New Zealand: Overview

RENTAL YIELDS

Last Updated: Sep 09, 2009

Remains attractive at 6.78%

Property investment in New Zealand seems attractive. Prices in Auckland have remained pretty much unchanged from the previous year, averaging at US$3,596 per square metre (sq.m.). Average yields in the city are around 6.78%.

A 50 sq. m. apartment sells for around US$250,390, and yields an average of 8.09%. For the property investor, it is going to be hard to find much better returns than that – in the context of historically strong economic growth, relatively high immigration, and a stable country – what else could someone looking for a property investment want?

Apartments in Wellington are more expensive at US$4,062 per sq.m., but have lower gross rental yields of around 5.77%.

The prices of houses we surveyed in Christchurch range from US$207,900 for 90 sq. m., properties up to US$572,000 for 275 sq. m. properties. Gross rental yields in Christchurch were even lower at 4.08%, so Christchurch seems is unattractive for property investment.

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TAXES AND COSTS

Last Updated: Dec 01, 2008

Rental income tax is high in New Zealand

Effective Tax Rate on Rental Income
Monthly Income	US$1,500	US$6,000	US$12,000
Tax Rate	1.7%	9.6%	10.4%
Click here to see a worked example
Source:			Disclaimer

Rental Income: Net rental income is taxed in New Zealand. Depending on the owner’s taxable income, the marginal tax rates range from 19.5% - 39%.

Capital Gains: Capital gains are not normally taxed in New Zealand.

Inheritance: There is no estate duty payable in New Zealand.

Residents: Residents are taxed on their worldwide income.

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BUYING GUIDE

Last Updated: Jul 25, 2007

Buying costs are relatively low in New Zealand

Total transaction costs are relatively low at 4.25% - 5.74%, of which 3.5% - 4% (plus 12.5% GST) goes to the real estate agent as commission. The buyer pays the registration fees while the seller pays the agent's commission. Each party pays for their lawyers. There are no stamp duties. There are only two procedures needed to register a property and each procedure takes a day to complete.

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LANDLORD AND TENANT

Last Updated: Jun 20, 2006

Tenant protection laws are neutral in New Zealand

New Zealand law is neutral between landlord and tenant.

Tenancy Laws: The Residential Tenancies Act 1986 guarantees the rights of both parties and sets the parameters of their relationship.

Rent: Landlord and tenant can freely agree on the rent, and any increases are allowed provided that the landlord gives sufficient notice or there has been no rent increase over the last six months. A tenant can call upon a Tenancy Tribunal for rental assessment if he thinks the increase is excessive.

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ECONOMIC GROWTH

Last Updated: Jan 19, 2009

Deeper recession ahead

New Zealand, a country that evokes a lush, magnificent, and picturesque use (as well as preservation) of Mother Nature, is also one of the world’s most developed countries, both politically and economically.

With GDP per capita of US$30,390, New Zealand is one of the world’s most open economies. While Wellington is the country’s capital city, many more businesses and people are located in Auckland, and its property prices are the country’s highest.

Since the end of the Asian financial crisis New Zealand has experienced years of unbroken economic growth boosted by strong personal consumption. The economy grew by an average of 3.2% per year from 2001 to 2007.

However, the global economic turmoil has now pushed New Zealand’s economy into recession. GDP shrank 0.3% in Q1, 0.2% in Q2, and 0.4% in Q3 of 2008. The economy is expected to contract by -0.5% in 2008 and -0.4% in 2009.

Unemployment rose to 4% in 2008, from 3.6% in 2007. In 2009, unemployment is expected to rise further to 5.4% , according to OECD forecasts..

Starting July 2008, the RBNZ moved to counter the adverse effects of the global financial crisis by successively cutting the key rate by 325 basis points, to 5% in December 2008.

Despite these key rate cuts, the effective mortgage rate has hardly moved. The floating mortgage rate has dropped to 9.6% in October 2008 from 10.4% in October 2007. The two-year fixed rate also fell to 8.2% from 9.1% a year earlier.

The number of net migrants in 2007 was 5,500, significantly lower than the 14,609 in 2006. New Zealand’s population, currently at 4.3 million, is expected to reach 5 million in 2020, with a growth rate of 1% per year. The number of migrants is likely to add to the downward pressure on house prices.