By Anne Gibson Anne Gibson 5:30 AM Tuesday Nov 20, 2012
Rich Chinese are removing their money and assets from their own country and outbidding Aucklanders on houses, a worried real estate agent says.
Ian Thornhill of Barfoot & Thompson said one wealthy Chinese buyer paid top dollar for a Market Rd, Epsom, house which had since stood empty for weeks as the deal was "just offloading some surplus funds".
Thornhill said that type of activity was not unusual and he fears for the effects.
"I don't think it's a good thing at all. Kiwis are getting really upset. They can't compete with Asians who have the money and they pay more. You can see Kiwis only have a certain amount of money to spend but they do stretch themselves. This is all having an impact on us. It's as plain as the nose on your face, what's happening in the auction rooms each week."
But Graham Wall, who this year has sold seven out of 11 $3 million-plus properties to foreigners, said people should be "colourblind" on race and welcome overseas buyers.
"We love selling to anyone. We just love the money and we just love doing the deal," Wall said. "I've sold to Americans, Russians and Chinese this year and they're delightful.
"We welcome people who want to spend their money."
Thornhill said some of the Asian buyers were residents but others were domiciled in China and were buying houses not intending to live here.
The Overseas Investment Office says foreigners only need approval under certain conditions, such as when a deal is worth more than $100 million, when more than 5ha of land is involved or if the land is deemed sensitive, such as farmland or adjoining a reserve or on the edge of a lake.
Thornhill said he wondered about the effects of this activity on the next generation of Aucklanders.
"We've got three young boys and they're going to be struggling. Unless mum and dad help them out, they'll never do it."
Bernard Hickey of interest.co.nz last week told the Food & Grocery Council's conference in Melbourne of the Epsom deal.
Speaking about the economy and the effects of high-priced house sales, he said the Chinese national flew here, asked to see the house valued at more than $1 million at 10pm then subsequently bid at auction.
"But first he checked the room for cameras to make sure no one knew he was buying it," Hickey told about 300 people at the Crown conference centre. "Then he paid more than $2 million for the house which has now been empty ever since."
Powerful politicians and businesspeople were taking their money and assets out of China and putting them in havens like New Zealand which was one of the few countries allowing foreigners to buy houses in an unregulated manner, Hickey said.
"There are no restrictions on non-resident purchasers in New Zealand," he said, adding that Hong Kong did not allow such activity.
Hickey said he was selling his Epsom house to move to Wellington where houses were cheaper when he learned about the $2 million-plus deal when he spoke to Thornhill.
Wall has employed a "well connected" multilingual Chinese man, whose family owns substantial Auckland properties, and he expects that to result in him selling more Auckland houses to Chinese.
Wall praised NZ Trade & Enterprise for allowing him to use its Shanghai office when he visited this year and for putting him in touch with people.
Steve Koerber of Barfoot said Asians were active and had driven up Auckland prices.
"If they weren't there, prices would not be as high as what they are."
Marcus Beveridge of Queen City Law said people were being racist complaining about Chinese buyers.
"We have one of the most active conveyancing law offices in New Zealand, to be honest. And it is possible that our Government will open up top end business immigration in the New Year which would really get things going," he said.
The Business Herald reported last month how Chinese investors were making their presence felt in all aspects of New Zealand real estate: development, investment, trades, services, infrastructure, funding and the residential market.
One of the biggest new investors is Furu Ding, the multimillionaire Shanghai businessman of the wealthy New Development Group. He paid $53 million for a long-vacant site in Auckland's CBD and is planning to build a five-star hotel tower.
Surplus funds: Why do Chinese invest overseas?
86 per cent risk diversification 76 per cent product selection 23 per cent immigration 20 per cent other reasons 16 per cent children's eduction 15 per cent return on investment 7 per cent better services
Where do they put their money?
31 per cent real estate 69 per cent investable financial assets
Growth opportunities in next five years:
62 per cent innovative products 61 per cent real estate 57 per cent overseas products 34 per cent basic products 26 per cent equities 7 per cent Deposits 5 per cent Hard to say
Ah yes , I remember now , just like they helped bubble up our prices a few years back , thankyou
Can you please write down all of these wise thoughts in one book Ted.
They would serve as a future point of reference for all of us - I would certainly buy the book.
You could call it "The book of Ted"
Either that or we could all copy and paste these gems into one single thread. You will need an agent to negotiate a mega book deal, some talk show appearances, Breakfast TV appearances, bookstore appearances when you can sign copies of the book - it would be easy for you.
Can you please write down all of these wise thoughts in one book Ted.
