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Right now we are spending a great deal of our time with the New Zealand market. In particular we are concentrating on the Auckland region that is proving to be an increasingly popular investment choice for many of our International investors. There are a number of reasons for this, growth is good, rental yields are relatively high, acquisition costs are low, taxes are low, foreign ownership is hassle free and the exchange rate for most foreign investors is particularly favorable. Compared to other similar developed cities across the world Auckland is offering excellent value and many suggest that in relative terms it is undervalued. Add to this its continued high projected population growth and limited supply of land and it is easy to see why many investors are excited about Auckland. In addition New Zealand has largely stayed out of world politics (post September 11), this plus its relative isolation is having many see it as a nice place to invest and possibly to live in the future as it is increasingly being seen as a safe haven. This article will look at some of
the factors that make New Zealand, and in particular in and around Auckland
a good place to invest and how as an international investor you can go
about this process.
Auckland Overview: New Zealand is home to around 4 million people (Australia has around 20 mil), Auckland, located in the North Island, is New Zealand’s largest city, with a population of approximately 401,500 within the city boundary and 1.25 million in the greater Auckland area (Sydney around 4.2 mil), representing about one third of the population of the whole country. English is the main spoken language. Climate is temperate with warm summers (averaging 24 degrees Celsius) and cooler winters (averaging 16 degrees Celsius). Summer months are December to March. Auckland is the “gateway” to New Zealand for tourism, with the countries largest airport serving 45 airlines. Cruise ships call throughout the year, particularly in the summer months. Auckland is the retail and commercial centre of New Zealand, with a number of head offices and businesses servicing commerce, manufacturing and tourism. It offers modern infrastructure, a dynamic business environment, a great lifestyle and is very cost competitive as a business location. Wages and salaries of skilled workers are typically 50% less than in the USA and 20 to 30% lower than in Australia. New Zealand’s education system is world class and Auckland city has become a regional centre for international education. The Auckland region is the powerhouse of the New Zealand economy, accounting for over 34% of national GDP. Around 73% of New Zealand’s imports and 40% of its exports transit through Auckland’s two ports. Over half of New Zealand’s top 200 companies have their headquarters in Auckland and many Global Fortune 500 companies also have a presence in Auckland. 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).
Property Prices: Medium dwelling prices as at May
2005
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:
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?
Taxation
in New Zealand:
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:
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
Mortgages:
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:
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.
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:
This article has been prepared from various sources including: Auckland City Council, Census Data, Real Estate Institute of NZ, New Zealand Herald, Statistics New Zealand, Quotable Value New Zealand. .
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