Auckland is also a lifestyle destination. In addition to the cosmopolitan lifestyle that Auckland city offers, residents can stroll deserted coastal beaches just 20 minutes from the city. Sail the islands of the Hauraki Gulf, lounge on the clean beaches of the eastern bays or mountain bike through the forests of the Waitakeres.

The index of economic freedom which is compiled by the Wall Street Journal ranks New Zealand fifth out of major OECD nations. This index takes in to account openness of trade policy, tax burden, monetary policy, wages, unemployment, inflation levels, investment flows and regulation.

The annual William Mercer World Wide Quality of Life Survey 2004 ranks Auckland 5th on the list.  The William Mercer World Wide Cost of Living Survey 2005 ranks Auckland 69th on the list (Sydney ranks 20th).

Some New Zealand & Auckland Demographics, that are of interest to investors:

• New Zealand Resident population as at 1st April 2005 estimated at 4,093,900.  Projected population by 2051 is 5.05 million.
• National population is growing at 1.8%pa
• 60% of growth is the result of net migration.
• Of the total New Zealand population gain two thirds will settle in the Auckland region.
• The North island will be home to 78% of New Zealanders by 2021
• The population of the Greater Auckland region is expected to rise from 1.2 million in 2001 to 2.3 million by 2046.  That’s almost a 100% population increase in just 45 years.
• Auckland city population is growing at a rate of 2.6% per annum.  This equates to 600 to 700 people per week entering the city, requiring 21 new homes per day, 35 new cars per day, and one hectare of new land used for housing each day.  This compares to Sydney Australia with its population currently growing at around 1% per annum.
• Auckland now makes up 34% of NZ population by 2050 it will make up 41%
• The occupancy rate per household is dropping, meaning more housing is required even if the population was not growing.
• In the past Auckland has expanded its boundaries to cope with the growth, it can no longer do this due to the limited land supply.  This will encourage apartment style living.

The Regional Growth Strategy of Auckland City Council predicts that Auckland city’s population will increase to 475,000 by 2021.  By 2050, 580,000 people could live in Auckland City compared to the 1999 population of 381,800.

Currently Auckland has 25% intensive (multi-unit) housing.  The target in the medium term is 45%.  As a comparison Melbourne (Australia) is at 25%, with a target of 40% and Sydney (Australia) is at 55% and aiming at 65%.

Property Prices:
Medium dwelling prices as at May 2005
All of New Zealand: NZ$275,000
Auckland Region: NZ$370,000  (Sydney AUD$530,000, around NZ$567,000)
Auckland City: NZ$420,00

The above of course takes in a broad range of both new and very old stock over a large area.  To give some specifics, based on some of our current off plan projects, you can purchase a 2 bedroom apartment in a quality inner city suburb for around NZ$430,000 (76sqm 1 car park).  For those on a lower budget you can find a 50sqm 2 bedroom in the heart of the city for around NZ$240,000.

Capital Growth and Rental Yields:
Auckland residential property has experienced sustained long term capital growth of 10% per annum for the last 25 years. Generally yields are higher than in nearby Australian capital cities. A recent comparison of rents between New Zealand and Australia showed that whilst property prices are far higher in Sydney than in Auckland the rental yields in Auckland are higher than those in Sydney. The median rent for a 3 bedroom dwelling in Sydney (Dec 04) was (AUD$253) NZ$271 per week and in Auckland it was NZ$368 per week.

Yields in Auckland vary depending on location and size but tend to average between 5.5% to 8% gross. Managed solutions such as serviced apartment options usually have a higher income, resulting in net yields around 6% to 8%.

Can overseas residents invest in New Zealand?
Yes, the New Zealand government actively promotes overseas investment. Non residents can buy property under $50 million and land under 5 hectares without requiring any specific consent firm the New Zealand government.

Taxation in New Zealand:
In New Zealand there is no stamp duty, land tax, capital gains tax or any other taxes associated with buying a property. In Australia property owners do have these taxes.

Rental income is a taxable income and once your property is producing an income you will need to submit a New Zealand tax return.  Whilst rent is a taxable income many of the costs relating to holding an investment property are tax deductible, these include cash costs (such as body corporate costs, council rates, management fees etc) interest, if you are funding the property (for up to a maximum of the interest on 75% of the value of the property) and non cash items such as depreciation.  Depending on the property, the rental income and costs that you have, many investors will not pay tax for many years.  To assist you with your New Zealand tax return Home Port Property can arrange for a local taxation accountant to prepare the required returns that can then be forwarded to your accountant at home.

Buying Off plan:
Many investors are choosing to purchase their investments “off the plan”.  Whilst this practice has been fairly common place around much of the world it is a relatively new practice in New Zealand.  As is often the case with something new, many off shore investors, who are already familiar with the practice have appreciated the benefits of buying “off the plan” far quicker than many of the locals.

In New Zealand buying “off plan” usually requires 10% of the purchase price as a cash deposit, this should sit in a solicitors trust account and not be accessible by the developer until project completion.  Purchasers need to check their contracts prior to signing to ensure this is the case.  There is then no more to pay until the project is fully complete and ready to occupy.

This practice allows investors to get involved in a project early on and lock in the current price in the hope that by the time the project completes it will have already had some capital growth.