They would serve as a future point of reference for all of us - I would certainly buy the book.
You could call it "The book of Ted"
Either that or we could all copy and paste these gems into one single thread. You will need an agent to negotiate a mega book deal, some talk show appearances, Breakfast TV appearances, bookstore appearances when you can sign copies of the book - it would be easy for you.
Do you take PayPal?
I have often thought the same thing Peter .
But dont need the fame or fortune , and thats why I have told you guys I will do what i can where I can . Do you remember what I said about iron prices earlier in the year for which you also doubted me Peter . Right on the mark again , might of been ted . Have alook and post it up for the boys , I cant from my phone. Edit , I can see you down there doubtful , you doubted me the other day and questioned me , go and post that up and doubt me.
I sold my house in Auckland this week to take advantage of the "heat" in the market. I'm looking to pay off my mortgage and buy a house, mortgage-free, in Wellington.
This is my deleveraging plan to reduce the risk of debt and give me more flexibility around work. But it's not what I "should" be doing, regarding the incentives thrown at me by our tax system.
Instead, I should be taking the equity out of my house, slicing it up into deposits and spreading it across rental properties in Auckland, with good dollops of 80 to 95 per cent loan-to-value ratio debt.
Let's say I have $600,000 of equity. Brokers tell me that banks are keen to lend and will allow me to buy a couple of rental properties with 5 per cent deposits. I could then buy another five with 10 per cent deposits, and the rest of the money could be used as 20 per cent deposits to buy three more. That would allow me to buy 10 investment properties at $500,000 each for a total of $5 million, including borrowings of $4.4 million. That's an average loan-to-value ratio of 88 per cent.
At current interest rates of about 4.9 per cent, that would mean I'm up for $215,600 a year in interest.
I'm told that if I am a clever investor who only buys three-bedroom brick-and-tile properties in cheaper suburbs in South and West Auckland, I can get a cash yield - after rent, rates, insurance and maintenance - of about 6 per cent, or $300,000, a year. That implies rents of more than $400 a week but I'm told that's possible, particularly if the Government will pay accommodation supplements.
At current interest rates I would already be profitable in cash terms, but factor in the tax-free capital gains and I would be in clover.
Currently there seems to be just one direction for house prices in Auckland. The Real Estate Institute's stratified measure of Auckland house prices showed they rose 14.4 per cent in the year to October.
If that happened again next year I would make implied capital gains of $700,000 on my 10 properties, adding to the $84,400 of cash profits from the rentals. That implies a return of 130 per cent on the $600,000 of equity I leveraged into rental property.
The big question is what will happen to property prices and interest rates. Markets are pricing in more cuts in interest rates. Auckland is building less than a third of the 15,000 houses a year it needs to keep up with population. The Reserve Bank governor just said he wouldn't limit loan-to-value ratios, even if he could. Why wouldn't house prices rise another 14 per cent in that environment?
All the incentives are telling me to buy rental property in an Auckland market with a chronic shortage of houses. They say I should borrow $4.4 million from foreign-funded banks to boost the value of existing property. They say I should increase our foreign debt to enrich myself while not employing any other New Zealanders, and not paying tax on it. So what am I waiting for? I've almost convinced myself I should do it.
By Anne Gibson Anne Gibson 5:30 AM Tuesday Nov 27, 2012
An Auckland developer building houses for under $400,000 says Chinese are using property as a ticket into this country because owning real estate increases immigration visa points.
Grant La Hood of Citywide Homes said Chinese buying Auckland houses had pushed up prices and he wants deterrent measures.
He backed a Herald article last Tuesday about the high number of Auckland house sales to non-resident and migrant Chinese.
He said that was the first story in the debate that dealt with the real issue behind rapidly rising prices.
"I spend my days looking for suitable development sites and it is almost impossible to compete," he said of wealthy Chinese.
He completes about 10 to 15 houses a year and said the housing market should represent the domestic economy, but that instead it represented the wealth of people from much larger economies.
"Let's remember housing is a necessity and not just a commodity to be bought, sold and traded. Politicians need to spend some time in the auction rooms and see the demoralised faces of first-home buyers to truly understand why Kiwis are fleeing to Australia. Aucklanders would be shocked to know how much of our rental stock is owned by investors living in places like Hong Kong and China."
One real estate agent told him 60 per cent of his agency's rent roll was non-resident Asian investors.
"The investor category allows foreigners to buy land to secure points for their visa application. Buying property is like buying a ticket into this country," La Hood said.
