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New Zealand is a great place to be in business, as a 2009 Report from Legatum Institute, a London-based think tank, shows. New Zealand’s position as the world's 10th most prosperous country in the report also takes into account wealth and "general wellbeing" of its residents.
 With a democratic political system and a free-market philosophy, New Zealand is ideal for those interested in property investment. According to New Zealand Commercial Property Brokers Ltd, favourable exchange rates for overseas investors yield returns between 6% and 9% annually on invested capital.
As a bonus, overseas companies are already well represented in New Zealand, either on their own right or as part of a collaboration with local enterprise. Where real estate is concerned, there are plenty of opportunities to invest in New Zealand with non-residential activity currently generating NZ$1.2-$1.3 billion per quarter.
New business immigration policies also make it easier for business people and investors to gain residency, with realistic minimum investment levels, a wide range of qualifying investment options and assistance in identifying investment opportunities.
This might lead some to ask if purchasing a property in New Zealand entitles them to residency. While foreigners can own land in New Zealand, it does not automatically entitle them to stay in the country beyond the limits of a visitor's visa. It is still necessary to go through standard immigration channels to apply for residency or citizenship.
New Zealand Land Registration System
There is a "Torrens System" of land registration in New Zealand whereby the Land Transfer Act 1952 provides for State guarantees of registration of an interest in real estate and as-to survey. Virtually all land in New Zealand is registered under this system, although a few small pockets of properties are still registered under the old deeds system, which operated when the country was first settled by Europeans.
The register is available for search by the public and details of the registered proprietor, mortgagees and charge holders are fully available. The government has computerized the land registration system for the whole country and it is now possible to search all titles through the web and register new interests online.
In addition, there is an Overseas Investment Office (OIO) that monitors all foreign investment in New Zealand. This organization administers the New Zealand government's foreign or overseas investment legislation and the core work of the OIO is to assess applications for consent from foreign persons who want to invest in sensitive New Zealand assets. This regulatory unit within LINZ is made up of a team of lawyers and legal executives.
Applications are required to the Overseas Investment Office (OIO) for consent if you are a foreign or overseas person, or an associate of an overseas person, and you wish to acquire:
- sensitive land or an interest in sensitive land (e.g. by buying shares in a company that owns sensitive land), or
- business assets worth more than $100 million, or
- fishing quota or an interest in fishing quota.
New Zealand’s overseas investment legislation only affects transactions that include sensitive New Zealand assets, including land. Note that transaction timeframes and procedures may be affected if consent is required and it is advisable to seek the assistance of a professional adviser as early as possible to ensure a smooth transaction.
This means that a foreigner can generally purchase a regular house or section of land without any restriction. The only exception is if the property is classified as being "sensitive land", if this is the case, OIO’s consent is required prior to purchasing. While a standard suburban house would not be classified as sensitive, farms, lifestyle properties and holiday or waterfront homes could fall under this category.
New Zealand's Tax Regime for Property Investment
New Zealand has 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 could vary between NZ$1500 and NZ$3000 per annum for a typical median value house.
New Zealand allows unlimited deductiblity of property losses against other New Zealand income, obviously, including rental income. This includes depreciation of buildings and fittings. If there is no other New Zealand income to off-set the loss then losses are carried forward.
Other deductions typically made by New Zealand property investors are:
- mortgage interest, not capital repayments
- insurance of the property
- property management fees for repairs and maintenance; but not improvements, as these have to be capitalised and depreciated.
- accountancy fees
- valuation fees
- bank fees
- property rates
- lawyer fees associated with financing, not purchase of the property
- relevant magazines, books at fees for Property Investment courses
- reasonable travel and expenses for managing property portfolio
Another appealing thing is New Zealand has no capital gains tax for most property investors. As long as the 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, as 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. As this area of the law is complex, intention at time of purchase is key and it is wise to consult a professional adviser PRIOR to any purchase.
With a democratic political system and a free-market philosophy, New Zealand is ideal for those interested in property investment. According to New Zealand Commercial Property Brokers Ltd, favourable exchange rates for overseas investors yield returns between 6% and 9% annually on invested capital.
As a bonus, overseas companies are already well represented in New Zealand, either on their own right or as part of a collaboration with local enterprise. Where real estate is concerned, there are plenty of opportunities to invest in New Zealand with non-residential activity currently generating NZ$1.2-$1.3 billion per quarter.
New business immigration policies also make it easier for business people and investors to gain residency, with realistic minimum investment levels, a wide range of qualifying investment options and assistance in identifying investment opportunities.
This might lead some to ask if purchasing a property in New Zealand entitles them to residency. While foreigners can own land in New Zealand, it does not automatically entitle them to stay in the country beyond the limits of a visitor's visa. It is still necessary to go through standard immigration channels to apply for residency or citizenship.
New Zealand Land Registration System
There is a "Torrens System" of land registration in New Zealand whereby the Land Transfer Act 1952 provides for State guarantees of registration of an interest in real estate and as-to survey. Virtually all land in New Zealand is registered under this system, although a few small pockets of properties are still registered under the old deeds system, which operated when the country was first settled by Europeans.
The register is available for search by the public and details of the registered proprietor, mortgagees and charge holders are fully available. The government has computerized the land registration system for the whole country and it is now possible to search all titles through the web and register new interests online.
