Labour policy may breach FTA

Labour's housing solution could be in breach of the free-trade agreement with China. Photo by the...
Labour's housing solution could be in breach of the free-trade agreement with China. Photo by the NZ Herald.
Labour's policy of restricting non-residents from buying property would have serious legal, economic and political ramifications because of New Zealand's free-trade agreement with China, lawyer Stephen Franks said yesterday.

If Labour got the numbers to legislate such a policy, irrespective of the FTA, the Chinese Government could invoke the dispute settlement procedures in the agreement.

''New Zealand exporters may lose their benefits under the New Zealand China FTA. New Zealand's international standing as a good treaty partner would suffer.''

Labour's policy seemed inconsistent with the equal treatment article of the New Zealand China free-trade agreement that was a ''proudly claimed achievement'' of the last Labour prime minister, Helen Clark, Mr Franks said.

The FTA's definition of ''investor'' referred to a person ''who seeks to make, is making, or has made an investment''. Clearly, it looked at prospective investments, he said.

Another article - the most favoured nation clause - committed New Zealand to not passing law that discriminated against Chinese investors, in comparison with other overseas investors, such as Australians, in terms of permission to invest in the first place.

Under that provision, a Chinese house buyer must be treated the same as a New Zealander after acquiring residential property, but the protection did not extend to prospective buyers, Mr Franks said.

Article 139 would be more problematic for Labour, because it required that investors of China be treated no less favourably than investors of any third country, such as Australia.

''So Chinese would-be investors do not get direct rights to insist on investor equality but they can't be treated worse than Australians. Labour has said Australians would still be allowed to buy residential property under their policy.

"This would breach Article 139, in treating Australian investors more favourably than Chinese investors.''

Even the prospective investor constraint did not apply under some other agreements, he said. Malaysians, for example, could insist on equal rights to be present at Auckland auctions, whatever Labour wanted, Mr Franks said.

It was natural to be hostile to overseas investors who owned properties but kept them empty when there was a housing shortage. The comparatively lower increases in rentals suggested the shortage might be in property speculation, more than occupation.

The proposed ban could work, if that was true, he said.

Property Investors Federation president Andrew King said everyone now wanted to help first-home buyers get into their own homes but it appeared those first-home buyers were having the largest effect on property prices.

According to the Real Estate Institute figures, in the year to March 2013, there were 10,883 more property sales than in the March 2012 year.

During that time, 10,733 people withdrew their KiwiSaver funds to use as a deposit for their first home.

''Labour's policy to restrict foreign ownership of existing New Zealand houses will reduce demand for property. The big question is how much and whether it will have a large impact on property prices,'' Mr King said.

A study by BNZ chief economist Tony Alexander suggested the impact of foreign buyers in New Zealand was small. That suggested Labour's policy would not have a large effect on property prices. More research needed to be undertaken to accurately determine the level of foreign purchases, he said.

In March, Mr Alexander produced a report headed ''NZ House Sales to Foreigners'' which asked real estate agents to identify the proportions of their sales to various groups.

Nationwide, about 24% of sales were to first-home buyers, 19% were to investors and 9% to people offshore.

Drilling into the numbers, Mr Alexander found that nationwide, some 18% of sales offshore went to people living in the United Kingdom, 15% to people living in China and 14% to people in Australia.

Nationwide, 1.6% of all house sales went to people living in the United Kingdom, 1.4% to those living in China and 1.3% to Australian residents.

In Auckland, the proportion of sales to people living offshore was 11%. Of that, 19% were to people living in China, 18% the UK and 15% Australia.

''That means just 2.1% of Auckland house sales are to people living in China, 2% to people in the UK and 1.7% to people in Australia.

''The sprawling anecdotes regarding Auckland properties being snapped up by Chinese buyers are not supported by the evidence.''

Agents noted that nationwide, at least 69% of buyers from the UK planned to shift to New Zealand, 37% of buyers in China planned doing so and 51% of buyers in Australian planned to move to New Zealand.

dene.mackenzie@odt.co.nz

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