Why Invest in New Zealand Property? » New Zealand Property Based Investments

Why Invest in New Zealand Property? » New Zealand Property Based Investments.

Ranked Highly by Independent Surveys

New Zealand consistently ranks as one of the world’s most competitive business locations in international surveys like the Global Competitiveness Report. Strong economic fundamentals, free movement of capital and active government support for foreign investment create an ideal environment for profitable international partnerships and overseas investment.

 Influential American magazine Forbes has recently (October 2011) rated New Zealand the second best place in the world to do business (October 2011), behind Canada.  Forbes says New Zealand governments have overseen substantial change during the last two decades – “Over the past 20 years the government has transformed New Zealand from an agrarian economy dependent on concessionary British market access to a more industrialized, free market economy that can compete globally,” it said.

New Zealand topped the list for cutting through red tape, a lack of corruption, investor protection and personal freedom. The report considers 11 different factors for 134 countries including property rights, innovation, taxes, technology, corruption, freedom (personal, trade and monetary), red tape, investor protection and stock market performance.

Key economic facts 

• 1.4 percent real gross domestic product (GDP) growth (year ending September 2010).
• 1.4 percent growth in inward foreign direct investment (FDI) stock in 2009-10.
• Ranked third worldwide in overall economic freedom (Fraser Institute Economic Freedom of the World Annual Report, 2010).
• No capital gains tax.

New Zealand is ranked by the World Bank (2011) out of 183 economies as:

• #3  for ‘Ease of doing Business’
• #1 for ‘Starting a Business’
• #1 for ‘Protecting Investors’
• #2 for  ‘Getting Credit’

Refer World Bank Report – Doing Business in N.Z.  for the full report

New Zealand’s Economy

New Zealand is primarily a commodity based, export driven economy. It is a highly efficient producer of premium agricultural and horticultural products including dairy, meat, vegetables, fruit and wine. New Zealand also has a vibrant tourism industry – each year New Zealand welcomes around 2.5 million international visitors who spend approximately $6 billion during their time in New Zealand. New Zealand’s strong international profile along with increasing air capacity to the region has helped drive growth.

New Zealand is famous for its clean, green environment, with magnificent mountains and sparkling waterways. At the same time, New Zealand is a dynamic first-world society with sophisticated cities and a vibrant arts and cultural scene.  Admittedly isolated, it is precisely because of that isolation that New Zealand is increasingly regarded as a safe haven for people wanting a peaceful yet productive lifestyle. The combination of natural beauty, geographic isolation, economic growth and political support means that New Zealand is an attractive destination for investors.

Population dynamics

In 2011 New Zealand has an estimated population of approximately 4.4 million, and is projected to eclipse 5 million in the mid-2020s and reach 5.75 million by 2061.

It is projected that 86.1% of New Zealand’s total population growth over the period 2006 to 2026 will take place in the 12 cities, with two thirds (65.9%) of total growth occurring in the five cities in the Auckland region. In absolute numbers, Auckland and Manukau will make the greatest contribution to New Zealand’s total population growth. (source: Big Cities info)

Overseas Investors

Buying from overseas is simpler than it sounds. The New Zealand Government actively encourages overseas investors to invest in New Zealand, recognising the important contribution foreign investment makes to the development of New Zealand’s industry, resources and community. The index of economic freedom (complied by the Wall St Journal) ranks New Zealand in the top five out of major OECD nations. This takes into account openness of trade policy, tax rates, monetary policy, wages, unemployment, inflation levels, investment flows and regulation.

Some of the many reasons to invest in New Zealand property include:

• A safe and secure investment environment
• Economic and political stability
• Abundant natural resources: water, arable land and energy
• Free of corruption
• Extensive free-trade agreements
• Active government support for investment

Exceptional rental yields

A positive rental yield is important for property investors to cover the costs of funding a property plus rates, management, insurance and other costs. Maintaining a positive rental yield depends on the principal of supply and demand. There is a current shortage of properties in high-growth areas throughout NZ.

