“We have a lot to offer the foreign direct investor: a clean bureaucracy and legal establishment, an uncluttered tax system with no capital gains tax, a well-educated workforce, a green image, competitive wage rates by the standards of the developed world, the security from litigation that ACC provides, low power costs, a stable political environment and much much more.”
Dr Michael Cullen, 22 February 2001. Minister of Finance
New Zealand is a beautiful country offering lifestyle benefits that most other countries fail to provide. New Zealand is acknowledged by visitors from all over the world as a country of friendly and innovative people. New Zealand has a population of only 4,000,000, clean and unpolluted wide-open spaces, along with some of the most outstanding, unspoiled scenery to be found anywhere. And only investment property in New Zealand offers the opportunity to visit for periodic inspections with the cost of travel, hotel and transport being tax deductible.
Property Investment in New Zealand Offers a Number of Advantages
"Imagine I told you that there was a Western country where there was no capital gains tax, no estate or death taxes, no wealth tax, no transfer tax or stamp duty, unlimited deductibility of losses (paper or real) in one enterprise against profits in another, no limit to the amount of mortgage interest you can deduct against income, and generous depreciation rates based on purchase price and not written-down book value as passed on from owner to owner. Would this pique your interest? What if I went on that capital growth in this country had averaged 10 percent per annum for the last 100 years, that there was a stable political environment, and that the country in question was an extremely desirable place to live. Would you think of going there to invest?"
Dolf de Roos, author of Real Estate Riches, How to become rich using your banker's money and also advisor to Robert Kiyosaki, author of Rich Dad Poor Dad.
Political Environment
The political environment in New Zealand is one of stability with both a government and an opposition committed to economic growth. The current environment encourages investment in both business and property with little restriction of ownership by overseas residents.
Approaching a general election in October of 2008, National, A centre-right socially conservative party has traditionally been, and currently is the Labour Partys (the incumbent government) main opponent. National supports a free market economy, lower taxation, and less legislative interference. Early polls suggest a landslide win for National.
New Zealand’s positioning geographically and politically offers safety and stability. The uncertain global economy in these times makes ‘brick and mortar’ investments a more secure option
Economic Growth
Current Environment - New Zealand is surviving the fallout from the events of September 11 and the global slowdown in surprisingly good heart. Since 1992 the economy has enjoyed a period of sustained economic growth, only recently easing.
Although recent data shows a generally slowing economy, some activities are trending slowly back to the positive. Current business confidence surveys show that optimism in an improved future is increasing across the majority of industries. A decline in the value of the NZ dollar heightens New Zealands attractiveness in terms of offshore appeal, but raises the possibility of increases in imported consumer goods.
Net Migration Increase
There was a net permanent and long-term (PLT) migration inflow of 4,900 people in the year ended May 2008, above the recent low of 4,600 in the February 2008 year.
While PLT departures increased in May 2008, there was a larger increase in PLT arrivals. Expatriate Kiwis are buying New Zealand property. They typically have a larger disposable income and usually large equity in overseas property that they can borrow against for New Zealand property purchases.
Foreign migrants are younger and hence more likely to invest in or rent apartment styled housing close to education centers in the main urban areas of New Zealand.
Strong rental Demand - is important for property investors to offset the costs of funding a rental property, rates, management, insurance and other costs including income for the investor. More people are now renting in New Zealand than ever before. In 2006 33.1 per cent of households did not own the dwelling they lived in, up from just 26.2 per cent in 1991and by 2016 it is projected to increase to 38.1 per cent by 2016. Rent yields vary from between 5% -8% region and city dependant.
Property Cycle
Recent media press detailing the effects of the worlds financial crisis has highlighted that NZ has not and will not escape the consequences of this in totality, but it is however, well positioned for a strong recovery, predicted for early to mid 2009. Demand for property will always underpin growth, and currently there are several districts experiencing a nett shortage of property available, Queenstown being one of these.. Accordingly it is expected that the Median Residential Property prices in this area will recover reasonably quickly
There is evidence that the bottom of the property cycle occurred at or about March of this year, with very slow trading in the months subsequent. Although the housing cycle will remain sensitive to interest rates, economists are noting a pick-up in the market and are expecting an increase between 5 - 10% per annum in the price of the average residential property in the coming year.
Capital Growth
New Zealand has sustained Residential Property Growth of 10% compounding for the last 50 years.
