The new Labour-led Government's first decision was to announce plans to amend the Overseas Investment Act (OIA) to classify residential housing as "sensitive", which will effectively ban non-resident foreigners from buying existing homes without breaching major trade agreements.
Prime Minister Jacinda Ardern and Trade Minister David Parker announced the ban at the first post-cabinet news conference of the new Labour-led Government, saying it needed to be done urgently to ensure any Trans Pacific Partnership (TPP) did not lock in the current situation where foreigners were allowed to buy homes.
"We were advised it was best to move with alacrity," Parker told the news conference.
Talks over the TPP are due to be held next week at the APEC and East Asia summits in the Philippines and Vietnam. Parker said the ban needed to be legislated before the TPP came into force to avoid any breach.
Parker and Ardern said they had been advised that New Zealand could ban foreigners from buying existing houses and not contravene New Zealand's existing Free Trade Agreement with South Korea, a statement in direct opposition to what the previous National Government had said. The ban would also not stop the TPP 11 deal from going ahead, however the ban would contravene an existing agreement with Singapore, which New Zealand would aim to renegotiate, they said.
Ardern said the previous Government appeared not to have asked for advice on how a change to the OIA would affect trade agreements.
She said the previous Government had claimed that a ban could not be done without breaching other free trade agreements and that a stamp duty would be the only effective tool.
"The advice we have had from officials is that we can give effect to the ban by a simple amendment to the Overseas Investment Act without breaching any agreement except the Singapore Closer Economic Partnership," Ardern said, adding the options for changing the Singapore deal would be worked through.
Ardern and Parker said the ban on foreign buyers did not apply to bare residential land, but that the Government would look at the issue of land banking further down the track.
The ban allows residents who are not citizens to buy property here and citizens who are not resident in New Zealand to buy property. But anyone who is a non-resident foreigner or a non-citizen would not be allowed to buy an existing house.
They said conveyancers and solicitors would have to certify that any buyer was not a non-resident or non-citizen when documenting a sale and purchase and land transfer agreement. Anyone in breach of the amended law would face prosecution, they said. Australians would be exempt from the ban, as New Zealanders are exempt from a similar ban in Australia.
Ardern said the Government aimed to introduce legislation into Parliament before Christmas and have it passed and operative early in the new year, and before the TPP 11 comes into force.
Elsewhere, they announced that the Government would be able to focus on amending the Investor State Dispute Settlements (ISDS) clauses in the TPP now the foreign buyers' issue was out of the way.
"We remain determined to do our utmost to amend the ISDS provisions of TPP," Ardern said.
"In addition, Cabinet has today instructed trade negotiation officials to oppose ISDS in any future free trade agreements," she said.
Parker was asked if the Government had taken advice on the economic impact of a ban, but he said there had not been reliable data collected on foreign buying, given much of the buying had been through companies and trusts. He said conveyancers and solicitors would have to verify the identity of the ultimate buyer.
He also said the extent of any effect on prices would be determined by what stage of the cycle the housing market was in.
Joyce defends status quo
National Finance spokesman Steven Joyce criticised the announcement as "half cooked" and "full of loopholes."
"It's an interesting idea with what appears to be lots of fish hooks," Joyce told reporters in Parliament.
He denied that National had misled voters and Labour about the impact of a ban on New Zealand's Free Trade Agreements, although he said the Government had looked at the option of altering the OIA to make housing 'sensitive land'.
"If you look at a very straightforward reading of the agreement between New Zealand and South Korea, it’s a requirement that the parties have to give each other’s investors the same benefit as other investors into their market," he said.
He said many of the details had yet to be decided and announced.
"You get a one-page press release and then told that a lot of decisions are yet to be made, definitional decisions, how they would work, all those would suggest to me it’s not ready for prime time," he said.
Joyce described the plan as bureaucratic and adding compliance costs.
"Imagine if you have a foreign sounding name and you want to buy a house, you would effectively have to go to the real estate agent and prove your citizenship before you would be able to buy a house under this proposal, or else how do they check it?"
He rejected the implication that foreign buyers had increased house prices, pointing to house prices in Australia.
"The minister actually has to make the decision on sensitive land or sales. The minister would have to sit there with their rubber stamp and decide for 1,500 sales a quarter whether they’re actually going to let them go through or not under the sensitive land test," he said.
He also pointed to definitional issues.
"Is an apartment on the fourth floor of a building ‘sensitive land’? Is a two hectare property with two houses on it that’s being sold for development able to be sold to an international investor," he said.