property investments in new zealand

New Zealand is a beautiful country with fantastic scenery. One survey by Telegraph ranked it as the world’s favourite country for its beautiful landscapes and captivating nature. New Zealand may be a small country, but it has attracted throngs of people for its tourism. Many tourists visit the country for its enigmatic charm and fascinating people. In the past years, foreign property investments in New Zealand was huge and has helped the economy thrive amid the global recession. 

For investors, New Zealand’s diversity, ingenuity, and innovation are what sets them apart from other countries. However, New Zealand has made its property market inaccessible to foreign investors. In 2018, the New Zealand government banned foreigners from buying properties in the country because they believed overseas property ownership is driving prices up. Stories about wealthy Silicon Valley foreigners snagging up properties in the picturesque rural areas of the country and high net worth Chinese nationals outbidding the locals on buying suburban homes in Auckland have caused property prices to go up. 

Before the ban, approximately 3% of New Zealand homes are foreign-owned. However, it is notably increased in Queenstown (5%) and central Auckland (22%). 

New Zealand Economic Status

In the recent UNCTAD World Investment Report, the country received about $1.4 billion in foreign direct investment in 2018, which was a significant decline in the 2017 figure of $2.5 billion. These figures are crucial for New Zealand because the country’s economy relies heavily on foreign investments. The state ranked first in 190 countries in the 2019 Doing Business Report by the World Bank. The ranking showed the country’s open and business-friendly economy, excellent protection of property rights, low levels of corruption, high living standards, tax policies, and political stability. 

Out of 180 countries, New Zealand ranks 2nd in their list of least corrupt nations, which shows that the country has strong democratic foundations. This low level of corruption has made New Zealand a top choice for foreign investors. The country is also the third freest economy in the world, as reported by the 2018 Economic Freedom of the World Report. 

Liveability in New Zealand

Why do most people choose to live in New Zealand? In the 2018 Deutsche Bank Top 50 cities with the best quality of life, Wellington took the top spot to beat other countries such as Zurich, Copenhagen, and Vienna. The ranking considered the city’s safety, health care, purchasing power, property price to income ratios, pollution and climate, traffic commutes, and cost of living. Wellington ranked highest in the least polluted cities and fourth in the property to income ratio and traffic commutes. Out of 231 countries, Auckland took the third spot in the 2019 Mercer Quality of Living survey

Property Investments in New Zealand

While foreigners are no longer permitted to own properties in New Zealand, a few exceptions apply. Foreigners with New Zealand residency status can still buy homes, so are the citizens of Australia and Singapore, thanks to current free-trade agreements with these countries. 

Foreigners who have existing homes in the country are, likewise, not covered by the new resolution. Additionally, foreigners may still direct their investments in huge apartment blocks and hotels in the country. 

“This government believes that New Zealanders should not be outbid by wealthier foreign buyers,” Associate Finance Minister David Parker said. “Whether it’s a beautiful lakeside or oceanfront estate, or a modest suburban house, this law ensures that the market for our homes is set in New Zealand, not on the international market.” He added that it is the birthright of the locals to purchase homes at a fair market price.

In recent years, property prices in Auckland are skyrocketing. While the market experienced declines in the past year, prices are still among the most expensive in the world. In the figures by the Real Estate Institute of New Zealand, Auckland’s median house price is currently at NZ$835,000 compared with the national median cost of NZ$550,000.

Property Market Trends in New Zealand

The current property market of New Zealand is cooling down – at a rapid pace. Last year, the median house price only appreciated by a mere 1.5%, indicating a sharp decline from year-on-year price increases of 6.28%, 13.85%, and 11.49% in 2017, 2016, and 2015, respectively. Many analysts believe that it could be due to restrictions in foreign property investments in New Zealand. 

Still, some believe the decline in house prices was a long time coming as the country enjoyed close to seven years of rapid and continuous price increases and the market has adjusted to the demand. 

CHG Recommendation: Invest in Small Apartments in Wellington and Auckland

New Zealand has a robust tourism industry. This strong growth in the number of visitors annually translates to high demands for rental properties. Foreigners looking to make property investments in New Zealand may take advantage of the influx of tourists willing to explore the natural wonders of the country. 

Deutsche Bank estimated New Zealand house prices to be overvalued by 30% relative to income. About 82% of properties are also overpriced in relation to rents. In 2018, the country ranked as the second most unaffordable primary housing market. 

Of all the housing markets of New Zealand, foreign investors can make good money by investing in apartment blocks located in Auckland and Wellington. Apartments in Auckland have rental yields of as much as 6.09% to 7.18%. Securing smaller apartments will give higher returns. In Wellington, investors can enjoy rental yields of 6.88% to 8.43%. 

On the other hand, investors must stay away from Christchurch as properties here only have 2.96% to 4.26% yields. 

Rental rates in the country continue to rise, with private residences posting all-time high prices of NZ$495 weekly, increasing by 5.4% from the previous year. New Zealand’s most expensive city is Wellington with a median weekly rent NZ$595, indicating 8.2% year-on-year price increase, according to Trade Me Rental Price Index.

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