To be regionally specific, in terms of median price, The Queenstown area shows a 31% lift over the past one year, a 71% lift over 5 years and 268% in the 10 year figures. Figures courtesy of NZ Property Investor magazine, august 2008.
Low Interest
New Zealand interest rates are historically stable which is encouraging for investment. The average onshore interest rate has been 8% for the last 50 years.
Current onshore banks offer loans from as low as 8.65%, with offshore facilities offering loans from 3.5% (as at August 2008)
Finance - Non Residents of New Zealand - Facilities are available for non-residents of New Zealand to borrow against the security of New Zealand properties. Up to 65% and in some cases to 80% of purchase price or valuation. Some offshore lenders are now viewing New Zealand property very favourably, and offering loans in various currencies, secured over the target NZ property.
No restrictions on the foreign purchase of New Zealand Urban property
New Zealand generally welcomes and encourages overseas investment from anywhere in the world.
Off-shore investors in New Zealand property no longer require Government consent to acquire urban property. Previously, consent was required when an overseas investor wished to purchase urban property exceeding $10 million.
Under the Overseas Investment Amendment Regulations (No.2) 2001, which came into force on 1 February 2002, any proposed overseas investment in urban property does not now require the consent of the Overseas Investment Office. (O.I.O.)
"Urban Property" is property that :
is used for commercial, industrial or residential purposes; and
is not used principally or exclusively for any type of farming.
Restrictions on foreign purchase of some New Zealand property
Instances when an overseas investor will need to seek consent from the Overseas Investment Office when acquiring New Zealand property include :
Property (other than the above urban property) such as, lifestyle, farms, etc, which exceeds 5 hectares (12 acres) or where the purchase price exceeds $10 million
Where the property exceeds 0.4 hectares (one acre) and adjoins sensitive property (for example, reserves and conservation, historic or heritage areas, etc.)
Where the property exceeds 0.2 hectares (half an acre) and adjoins a foreshore
Where the property is or forms part of an island.
Further, the property must first have been on the open market for a period of no less than 20 days within the past 12 months.
New Zealand can be a tax haven for foreign sourced income
As New Zealand taxes trusts essentially on the basis of the residency of the settler, a non-resident can form a trust with New Zealand trustees and that trust will not be subject to tax in New Zealand on any foreign source income. This obviously offers a significant tax planning opportunity to non-residents living in a jurisdiction whose tax rules tax income from offshore trusts.
Benefits of investing in NZ - owning property in NZ can provide significant tax advantages;
No capital gains tax- the increase in value of your own residential property is not normally taxed in NZ
No Stamp Duty - the sale and purchase (and leasing) of land does not attract stamp duty
No Inheritance Tax - when ownership of the property passes by inheritance there are no death duties or taxes charged by NZ authorities. .
Tax Credits: A New Zealander living abroad is able to build tax credits.
Depreciation - depending on the tax residency of the owner New Zealand has one of the highest residential property depreciation rates in the world - up to double the Australian rates.
Unlimited deductibility of losses or expenditure - From one business to another. Examples as follows..
Interest - The interest rates incurred on money borrowed for financing rental property is a deductible expense. There is no limit on the amount of interest deductibility that can be off set from one investment to another.
Legal Fees - Legal fees such as arranging a mortgage and drawing up a tenancy agreement are deductible expense.
Rates, Taxes & Levies, & Insurance - all deductible.
Mortgage Repayments Insurance - The cost of mortgage repayment insurance on investment property is a deductible expense.
Repairs and Maintenance - The cost of repairs and maintenance on rental property are deductible.
Motor Vehicle or other travel expenses - Expenses incurred on running a motor vehicle relative to rental property is a deductible expense.
Management fees and commission - Management fees to collect the rent and or maintain the property are deductible. Commissions paid to an agent to find tenants for the property are also deductible.
Accounting Fees - Accounting fees incurred on preparing accounts are deductible.
Tax Structures - There are several structures for investment, 3 are identified below.
1. Pre-migration Trust - The formation of a pre-migration trust is an option to be considered especially where some of the beneficiaries are not immigrating to New Zealand and/or the settler does not intend to stay in New Zealand for the rest of his/her life.
2. LAQC (Loss Attributing Qualifying Company) - LAQC stands for Loss Attributing Qualifying company, which means that the losses the rental property makes are allocated to the individual shareholders to offset against their personal income, thus resulting in a lower provisional liability or a refund of PAYE paid
3. Family Trusts - This is a common method of asset protection in NZ, separating the legal ownership from the beneficial use. |
