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

Slow economic recovery

New Zealand, a country that evokes a lush, magnificent, and picturesque use 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 in 2008, New Zealand’s economy contracted by 0.5% due to the adverse impact of the global crisis. After five consecutive quarters of negative GDP, the economy finally emerged from recession with GDP growth rate of 0.1% in the second quarter of 2009. This was attributed to the strong housing market over the past two quarters.

Despite this positive outlook, the strength of the New Zealand dollar was hindering the recovery. From an exchange rate of NZD1=USD0.5151 in February 2009, the New Zealand dollar appreciated to NZD1=0.7024 in September 2009.

"The high level of the New Zealand dollar has limited the scope for exports to contribute to the recovery and reinforces a bias toward domestic expenditure," said New Zealand central bank Governor Alan Bollard.

"The current composition of growth continues to raise questions about its sustainability. These concerns would intensify if credit growth began to propel stronger (than the) domestic demand", added Bollard.

New Zealand recorded its largest deficit in 2009, as the government tried to cushion the impact of the global crisis. In June 2009, the country’s deficit was NZ10.5 billion (US$7.75 billion), in sharp contrast from a NZ2.4 billion (US$1.77 billion) surplus in 2008.

Unemployment rose to 4.2% in 2008, up from 3.7% in 2007. In the third quarter of 2009, unemployment stood at 6.5% from 6% from the previous quarter, based on figures from Statistics New Zealand. In the first half of 2010, unemployment is projected to rise further to 7%.

The number of net migrants was just 3,800 in 2008 because of a weak economy and low employment opportunities during the period. As the economy has recovered, immigration has risen. The net inflow of permanent and long-term migrants totaled 17,043 in the year to September 2009, almost four times the recorded net migration over the same period last year.

New Zealand’s population, currently 4.3 million, is expected to reach 5 million in 2020, with a growth rate of 1% per year.