Land of the long cloud
Don’t be sheepish about the New Zealand property market. The recent downturn has resulted in increased affordability, particularly for overseas buyers. Jack Robertson reports
‘‘Though purchase of a property does not give you the right to live permanently in New Zealand, the local government actively encourages foreign investment in the property market in order to meet the demand of a growing population’’
A favourite with moviemakers and holidaymakers, due to its spectacular landscapes, New Zealand has what it takes to appeal to property investors. Over the last few years however, the appeal has been so high that New Zealand’s prices have outpaced the budgets of many would-be buyers.
But the tide is turning. If you’ve been considering buying property in New Zealand, now might be a good time to start looking seriously, as the market is transforming from a seller’s to a buyer’s. Residential property prices, which have experienced a 100 percent growth since 2001, have been falling fast since the end of last year.
It is important to remember that whilst growth is slowing and prices are dropping, the long-term picture for New Zealand is anything but bleak. The residential property market is underpinned by strong fundamentals: a stable political environment, strong economy, high employment rate, moderate inflation, and rising global demand for commodities.
Though purchase of a property does not give you the right to live permanently in New Zealand, the local government actively encourages foreign investment in the property market in order to meet the demand of a growing population. On the tax front, there is no capital gains tax, stamp duty, estate duty or inheritance tax. Besides, some banks offer attractive mortgage packages, providing loans of up to 80 percent of the property’s value, to foreign investors.
Higher interest rates and falling buyer confidence have taken their toll on the New Zealand property market, and if the slow in growth and sales continues, prices are likely to plummet this year.
The outlook is already positive for buyers on a budget though average sales prices in New Zealand remain quite high. The typical home costs about NZ$400,000 (HK$2.4 million).
According to the Real Estate Institute of New Zealand (REINZ), the national median house price fell 1.4 percent to NZ$340,000 from December. Institute members sold 5,186 houses in the month compared with 5,597 the month before, a fall of 7.3 percent. The figure was down 31.5 percent on a year earlier, and was the lowest since January 2001.
The median number of days taken to sell a house rose to 49 days from 36 in December and 38 days a year ago: the longest period to sell in eight years.
Clearly, the fall in the number of house sales means lower prices can be expected. There is a growing tension between the prices homeowners are seeking and what buyers are offering – buyers have been quick to sense that the market is weakening and they are ready to take advantage of that situation. They are really looking hard and exploring their options before placing money on a home.
Savvy investors will find that if you look hard enough you can locate some incredible steals on the New Zealand market. Some sellers are getting antsy, due to the slowing growth and dropping interest on the part of buyers, and they are taking less than appraised value to make a sale.
Positive potential for returns
Whilst buy-to-flip potential is waning, the potential returns continue to make the market very attractive for buy-to-let investors, second-home buyers and expats.
Rental yields remain promising in the 5 percent to 7 percent range, driven by demand from locals and tourists alike. Holidaymaking figures remain healthy, which is an obvious draw for investors. With an estimated US$21 billion economic impact in 2007 alone, the tourist industry is looking extremely healthy and demand is expected to grow by 4 percent per annum through to 2017.
In addition, due to high interest rates, affordability for (local) first-home buyers remains near its worst levels, despite the recent price slump. Many find themselves stuck in the rental sector. It now takes 80.8 percent of take-home pay from a median income to pay the mortgage on a median-priced house bought in January. Food for thought, when you consider that any figure over 40 percent is seen as unaffordable for one income.
Strong interest from Southeast Asia
Lately, in addition to the traditional source of Australians and British buyers who buy for investment purposes or personal occupation, the number of Southeast Asian buyers has increased, in particular from Hong Kong and Singapore.
Asian investors tend to be interested in new-built New Zealand developments, as they are looking for high capital-growth potential. Before committing on the property, they take into account the location, the developer’s track record, rentability, capital value, re-sale prospects and the tax position.
Most Hong Kong buyers will first consider residential properties in Auckland, New Zealand’s largest city and a business and economic hub. The population is growing along with the number of tourist developments, and investors in waterfront and prime city properties can expect a rental yield in the range of 6 percent to 9 percent, plus healthy capital growth in the mid- to long-term.
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