Property

Considering New Zealand

Anyone who’s been to New Zealand will attest to its incredible natural beauty, gregarious and smartly irreverent people, a mindboggling national rugby squad (watching a game at a pub in Christchurch is an indelible experience) and enviable and admirable social tapestry. Long before filmmaker Peter Jackson created the ultimate Oscar-winning travelogue New Zealand had forged a singular identity and eventually, following a turbulent decade in the 1980s, a diverse economy — rooted in agriculture, from wool to wine, and tourism and the services that go with it. But the high standard of living has put it on the radar for investors and that’s beginning to transform its property market.

Kia Ora

For the 4.5 million people that call Aotearoa home (the country’s name in the native Maori) the 2000s have been more exciting than most would like. The 2008 GFC and a devastating earthquake in Christchurch in 2011 put a great deal of stress on the economy that Kiwis are just now getting out from under. Interestingly, the banking meltdown didn’t affect New Zealand as much as it could have, largely due to rising inbound immigration. “The latest estimates predict our population will reach 5.16 million by 2025 and demand for housing will remain high. Construction levels are not keeping up with this demand,” begins Chris Kennedy, CEO of Harcourts, the country’s largest, and one of its oldest, property advisory. “In Auckland 300,000 new homes are needed by 2040 to keep up with population growth, however at current construction levels only 80,000 will be available.”

Domestic demand is crucial for any healthy real estate market, and as Kennedy points out, Christchurch continues to face a housing shortfall from residents due to the earthquake — as well as a sudden influx of workers. Prices have crept up as a result, as they have in Auckland, the capital, Wellington and alternatives such as Tauranga and Hamilton, both in central North Island. “Having said that, there is much interest in New Zealand from overseas investors because of the value still to be had and the opportunity for capital gain. Renting properties also returns high yields,” says Kennedy. Despite having a lower investment profile than Australia — a premiere investment destination for Asian buyers from Indonesia to China — Kennedy maintains it is indeed an investor's market. “Our low interest rates and increasing property values are very encouraging to New Zealand investors — who make up the majority of property investors. We are also seeing a steady stream of foreign investment, with investors from Asia, India, Australia and Britain the most prevalent,” he notes. New Zealand affords overseas investors the same legal protections Australia does for less money: the Kiwi dollar currently costs Hongkongers roughly 50 cents less than its Australian counterpart. That may not be much, but it’s a potential million-dollar difference when comparing similar properties. And, “The fact that we have investors from Australia looking to buy in New Zealand shows that our property market is favourable when compared with Australia’s” adds Kennedy.

Competitive Gains

New Zealand is something of a mystery for some investors, with Auckland the only familiar landmark, and Christchurch and Wellington close behind, much the same way overseas buyers are comfortable with the familiar in all markets. Australian investment remains concentrated in Sydney and Melbourne; Canadian investment trends to Vancouver and Toronto, American to New York and San Francisco. Indeed, Kennedy notes foreign investors are most interested in high-density locations like Auckland, however the strong market overall is having what he refers to as a halo effect. “Investors are looking to other cities including Wellington, Hamilton and Tauranga. High rental yields and the likelihood of being able to resell easily with a good capital gain is very attractive.” According to data from advisory LJ Hooker, Tauranga (on the Bay of Plenty) prices grew 4.8 percent quarter-on-quarter in summer 2015, and nearly 14 percent over the previous year. In Hamilton over the same periods prices gained 10.2 and 18.2 percent, well above the national average. In Auckland, home to 30 percent of the country’s population, the numbers were positively London-ish. The city centre gained over 22 percent between 2014 and 2015, with the median home price now at NZ$924,000 (HK$5 million). Trendy, arty Ponsonby tops the list.

Either way, new builds attract investors most often, and as Kennedy sees it, there are not nearly enough new developments coming up to feed investor appetite. But that’s not the issue it could have been in the past. “There is not enough new construction occurring in New Zealand to keep up with demand, however we are finding that many Asian investors are adjusting their expectations,” he says. “Modern houses that have been well maintained are proving very popular.” Another non-issue is the relative strength of the US dollar, which has jump-started investment in some regions. New Zealand’s natural beauty, safe haven status and position as an international destination have, contrary to popular belief, kept it on the investor map Kennedy reasons.

New Zealand is awesome, true, but it’s not perfect, and like all markets it has its challenges. Not surprisingly, “The shortage of housing in New Zealand remains the biggest challenge,” admits Kennedy. “Construction levels need to be ramped up to cater for our home market as well as overseas investors. The government is well aware of this and is working towards solutions.” As the saying goes: Sweet as.