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IMF hits out at New Zealand ban on foreign home buyers

Wellington

THE International Monetary Fund (IMF) has criticised 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 on 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.

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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 programme.

House prices have surged more than 60 per cent in the past decade amid record immigration and a construction shortfall, shutting many out of the housing market.

However, data suggests 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 in line with neighbouring Australia, will classify residential land as "sensitive", meaning non-residents or non-citizens cannot 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.

The IMF's 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 will remain at around 3 per cent in the near term, with risks broadly balanced;
  • The soft landing in the housing market should continue;
  • The monetary policy is appropriate.

The IMF also warned against precautionary further easing or premature tightening.

With household debt still elevated, the Reserve Bank of New Zealand should not relax mortgage lending restrictions any further, the fund said.

The country's fiscal position is "strong" and there is no need for faster debt reduction beyond what the government has already outlined, the IMF added. BLOOMBERG