic:

oxnsox:
mattwnz:
oxnsox: Fair enough.

The issue in the current market though appears to be the 'investors' taking a hugh profit simply by turning over properties in short timeframes.
Maintenance issues are more a regulatory issue, just as RMA issues are.

Considering the average properties are being kept for in Auckland is just around a year, that is very likely. I wonder if all these people who are flicking on properties are paying their tax on their capital gains.

Isn't that the 'brightline' test(?) where you have to pay tax on the capital gain if you sell within 2 years?

Guess when you're likely making multiples of your deposit (pin) money in a few weeks/months, you can swallow the tax bill.
And the Govt can point and say, yep we can track these people and they're paying the tax on their (capital) gain...... and if pushed they can also say '...capital gains taxes are shown not to work'.

Capital Gains Taxes don't work, if what you're expecting them to do is affect house prices beneficially.

They do work if what you're expecting them to do is raise money for the government to waste on your behalf...!

CGT. Makes buying a second and third home uneconomic. So that doesnt happen. Home buyers begin to be "home" buyers.

No it doesn't. What happens usually is that the prices asked rise so that the buyers end up paying the tax in effect.

shk292

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#1571528 14-Jun-2016 11:00

Geektastic:

And Green voters who own houses. And Labour voters who own houses. etc.

That's going against the opposition narrative, which frequently ignores the fact that 65% of kiwis live in owner-occupied houses

Interesting also that for most people, an increase is not a good thing. If you have any aspirations towards a bigger or nicer house, then house price inflation is of no help. The only time it helps is when you want to get off the treadmill and move to a cheaper area or smaller property.

SJB

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#1571564 14-Jun-2016 11:46

CGT doesn't work if (a) house price inflation is large enough that the speculator still does well out of the deal even after paying tax or (b) the investor hangs onto the property for a long time so again the return is significant even after tax is paid.

I'd be interested to know if anybody thinks any other form of investment is worth while at the moment. Term deposit and bond returns are a joke and IMO the share market is even riskier than the housing market.

MikeAqua

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#1571738 14-Jun-2016 15:12

Zero effect on cash buyers. The world is awash with capital looking for growth investments.

Mike

wsnz

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#1571897 14-Jun-2016 19:26

SJB:

I'd be interested to know if anybody thinks any other form of investment is worth while at the moment. Term deposit and bond returns are a joke and IMO the share market is even riskier than the housing market.

There are good deals to be had in many of those asset classes, you just need to be vigilant and do your homework. I'm invested in both the property and sharemarket and both have done well, but have required significant effort.

JimmyH

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#1571989 14-Jun-2016 21:53

SJB:

CGT doesn't work if (a) house price inflation is large enough that the speculator still does well out of the deal even after paying tax or (b) the investor hangs onto the property for a long time so again the return is significant even after tax is paid.

I'd be interested to know if anybody thinks any other form of investment is worth while at the moment. Term deposit and bond returns are a joke and IMO the share market is even riskier than the housing market.

Plus, CGT means that investors can be tempted to churn properties when the market falls, in order to crystallise a tax loss and actually reduce their tax bills.

gzt

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#1572001 14-Jun-2016 22:12

Government makes the next move:

NZHerald: Temporary, pre-built houses could be placed on empty lots in Auckland to help ease the housing shortage, Prime Minister John Key says. Mr Key confirmed today that "pop-up" homes were one of a range of housing options being considered by Social Housing Minister Paula Bennett.

If it was not for community organisations like Te Puea the government would have ignored these issues for a long long time if not forever.

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