But Marcus Beveridge of Queen City Law said New Zealand had always been an immigrant country and he is acting for non-resident mainland Chinese investors, particularly in the commercial sector.
Meanwhile, Spain was considering offering rich investors from countries such as Russia and China the right to settle in return for them buying up property in the stagnant housing sector. Spain has more than a million empty homes across the country.
Hong Kong and Singapore introduced a 10 per cent stamp duty on non-resident property buyers to deter mainland Chinese who had been big investors. The stamp duty has acted as a cooling measure.
Hot Auckland homes are selling well above their official valuations, making it hard to accurately price properties
It's almost as good as claiming Lotto's first-division prize - the winners in Auckland's frantic housing market are selling their properties for hundreds of thousands of dollars above their official valuations.
Statistics show that in the past six months there have been at least nine properties that sold for $500,000 or more above their CV, and one went for a whopping $1.2 million above valuation.
Most of the properties to shatter their valuations are family homes in top school zones or close to the city, according to the figures obtained from Quotable Value.
The housing boom is also making it difficult for independent valuers to put an accurate price on properties.
An example of the gains being made is a 1960s brick and tile home on Auckland's North Shore.
The Mairangi Bay property at 8 Penzance Rd was revalued by the council last year at $880,000 but sold at auction in May this year for $1.5 million - a staggering 70 per cent more than its CV.
New owners Sally and Jason Galea bought the property with their two young children in mind, and have no plans to subdivide the sprawling 1140sq m piece of land.
"We have already had two people knock on our door and ask if we are willing to sell a portion, but we said no. This size property is the last of its kind around here, and we wanted somewhere for the kids to run around."
Galea thought the CV of $880,000 was low, and said the family had extended themselves to buy the property but were happy with their new home. Their previous home, just 200m up the road, had also sold well above CV.
The Penzance Rd home was close to the beach, cafes and good schools, so interest was high and had pushed the price up, said real estate agent Deb McCool.
Other properties in the area had sold for between $120,000-$200,000 over CV but Penzance Rd stood out.
"Properties like this are few and far between, and there were around 200 people at the auction and bidding was strong," McCool said.
Putting an accurate price on any property was a real problem at the moment because there were more buyers than sellers, McCool said.
She recently sold a house at auction for $749,000 that the vendor was about to accept $680,000 for.
She said council valuations were meaningless and that even registered valuers were struggling to find accurate prices at the moment.
Another stand-out property was 18 Rangitoto Ave in Remuera, which sold for $2,895,000 in August - $1,175,000 over its recent CV of $1,720,000.
Bayleys Remuera agent David Rainbow, who marketed and sold the property, said buyer competition was fierce.
"Two hundred parties registered from open-home viewings and at auction. Five parties were competitively bidding against each other, which ensured the top price was achieved," Rainbow said.
He said the CV could be a ballpark figure but a lack of stock and high demand meant the price was pushed up by bidders who all desperately wanted the home.
The house had undergone significant internal renovations and remodelling work that were not factored into the $1,720,000 council valuation.
"A council valuation is a broad snapshot of a suburb, and fails to take into account added-value work that owners have invested in," Rainbow said.
"This was certainly the case for 18 Rangitoto Ave, where a substantial sum had been spent including the kitchen and outdoor entertaining area."
One of Auckland's largest property developers has major doubts about the industry's capability to build the scale of housing required to solve the city's housing crisis.
Auckland Council predicts more than 10,000 dwellings a year until 2020 need to be built to house the city's rapidly rising population and it is looking to partner with the private sector on developments.
But Todd Property's manager of strategic planning Neil Donnelly said he can't see how it would happen.
Todd Property, owned by Wellington-based Todd Corporation, manages the development of major subdivisions in Auckland, including the Long Bay community on the North Shore, Stonefields at the base of Mt Wellington and Ormiston in South Auckland.
He told a Property Council conference that these projects had orders for 5,000 houses within the next eight to 10 years, which represented just five per cent of the council's projected required housing supply.
''This is despite us being one of the largest providers. The matter of scale is the biggest issue facing Auckland,'' said Donnelly.
The housing development industry needed to shift from its cottage size to something larger in scale, he said.
''We need to roll out a significant number of types of developments for people. Providing 10,000 dwellings is going to have to be provided by large entities - and an industry with a balance sheet.''
He questioned whether developers should trust Auckland Council to deliver infrastructure for large scale housing developments, given the council's failure in this area.
When Todd Property began to develop its 160 hectare site in Long Bay it discovered the council had no budget for a water main, wastewater or stormwater and Todd had to build a 2km water pipe.
