The New Zealand housing market had a solid month in May, with median house price growth reaching a new high and a big jump in the number of homes for sale across the country. According to the latest figures from the Real Estate Institute of New Zealand (REINZ), 7578 residential properties sold in May, which was 19 percent higher than April and 1.3 percent higher than May 2017. A big part of this growth can be attributed to foreign buyers, who accounted for almost 20 percent of all sales in central Auckland and 3.3 percent of national sales.

Even though just 3.3 percent of homes went to overseas buyers during the first quarter, this figure has steadily increased from 2.9 percent in the fourth quarter last year and 2.1 percent a year ago. It's important to note that the actual number of overseas buyers may be much higher due to the fact that corporate entities such as companies are not included in these figures. With corporate entities accounting for around 10 percent of sales in the March quarter, actual foreign ownership numbers could be much higher.

The increasing number of homes being purchased by foreign buyers has reignited the debate surrounding the Government's plans to introduce restrictions on foreign ownership. The new Labour government, led by Prime Minister Jacinda Ardern, plans to restrict foreign property buyers in an effort to reduce demand and tackle the housing crisis. While the median dwelling price in Auckland, at $852,000, is still well below its peak of $900,000 from March, demand is still high and supply levels are unable to keep up.

To make the situation worse, overseas buyers have been most active in those parts of New Zealand where supply is lowest and prices are highest. In Auckland's Waitemata ward, 19 percent of sales were to overseas buyers during the March quarter. In the Queenstown-Lakes district, 9.7 percent of all homes sales were to overseas buyers. In the wider Auckland region, it was 7.3 percent, with Upper Harbour at 14.3 percent, western North Shore at 10.3 percent, Eastern North Shore at 8 percent, Howick at 8.5 percent, and the Whau ward at 7.2 percent.

Associate Finance Minister David Parker recently highlighted the fact that foreign buyer activity was concentrated in the only two parts of the country that were experiencing serious, long-term housing affordability issues: Auckland and Queenstown. According to REINZ, the median price of residential property in Auckland increased from $496,000 in April 2012 to $850,000 in April 2018, a massive jump of 71 percent. In Queenstown Lakes, the median price rise has been even steeper at 93 percent, from $493,000 in April 2012 to $950,000 in 2018.

Proposed amendments to the Overseas Investment Act may have been a factor in the increased number of sales to foreign buyers during the first quarter of 2018. With the changes likely to be passed in July, overseas buyers may have been keen to purchase property before it was made more challenging. While Housing Minister Phil Twyford previously said that overseas buyers were not currently a major part of New Zealand’s housing market, he has also reiterated the Government's position: “Our view is that house prices should be set by New Zealand buyers and sellers, not by being treated as an investment asset for overseas speculators.”

Image source:  Ravital/Shutterstock