New Zealand: An Overlooked But Brilliant Investment
When people think of investing, New Zealand is rarely the first country that comes to mind. However, this ignorance concerning the Kiwi Island among the general public is the prudent investor’s strength, allowing them to take advantage of an unsaturated opportunity. Below are some of the reasons why New Zealand truly is an overlooked but brilliant investment.
New Zealand was rated the 3rd most economically free country in the world, after Hong Kong and Singapore, by the Heritage Foundation in 2017, making it the freest “Western” country in the world, economically speaking. This freedom is measured by the strength of property rights, the unobtrusiveness of government, the minimal nature of economic regulations, and the openness of trade. In New Zealand, starting a business, hiring (and firing) employees, garnering investment, and moving products to market are relatively simple procedures, with minimal interference from the state. This freedom has resulted in economic prosperity, high human development, and a very high quality of life for those living in New Zealand. Economic growth has been solid, at 2.8% in 2016 and an expected 2.7% in 2017, outpacing many of the other Western economies, and unemployment at a low 4.9%. New Zealand offers significant economic opportunities both in theory and in reality, and if you’re the kind to be looking at transnational investment, you’re likely also entrepreneurial and business-minded, making New Zealand an ideal place for you.
Rising Home Prices
New Zealand has been one of the hottest real estate markets in the world in recent years. The country has seen a 6.26% increase in housing prices in 2016, which is already significant, but a sharp drop from the 15.39% (!) increase in 2015, a truly astounding figure. New Zealand has seen positive home price growth since 2012, and has been one of the nations least affected by the 2008 global financial crisis.
The greatest increases in home prices in 2016 occurred in Nelson/Marlborough, with a 21.6% increase in home prices, followed by Waikato/Bay of Plenty (17.6%), the capital Wellington (16.1%), Northland (15.4%), Taranaki (14.8%), and HawkesBay (14.7%).
Lower, but still significant increases in housing prices were recorded in the largest city of Auckland (7%), Manawatu/Wanganui (6.9%), Otago(5.7%), Canterbury/Westland (3.4%), Central OtagoLakes (2.7%) and Southland (0.3%).
The most expensive homes in New Zealand are in Auckland, the most populous city in the country, with an average home price of NZ$825,000 (US$586,988). The cheapest homes were in Southland, where the average price is just NZ$200,000 (US$142,300), although the region is obviously a less desirable place to live and has a population of under 100,000 for the entire region.
Below is a graph of the change in New Zealand home prices since 2000
Moreover, housing construction is increasing as well, up 14.4% in 2016. Therefore, while the unsustainable, double-digit price growth of recent years has cooled down following government measures to require stricter loans conditions, the housing market itself will continue to increase in value, making it prime for investment.
Rental Yields and Taxation
If you’re considering purchasing a NZ property to rent out, the two main areas to consider are Wellington and Auckland. Both have high rates of return on rental property. In Auckland, rates for smaller apartments were between 6.09% and 7.18%, while for Wellington, rates were slightly higher, varying between 6.88% and 8.43%. Both of these are good rental markets, while most other areas in the country were more difficult areas for renting.
For tax purposes, rental income counts in regular income, which is taxed progressively from 10.5% to 33%. If you earn income in NZ aside from rental income, it will likely push you into a higher tax bracket. Moreover, residents of NZ are taxed on their worldwide income at those rates, so foreign nationals with residencies in NZ may be vulnerable to double taxation. Consult with a tax professional for more help with these matters.
New Zealand: Apocalypse Insurance
One final interesting tidbit about New Zealand: increasingly, Silicon Valley billionaires are purchasing New Zealand property as insurance against a possible apocalypse, be it from cyberattacks, coups, or a breakdown in civic order and mass rebellion. Peter Thiel, co-founder of Paypal, for instance, purchased a home in a southern island of New Zealand, one of the most isolated places in the world. Many other billionaires have done likewise. So, while you might not be a billionaire, you too can own a home in a free, beautiful, and apocalypse-proof country.
For help in securing a mortgage in New Zealand, contact Crossborder today.