New Zealand: Overview

RENTAL YIELDS

Wide range of yields, highest in Wellington

Prices are high in Auckland City, averaging US$4,460 per sq. m. A 45-sq. m. apartment sell for around US$4,500 per sq. m. and has yields of up to 7%. Average yields in the city is at 6%.

Wellington apartments can return really excellent yields, according to Global Property Guide research. Luxury three bedroom apartments yield around 7.5%, while studios return gross yields of around 10%. Wellington houses with lots can also produce very good yields, at 10.2% for 250 sq. m. houses, but less for smaller houses.

Rents have not risen as fast as house prices. While house prices rose by 13.5% in 2004, rents only rose by 6.5% (October 2003 to October 2004). Thus, gross rental yields have dropped very slightly to 5.6%, down from 5.8%, over the five quarters to Q3 of 2004.

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TAXES AND COSTS

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%
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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

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

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

Reserve Bank to curb inflationary pressure

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$27,300, 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.

New Zealand has been experiencing years of unbroken economic growth since 1999 boosted by strong households’ personal consumption.

A slower year-on-year inflation rate was recorded at 2.3% in 2007, down from 3.4% in 2006. Real GDP grew by a modest 2.5% in the year to end-2007, and is expected to be slightly higher at 2.6% this year.

While lower inflation can be expected to be positive for the property market, the number of net migrants in 2007 was 5,500, significantly lower than the 14,609 in 2006. New Zealand’s population, currently at 4.25 million, is expected to reach 5 million in 2020, with a growth rate of 1% per year. Lower net migration is likely to have a negative effect on rental yields at the lower end of the market (most new immigrants rent) and through a cascading ripple effect, on the general price level.

The New Zealand dollar depreciated rapidly over 2007, spurred by higher overseas interest rates and indications that economic activity is calming.