Developers were going to have to provide more infrastructure in partnership with the council, he said. ''Council needs to listen to us. I don't think they appreciate that it's us that are going to deliver the vision.''
The council's 30-year unitary plan anticipates between 55 and 60 per cent of houses being attached rather than stand-alone, compared to 20 per cent over the past 10 years.
But Donnelly doesn't believe the market would deliver this sort of housing because it required operators with major scale. As it stood, the greatest demand in the market was for three to four bedroom houses and he doubted the mass market's appetite for smaller dwellings.
Consumer preferences don't necessarily reflect changing demographic trends such as the ageing population and the change in family structures, he said.
''Consumer preferences aren't rational - housing is more than just shelter, it's an investment.''
Auckland Council's chief executive Doug McKay said some of the aims of the council's 30-year Auckland plan were to increase housing supply, quality and affordability, and intensification was a key issue.
He conceded a lot of the region's intensified development to date had been ''rubbish'' under the current development regime and the council wanted to do better with any future infill housing.
Auckland is expected to grow by a million people in the next 30 years, and a further 400,000 dwellings will be needed in that timeframe. About 300,000 of these could be accommodated within the current urban boundary and the rest in greenfield sites, McKay said.
Between 50,000 and 80,000 Auckland homes have to be demolished and replaced with townhouses and apartments to create the world's most liveable city, says a housing expert.
Martin Udale, ex-chief executive of McConnell Property, yesterday said that up to one in five of the city's 385,000 existing homes had to be replaced with infill housing to accommodate an extra 1.2 million people over the next 30 years.
The figures are based on the Auckland Plan, which calls for 300,000 of the 400,000 new houses it expects the city will need to be built within the existing urban boundaries.
The challenge of building 10,000 new houses a year to cope with Auckland's growth was discussed yesterday at a Property Council conference on residential development.
It followed comments by Finance Minister Bill English on Tuesday that the "housing market is not working properly" and housing affordability remained a deep-seated, complex and serious problem. On the same day confidential council plans for intensification in Takapuna were made public by a local ratepayers' representative, Colin Andrews.
The plan allows for developments of three to eight storeys between Killarney and Huron Sts, west of Auburn St. Takapuna is one of 10 metropolitan centres in the Auckland Plan identified for the greatest intensification outside the city centre.
Auckland Council chief executive Doug McKay told yesterday's conference that the city had a crisis in the making around residential housing. "Most areas will be subject to significant change," he said.
The most affected areas would be close to the 10 metropolitan centres - Albany, Botany, Henderson, Manukau, New Lynn, Newmarket, Papakura, Sylvia Park, Takapuna and Westgate/Massey North - and near public transport nodes.
Mr McKay said the Auckland Plan, the city's 30-year blueprint and Mayor Len Brown's vision for the "world's most liveable city", set out to tackle intensification and growth.
He said the council was now working on a single unitary plan to bring the Auckland Plan to life which could include simplifying the number of housing zones to four - terraced/apartment housing, mixed housing, single house and large lot.
Faced with the huge task of putting together the unitary plan, the rulebook of what people can and can't do on their land, Mr McKay called for an intelligent debate.
Mr Udale, who now heads Essentia Consulting Group, said one of the biggest risks for the unitary plan was holding political leaders' feet to the fire. "We can't allow the politicians to hide behind community nimbyism and the cave dwellers," he said.
The unitary plan had to make widespread infill development easy with provision for height - "this town has a phobia about height".
"We want innovation welcomed, pushing the envelope to be the norm. It's how better things get done."
Neil Donnelly, planning manager for Todd Property, said the industry would struggle to supply 10,000 houses a year for the next decade. Todd Property was the largest residential builder in Auckland, but its plans for 5000 houses over the next eight to 10 years represented just 5 per cent of the city's needs.
Mr Donnelly said building had to move from a cottage industry to roll-ing out thousands of houses a year.
Housing squeeze
What's the problem?
Auckland's population is expected to grow by 1.2 million people over the next 30 years, requiring 400,000 new houses.
Where will the houses be built? The Auckland Plan says 300,000 will go within the urban boundary and 100,000 on greenfield land.
What will it mean for the city's towns and suburbs? More high-rise towers in the city centre. Apartment buildings up to eight stories high in 10 metropolitan centres. Apartment buildings up to four storeys high and infill housing in most suburbs.
How can the public have a say? The Auckland Council is drawing up a rulebook, the unitary plan, for residents and developers. Discussions have started with local boards and some groups. The draft plan will be released in March.
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