IMF calls on New Zealand to reconsider ban on foreign home buyers
The International Monetary Fund called on New Zealand to reconsider a controversial plan to ban foreigners from buying residential property, warning the move could discourage foreign direct investment necessary to build new 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.
The Labour-led coalition government won September's election with a pledge to clamp down on soaring housing prices and reduce high rates of homelessness, partly by banning foreign buyers.
Foreign ownership has attracted criticism in recent years as New Zealand grapples with a housing crisis that has seen average prices in the main city of Auckland almost double in the past decade and rise more than 60 per cent nationwide.
In its annual assessment of member countries' economies, the IMF said on Wednesday 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" programme to build new 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 on Wednesday.
"They considered that (the planned ban) would be unlikely to improve housing affordability, while the broad housing policy agenda, if fully implemented, would likely address most of the potential problems" associated with foreign buyers, it said.
Economic outlook 'favourable'
The IMF report said New Zealand authorities disagreed with its assessment on the view the ban was needed to prevent foreign investment driven by "unproductive speculation."
While housing prices remain a contentious political topic, their increases have slowed throughout 2017 on central bank mortgage lending restrictions and foreigners' weakening demand.
Sky-high prices may also be hurting demand. Housing prices rose by an annual 5.7 per cent in June, slowing from 6.9 per cent in the previous month, data showed on Wednesday.
"After a sustained period of national value growth, sellers can sometimes have an inflated - even unrealistic - view of the value of their property," taking owners longer to sell property, analysts at government valuer Quotable Value said.
Slowing economic growth may further weigh on demand, though the IMF said the outlook was favourable with growth expected to remain at around 3 per cent 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.
The chance of a significant slowdown in China's economy and the spread of protectionist policies across the globe were among risks to New Zealand's economic outlook, the IMF said.
Government data in June showed foreigners bought only around 3 percent of properties nationwide, but targeted hotspots such as central Auckland where one in five properties were sold to foreigners.
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 parliament.