In addition, there is an Overseas Investment Office (OIO) that monitors all foreign investment in New Zealand. This organization administers the New Zealand government's foreign or overseas investment legislation and the core work of the OIO is to assess applications for consent from foreign persons who want to invest in sensitive New Zealand assets. This regulatory unit within LINZ is made up of a team of lawyers and legal executives.
Applications are required to the Overseas Investment Office (OIO) for consent if you are a foreign or overseas person, or an associate of an overseas person, and you wish to acquire:
- sensitive land or an interest in sensitive land (e.g. by buying shares in a company that owns sensitive land), or
- business assets worth more than $100 million, or
- fishing quota or an interest in fishing quota.
New Zealand’s overseas investment legislation only affects transactions that include sensitive New Zealand assets, including land. Note that transaction timeframes and procedures may be affected if consent is required and it is advisable to seek the assistance of a professional adviser as early as possible to ensure a smooth transaction.
This means that a foreigner can generally purchase a regular house or section of land without any restriction. The only exception is if the property is classified as being "sensitive land", if this is the case, OIO’s consent is required prior to purchasing. While a standard suburban house would not be classified as sensitive, farms, lifestyle properties and holiday or waterfront homes could fall under this category.
New Zealand's Tax Regime for Property Investment
New Zealand has 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 could vary between NZ$1500 and NZ$3000 per annum for a typical median value house.
New Zealand allows unlimited deductiblity of property losses against other New Zealand income, obviously, including rental income. This includes depreciation of buildings and fittings. If there is no other New Zealand income to off-set the loss then losses are carried forward.
Other deductions typically made by New Zealand property investors are:
- mortgage interest, not capital repayments
- insurance of the property
- property management fees for repairs and maintenance; but not improvements, as these have to be capitalised and depreciated.
- accountancy fees
- valuation fees
- bank fees
- property rates
- lawyer fees associated with financing, not purchase of the property
- relevant magazines, books at fees for Property Investment courses
- reasonable travel and expenses for managing property portfolio
Another appealing thing is New Zealand has no capital gains tax for most property investors. As long as the 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, as 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. As this area of the law is complex, intention at time of purchase is key and it is wise to consult a professional adviser PRIOR to any purchase.
Obtaining New Zealand Mortgage Finance
If you need to borrow funds in New Zealand to purchase a property, you should be aware that different conditions will apply, depending on the status of your residency.
If you already have your New Zealand residency, then the only limits set by the banks will be based on your personal ability to service the loan, the security of the loan and the other usual criteria a bank may apply in offering mortgage finance.
If you are not currently a New Zealand resident, or an Australian resident, but are on a Work Permit, mortgage lenders may require you to have a deposit of anywhere from 20% - 50% of the value of the property you wish to buy. If you are on a Work Permit, you may only buy up to 0.4 hectares (1 acre) of land without requiring OIO consent.
If you do not intend to become a New Zealand resident, but wish to buy a holiday home in New Zealand, banks will require at least the same levels of deposit as above, and may even be a little stricter.
Effectively, the less committed you are to living permanently in New Zealand, the less risk a mortgage lender will take with you.
Investing overseas can be an exciting and great opportunity. While it is a good idea to lock in your interest to purchase via bookings it is also wise to practice some caution and visit the property you wish to invest in. Having a reliable property manager there will also save you the hassle of the day-to-day management of the property. After all it is quite a distance away.
Obtaining New Zealand Mortgage Finance
If you need to borrow funds in New Zealand to purchase a property, you should be aware that different conditions will apply, depending on the status of your residency.
If you already have your New Zealand residency, then the only limits set by the banks will be based on your personal ability to service the loan, the security of the loan and the other usual criteria a bank may apply in offering mortgage finance.
If you are not currently a New Zealand resident, or an Australian resident, but are on a Work Permit, mortgage lenders may require you to have a deposit of anywhere from 20% - 50% of the value of the property you wish to buy. If you are on a Work Permit, you may only buy up to 0.4 hectares (1 acre) of land without requiring OIO consent.
If you do not intend to become a New Zealand resident, but wish to buy a holiday home in New Zealand, banks will require at least the same levels of deposit as above, and may even be a little stricter.
Effectively, the less committed you are to living permanently in New Zealand, the less risk a mortgage lender will take with you.
Investing overseas can be an exciting and great opportunity. While it is a good idea to lock in your interest to purchase via bookings it is also wise to practice some caution and visit the property you wish to invest in. Having a reliable property manager there will also save you the hassle of the day-to-day management of the property. After all it is quite a distance away.
Things to consider when investing in New Zealand properties
- Think of the kind of tenant you want to attract (where you buy and what type of property bought will greatly influence this).
- Modern kitchen, bathroom and laundry facilities that will add value.
- Proximity to shops and public transport is a bonus.
- Outdoor areas, parking, fencing and other features must be considered.
- Location is always the key factor
Chan Ai Cheng is the General Manager of S. K. Brothers Realty (M) Sdn Bhd, a firm established since 1979 in the practice of Real Estate in Malaysia. She is a Registered Estate Agent with the Board of Valuers, Appraisers and Estate Agents Malaysia (LPPEH) and a Member of ISM and MIEA. She was recently conferred the prestigious title of Certified Residential Specialist by NAR, USA and also recognized for her contributions by the Malaysian Women’s Weekly 2007 being the Winner of the Great Women of Our Time Award in the Finance & Commerce Category. She is a regular feature in the press on property matters.
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