Generous tax incentives

• The tax structure in New Zealand is highly favourable for investors. There are few places in the world that can offer such incentives and flexibility within tax law which makes investment not only easy, but profitable.
• No stamp duty: In 1999 the Stamp Duty Abolition Act amended the Stamp and Cheque Duties Act 1971, stating that instruments executed after 20 May 1999 no longer attract conveyance duty or lease duty, and do not need to be submitted to the department for stamping.
• No wealth or death duty: Unlike many other countries, New Zealand has no indirect taxes on wealth. Inheritances on death can be passed to beneficiaries without estate duties applying.
• No land tax: The government does not tax owners on the value of their land.
• No capital gains tax: New Zealand has no capital gains tax for most property investors. So long as property is bought for long-term income rather than short-term purchase and re-sale the capital gain is not taxable, nor is any capital loss claimable. In practice so long as the investor is not in the business of buying and on-selling “flipping” properties, or buying, renovating and quickly re-selling the property you are unlikely to pay capital gains. This area of the law is complex, intention at time of purchase is the key and it is wise to consult a New Zealand accountant PRIOR to any purchase.
• Personal tax rate: New Zealand has low personal tax rates compared to the Western world.
• No sales tax on property or mortgage transactions. The only direct property taxes are property rates which are levied by local Councils to provide Council services such as roads, water, rubbish collection and community services such as libraries. Rates are based on the value of the property and would vary between NZ$1500 and NZ$3000 per annum for a typical median value house or apartment.

Tax effectiveness

In New Zealand, there are a multitude of tax-deductible expenses. These include:

• mortgage interest, not capital repayments
• insurance of the property
• property management fees to find tenants, collect the rent and maintain the property
• accountancy fees
• valuation fees
• bank fees
• property rates
• legal fees associated with financing, not purchase of the property
• relevant magazines, books and fees for Property Investment courses
• reasonable travel and expenses for managing property portfolio – your next New Zealand holiday could become a tax deduction!

Other Considerations for Overseas Investors

No Exchange Control

There are no exchange controls effecting remittances to and from New Zealand. A free flow of capital in and out of the country is permitted.

OIO Approval

Foreign investors wishing to acquire commercial property in New Zealand can freely do so without the approval of the Overseas Investment Office (OIO) up to a level of NZ$10,000,000. Beyond that level OIO approval is required and is also required for some rural and waterfront property acquisitions.

Overseas investors are strongly encouraged to obtain independent legal advice relating to their proposed investment in New Zealand to ensure compliance with the Overseas Investment Act.

GST

Goods and Services Tax (GST) imposes a transactional tax of 15% on virtually all transactions. There are few exemptions with these being principally in the financial services mortgage and loan sector.

GST is an end user tax and is not normally payable in respect of residential property. With other types of property the GST paid as part of the purchase price of the land can normally be reclaimed from the Inland Revenue Department if the purchaser is registered for GST. Accordingly there should be is little fiscal effect on the purchase, except for potential timing differences in cash flow.

Earthquake Due Diligence

The recent September 2010 and February 2011 Canterbury earthquakes have resulted in significant changes to building insurance in some areas of New Zealand. This applies to residential and commercial / industrial / retail properties. Premiums for older buildings in particular are expected to rise significantly, with the worst affected being virtually uninsurable. This does create opportunities for investors to buy or develop premium properties that are preferred by insurers and tenants / lessee and / or are in non-affected areas. Prospective investors are strongly advised to consider earthquake issues, including insurability, as part of due diligence.

Local Knowledge

It is important to tap into local knowledge about the best areas to invest and potential issues to consider. An experienced, professional local agent working for you can potentially save a lot of time and help avoid costly mistakes, as well as presenting opportunities that are best suited to your needs. Please contact us for an obligation-free discussion. There are also many useful resources and links on this website that can help with your preliminary research.

Australians Investing in New Zealand