Is New Zealand the Next Destination for Aussie Property Investors?

Adam Smith 17 August 2017 NEWS

Aerial view of Queenstown New Zealand

With Aussie property prices out of control, NZ is looking very attractive for investors. Here's what you need to know.

As property prices in Australia skyrocket, many would-be investors are looking overseas for opportunities. New Zealand has maintained solid property growth while avoiding the premium prices of the Aussie property market.

Before you decide to buy, though, you’ll need to do your research.

Step 1: Learn how the NZ tax system helps investors

One of the reasons many overseas buyers choose to invest in New Zealand is the country’s tax structure. Investors won’t be slugged with stamp duty, land tax, purchase tax or even capital gains tax (as long as the property is held for more than two years and is used to generate rental income).

However, this doesn’t mean you’ll walk away from the transaction entirely tax-free. If you sell your investment, you’ll still be liable for capital gains tax in Australia. Also, you’ll have to report all your rental income when you file your taxes in Australia. And you will have to file for a New Zealand tax file number before you can settle on a house.

There is some more good news, though. You’ll only have to pay tax on your investment once. If you’re an Australian resident for tax purposes, you’ll only have to report your New Zealand rental income on your Australian tax return. Moreover, when you’re looking for deductions to offset that rental income, New Zealand’s tax system is generous. The depreciation rate in New Zealand is as high as 4%, compared to 2.5% in Australia.

You can also negatively gear your New Zealand property, allowing you to offset any losses against your income.

It’s important to remember, though, that tax law as it relates to foreign investment can be complicated. It could be wise to consult a professional.

Find a tax agent for expert advice on your tax

Step 2: Know where you can buy property in NZ

For the most part, it’s easy for Australians to buy residential property in New Zealand. It’s rare that you’ll need government consent to buy property. However, there are a few exceptions.

You’ll need consent from the Overseas Investment Office (OIO) if the property you’re buying is deemed “sensitive land”. The definition of sensitive land depends on the individual property details, but there are a few guidelines.

Land will be defined as sensitive land if it is:

  • Farmland that exceeds 5 hectares
  • Land that exceeds 0.4 hectares that adjoins certain reserve or conservation areas
  • Land that exceeds 0.2 hectares and adjoins foreshore

The OIO doesn’t provide a map of all sensitive land in the country, so you’ll need to do your own research to determine if the property you’re buying might sit on sensitive land. If you find it does, this doesn’t necessarily mean your transaction won’t go through. It just means you’ll need to apply for consent from the OIO.

Step 3: Know how to get finance

You will most likely have to apply for finance through a New Zealand lender. This can be a bit of a confusing process, as some of the home loan terminology in New Zealand differs from that in Australia. In essence, though, home loans are still available as fixed rate or variable rate loans, and offer either principal and interest or interest-only options.

Fortunately, there are mortgage brokers in Australia who specialise in securing New Zealand finance for Australian investors. They can help you navigate the lending market.

One thing to keep in mind is that you will need to have saved a sizeable deposit. Because the housing market in New Zealand has experienced some of the same affordability problems as Australia, the Reserve Bank of New Zealand placed tight restrictions on loan-to-value ratios (LVRs). The maximum LVR available for property investors is 60%.

Step 4: Know where to buy property

One of the most difficult hurdles in deciding to invest overseas is knowing exactly where to invest. If you’re unfamiliar with a market, it can be difficult to know the areas of high demand, strong rental returns and good potential for capital growth.

Fortunately, there’s a wealth of data available for Australian investors. CoreLogic, the top provider of property market data in Australia, also operates in New Zealand. You can source up-to-date suburb data to identify trends in both capital growth and rental demand.

Another fantastic benefit of investing in New Zealand is the ease with which you can inspect your property in person. Unlike investing in more far-flung countries like the United States or UK, New Zealand is easily accessible should you want to suss out properties in person.

Step 5: Know how to manage your investment

In Australia, property investors are faced with the choice of hiring a property manager or managing their investment property themselves by liaising directly with their tenants. If you buy in New Zealand, managing your property yourself is going to be much more difficult.

In all likelihood, you’ll want to find a good property manager (commonly called “rental managers” in New Zealand). They’ll be able to help you advertise and tenant your property, and will liaise with your tenants on an ongoing basis to collect rent, coordinate any repairs and make sure your property is being treated well.

Different rental managers will have different fee structures and costs, so it’s important to compare. You’ll also want to make sure you choose a rental manager who has experience dealing with overseas investors.

Could NZ be the right destination for your property investment?

With the right research and preparation, investing in New Zealand can bring both tax benefits and the potential for strong capital growth. It’s wise to explore all your options when it comes to property investment, but if you’re thinking of buying property abroad, sticking close to home could come with some significant upsides.

Learn more about investing in property overseas

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