Leasehold Title:
As is the case in many others areas of the world, some land in New Zealand, particularly in Auckland, and particularly around the waterfront is leasehold.  For example much of the waterfront Viaduct area in Auckland (which has seen massive redevelopment and has been some of the best performing real estate in New Zealand over the last 10 to 15 years) is leasehold.  Leases vary, some are perpetual and some have a fixed term, often around 80 years.  All have the provision for rental reviews.  From an investors point of view this is an added cost to the investment, but many owners feel that the benefits of the particular project and its location outweigh the disadvantage of the leasehold title.  As is the case with comparable Sydney leasehold land the fact that it is leasehold seems to have no differentiation when it comes to capital growth.

Beware the “shoe box” apartments in the CBD and university precinct:
New Zealand and in particular Auckland has had a high number of overseas students studying in its various universities and colleges.  The high demand for accommodation and the wealth of these students lead to an influx of smaller apartments, particularly in Auckland city.  Investors were quick to snap up these units as the rental yields were very high (often above 10%). Unit prices seemed cheap, but in many cases the only reason that the overall price was low was that the apartment was tiny (we have seen one bedroom units at 24sqm and 3 bedrooms at 46sqm) and in actual fact the price on a per square metre basis was fairly expensive.  This particular market is now easing off considerably due to the amount of stock that has been built and the slight reduction in overseas students in the last year.  This particular market will be volatile, not just because many investors have paid too much but also because they now own property that only has appeal to one sector of the market.  You will not find too many executive tenants or intending owner occupiers who wish to live in a shoe box apartment.

New Zealand Mortgages:
Some international investors are able to use their local lenders and those lenders will use the New Zealand property as security.  However, many investors require a loan from a New Zealand lender.  New Zealand have many bank and non bank lenders and many will lend to international investors.

Lenders will generally take rental income (or projected rental income for new projects) in to account.  However most will also require evidence of other income that the purchaser has. Most lenders will lend to a maximum 80% of the value of the property.  Generally lenders prefer property that is above 50sqm internally and if below will generally still provide funds but often not up to 80%.

The general purchasing process:
Most projects require an initial holding deposit once you have selected the particular property that you intend to purchase.  This holding deposit is usually between NZ$1,000 & $5,000, is usually fully refundable should you have a change of mind prior to signing contracts, and is usually held in a trust account. 

Once a holding deposit is received the vendor’s solicitor will prepare a contract of sale. This is usually a few days after the holding deposit has been sent. We strongly suggest to all of our clients that they use the services of a local New Zealand solicitor who is independent of the developer and the developers solicitor and who solely represents the purchaser.  It is important to have legal representation in the geographic area in which you are purchasing to ensure that the particular legal requirements for that locality are being met.

The contract, once prepared is sent to the purchaser’s solicitor.  They in turn review the contract, suggest and negotiate any changes that they feel are in your best interests and forward the contract to you, with their covering notes. The general time frame that most of our developers agree to (for off the plan projects) for our international purchasers is to allow 21 days from contract issue to have contracts signed ad returned and up to a further 21 days to transfer a 10% deposit.  If the project is complete the time frames are generally a little shorter.

Once the contract has been signed by the purchaser and the vendor (with no outstanding conditions) it is considered to be “unconditional”.  At this point you have legally committed to the purchase.  You then need to pay 10% of the purchase price as a deposit.  This 10% is generally held in a trust account by the developer’s solicitor and generally any interest earned on the funds is either split 50/50 at settlement or goes fully to the purchaser.  It is important to ensure that the 10% is held in trust and is not available to the vendor until the project is complete.  This will be specified in the contract. Several months prior to settlement your solicitor will contact you to prepare for settlement.

It is important at this time to:

• Organise a pre settlement inspection.  You can do this yourself, though we suggest that in addition you use the services of an independent builder to inspect your property on your behalf.  This service is readily available and at a cost of under NZ$500 to inspect, report and then re inspect after any defects have been fixed it offers excellent value to protect your new asset.
• Organise a New Zealand bank account.  If you are borrowing funds in New Zealand you can organize this with the same lender.  In any case you will require a local account to have the rent paid in to.
• Organise a local property management agency to manage your investment.  Some investments already have this facility in place.  Property managers generally charge around 8% of the rent collected to manage your tenant.  Plus usually one weeks rent to market your property and secure a tenant.
• Organise finance.  You should have already spoken with a finance company or a local New Zealand mortgage broker to ensure that you can obtain finance.  Now is the time to actually organise it to ensure that funds will be available as soon as your property is complete.

Purchasing costs and Exchange Rates:
As a general guide you should allow for the following costs:
Legal fees: NZ$1,200 to $1,500
Loan application (if borrowing funds): NZ$500
Valuation fee (if borrowing funds): NZ$500
Pre settlement inspection: NZ$500

Obviously investors need to be aware that exchange rate variations can lead to potential gain or loss.  In general, compared to other similar developed countries the NZ$ is weaker, this plus the fact that New Zealand prices are still relatively low compared to other developed countries mean that you can purchase far more for your money in Auckland than say in Sydney, New York or London.

In June 05, NZ$1 was worth around US$0.72, AUD$0.92, EURO$0.59, GBP$0.39

In Summary:
It is clear that New Zealand and in particular Auckland is in for some major population growth.  Add to this its healthy economy, desirable lifestyle, lack of land in the Auckland region and currently low property prices, relative to other major cities in the region such as Sydney and you have a location that should continue to see some excellent capital returns for property investors.  Set in an environment of relatively low tax and very reasonable rental yields.

Written by John Faulkner, General Manager of Home Port Property.  A real estate agency specializing in servicing the needs of international investors looking to invest in Australia & New Zealand.  You can find further investment related information and specific investment opportunities at Home Ports web site homeportproperty  or if you would like any information relating to this article or Home Ports investments you can email John at johnf@homeportproperty.com.au