Foreign investment is awesome because almost always, the asset that is sold to a foreigner ends up getting bought back for cents on the dollar by a local investor or institution once the cheap money financing the acquisition dries up.
See: Japanese investment all around the world in the 1980’s – in particular, how developers on Australia’s Gold Coast completely rinsed Japanese banks for tens of millions of dollars in development financing that was subsequently written off.
Bernard Hickey is on the money here – let’s help Chinese capital bankroll new developments. An Australian-style rule that says if you want to buy property here you have to finance a new development would solve a few policy problems with one stroke of the pen.
English, in his pre-Budget speech this week, touched on the thorny issue of Auckland’s need for small, affordable homes close to the city centre. He said council planners had effectively blocked the mass development of “shoebox” apartments by requiring floor plans no smaller than 40sqm and balconies of 8sqm.
He said these restrictions meant rents for apartments were $80 a week higher than necessary. Developers say there is large demand, often from Chinese investors, for apartments closer to 20sqm than 40sqm.
English has rightly pointed out that not everyone dreams of living in the quarter-acre pavlova paradise of old. An ageing population of couples starting families later, smaller families, and where both young and old live alone, need smaller more affordable homes.
One solution is to encourage an influx of capital from China to build thousands of these homes. There are signs it is happening. The 52-level tower planned for the empty space next to the Sky Tower is financed by Shanghai businessman Furu Ding. The $350 million project will include a 302-room hotel and apartments. This week, Beijing developer Fu Wah won the right to build a $200m five-star hotel on the Wynyard Quarter site occupied by Team New Zealand.
This is great stuff. Millions of dollars of margin will flow into Auckland’s construction sector and tens of millions of dollars of margin will flow into building material suppliers from just these two projects.
Foreign investment is awesome because almost always it involves a gain on sale for a local entity to a foreign entity. Then, when they inevitably lose their low interest financing, there’ll be a buying opportunity for a local entity. Nothing to worry about, move out of the auction room please.