Peter Thompson, managing director of Barfoot & Thompson (one of New Zealand’s top real estate companies), has suggested it may be time to introduce a register of foreign buyers in the New Zealand real estate market. While there is an array of regulations covering overseas investment in many real estate markets around the world, is it time to introduce a formal register showing the actual underlying owner(s) of real estate?
The subject of real estate investment by overseas investors has been a hot topic for some time now amid concerns of increasing influence over the price of property. There are a number of factors to consider when looking at overseas investors although in reality a transparent register of foreign buyers can surely do no harm?
One of the backbones of the capitalist movement is a free market policy which allows freedom of choice within the traditional regulatory system. While some politicians and regulators have been calling for reductions in the number of overseas investors in markets such as London, etc, how can they balance this view with a free market?
The reality is that there are many ways to “level the playing field” between overseas investors and domestic investors. Indeed the UK government recently introduced a raft of changes to the tax system which will hit so-called non-doms who acquire property via an array of overseas companies. So, it is possible to maintain the free market policy which has led to enormous growth in real estate investment around the world while introducing guidelines to ensure no parties are discriminated against.
Why do these complaints only arise in the good times?
While economies around the world are still struggling to come to terms with the 2008 U.S. led mortgage crisis there are many real estate markets which have performed admirably in recent times. In the depths of the 2008 recession where were the critics of overseas investors? Were they complaining about overseas investment supporting local markets in these troubled times?
Like so many politically and regulatory led issues they only seem to emerge in the good times when these particular bodies like to be seen to be “giving back” to domestic investors and the local population. Would these parties be complaining if their property markets were under pressure? Are there any examples of overseas investment being turned away in times of trouble?
Level the playing field by all means
The reality is that some overseas investors, in areas such as the UK, do have potential tax advantages over local investors. However, as we touched on above, there are ways and means of levelling the playing field via the tax system, tighter regulation and perhaps a local register of overseas investors would offer the transparency many people have been calling for?
Those who believe that overseas investors will in some way shape or form be blocked from investing in markets of their choice do not have a grasp of reality. As with the UK government, we will likely see an array of new legislation around the world in years to come which will level the playing field between overseas and local investors. However, we will never see direct restrictions on the amount of funds which can be invested or the number of transactions by overseas investors. That would be financial suicide!