New Zealand’s Investment Property Potential

As the economy of New Zealand enjoys one of its most prolonged periods of growth in history, the investment property market has also achieved new benchmarks in the last five years.

For many Australians who meet the NZ investment criteria this has been good news. With a range of properties available to invest in, from office spaces to retail, there’s plenty of opportunity to make a profitable investment in New Zealand. 

Property investment in NZ - getting started

There are many reasons why investing in a New Zealand property could be more lucrative in the long run than in Australia — most of them related to tax.

Firstly, the New Zealand Government does not force as many taxes upon an investor, so stamp duties and transfer fees on properties and loans are not included. Additionally, New Zealand’s four percent deprecation is a lot higher than Australia’s 2.5 percent. As investors can choose to claim a larger percentage of a property’s depreciation in the first few years, your investment can fare a lot better in New Zealand, earlier on.

Interestingly, New Zealand does not have a capital gains tax, so once the property is sold, the money remains with the investor. Beware, however, that this will be assessed as foreign income for Australian citizens, and may be subject to tax laws within Australia.

New Zealand property growth patterns

Growth in Australia and New Zealand has shown similar patterns in the last few years.

In New Zealand, yield for office rental has shown a steady increase in the CBD areas of its three major cities, averaging around 6.4 percent. Auckland office properties remain the most valuable, at around $300 per square metre (sq/m). However, Wellington has shown the highest rate of growth, starting at around $200 per sq/m in 2003, to around $290 per sq/m in 2007. Christchurch also showed steady growth, but was well below the other two cities in terms of value.

In Australia, office vacancy rates have taken a major dive since they peaked in 2003, promising steady returns for investors. However, there are forecasts that suggest vacancies will rise again between 2008 and 2011, as more office complexes are constructed to cope with demand. Forecasts for New Zealand show that there will be only moderate construction of new office complexes and, as such, office yields for existing properties are expected to remain steady.

Retail outlets in both Australia and New Zealand have shown a slump in rental yields in the last few years, and this is expected to continue into 2008. In New Zealand, however, new retail constructions are enjoying a good uptake from investors, and an increasing number of overseas retailers are making their way into the country.

The average return on property investments in New Zealand during 2006 was 17.8 percent, with the Index showing returns between 9.2 percent and 23 percent. Over the past ten years, the Real Estate Institute of Australia estimates that the growth of investment properties in Australia has been around 14 percent for houses and 12 percent for other dwellings.

Easy investment steps and hidden traps

Australians and New Zealanders have many harmonious economical arrangements between them, so investing in NZ property is relatively hassle-free for many Australians. In addition, New Zealand commonly welcomes foreign investment, so there’s a lot of opportunity for Australians to invest in either whole properties or property trusts. 

The downside is that many New Zealand banks will not provide finance for Australians, so finance will more often than not have to be arranged within Australia first. The Overseas Investment Office provides more information on the regulations regarding overseas investment in New Zealand.

As with any overseas investment, it’s impossible for the investor to manage the property on a day-to-day basis. As such, an arrangement with a trusted property manager should be sought. A property manager will not only make sure the building is properly maintained, but also increase yields by making sure it’s tenanted. Many real estate agents can fulfil this role for a fee. 

There are a number of Real Estate sites that provide information on New Zealand property for sale. The top sites include realestate.co.nz, open2view.com and allrealestate.co.nz. These sites would be a good starting point for any would-be investors to research the Kiwi property market to gain an understanding of real estate values and potential rental returns.

Of course, as with any investment, it’s best to seek out professional advice before making any final decisions on investing in property in New Zealand.