A free-market philosophy, a great place to do business and a good tax regime on property investments make the Land of the Long White Cloud a viable investment destination. By Chan Ai Cheng
New Zealand, besides its scenic landscapes, is also a great place to do business.
According to a 2009 Report from the Legatum Institute, a London-based think-tank, the Land of the Long White Cloud was ranked as the world’s 10th most prosperous country in terms of wealth and “general well-being”.
It also practises a democratic political system and a free-market philosophy that is dedicated to maintaining the principles of a free market economy.
New business immigration policies, with realistic minimum investment levels, a wide range of qualifying investment options and assistance with identifying investment opportunities also make it easier for business people and investors to gain residency.
Overseas companies, meanwhile, are also well presented in New Zealand, enjoying success in their own right or as apart of a joint collaboration with local enterprise. According to New Zealand Commercial Property Brokers Ltd, favourable exchange rates for overseas investors could yield returns of between 6% and 9% annually on invested capital.
Already, there are plenty of opportunities and interest being shown in New Zealand’s real estate sector. Non-residence investments currently generates between NZ$1.2 billion and NZ$ 1.3 billion every quarter.
All these factors mean that New Zealand is an ideal spot for those interested in property investment.
The Torrens Systems
New Zealand practises the Torrens land title system, under which a registry of land holdings maintained by the state guarantees an indefeasible title to those included in the register.
Virtually all land in New Zealand is registered under the Torrens system, although a few small pockets of properties are still registered under the old deed system, which began when Europeans first settled in the country hundreds of years ago.
Property registrations are available for search by the public and details of the registered proprietor, mortgagees, charge holders are fully available. The government has computerised 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.
There is also an Overseas Investment Office (OIO) that helps monitor all foreign investments in New Zealand. It administers the government’s foreign or overseas investment legislations. The core work of the OIO is to assess applications for consent from foreign persons who want to invest in sensitive New Zealand assets.
New Zealand’s overseas investment legislation only affects transactions that cover sensitive assets, which include land deemed as “sensitive”. This means a foreigner can generally purchase a regular house or section of land without any restriction.
However, when a property is classified as sensitive, then OIO consent is required prior to purchase. Usually, a standard suburban house would not be classified as sensitive. However, farms, lifestyle properties and holiday homes and/or waterfront homes could fall under this category.
Note that the transaction time frames and procedures may be affected if OIO consent is required and it is recommended to seek assistance from a professional adviser as early as possible to help ensure a smooth transaction.
The Tax Regime
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 services such as roads, water, rubbish collection and community services such as libraries.
Rates are based on the value of the property and generally vary between NZ$1,500 and NZ$3,000 per annum for a typical median value house.
New Zealand allows unlimited deductibility 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 offset 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, repairs and maintenance; but not improvements, as these have to be capitalised and depreciated,
- Accountancy fees,
- Valutaion fees,
- Bank fees,
- Property rates,
- Lawyer fees associated with financing but not purchase of the property,
- Relevant magazines, books or fees for property investment courses,
- Reasonable travel and expenses for managing property portfolio.
New Zealand has no capital gain tax for most property investors. So long as property is bought for long-term income rather than short-term purchase and re-sale, then capital gain is not taxable, nor is there any capital loss claimable.
In practice, so long as the investor is not in the business of “flipping”, i.e. buying and re-reselling the property in a short period of time, then they are unlikely to pay capital gains.
However, this area of the law is complex and intention at time of purchase is the key; it is also advisable to consult a professional adviser prior to making any purchase.
One might ask if purchasing a property in New Zealand entitles one to residency. Foreigners can own land in New Zealand but this 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.
When investing in property in New Zealand, there are some basic factors to consider:
- Think of the kind of tenant you want to attract (where you buy and what type of property bought will greatly influence this).
- Modern kitchens, bathrooms and laundry facilities 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.
If you need a loan in New Zealand to purchase a property, you should be aware that different conditions 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.
However, if you are not a New Zealand or Australian resident, or do not have a work permit, then mortgage lenders may require you to put down a deposit of anywhere from 20% to 50% of the value of the property that you wish to buy.
Furthermore, if you are on a work permit, then take note that you can only buy up to one 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 level of deposit as above, and may even be a little stricter. Effectively, this means that, the less committed you are to living permanently in New Zealand, the less risk a mortgage lender is willing to take with you.
Investing overseas can be exciting and offer great opportunities. It is a good idea to lock in your interest to purchase via bookings but it is wise to always visit the property that 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, New Zealand is quite a distance away.
Chan Ai Cheng is General Manager at SK Brothers Realty (M) Sdn Bhd, a registered estate agent (LPPEH) and a certified residential specialist (NAR, USA).