Learn why the international buyer is focusing on New Zealand as an investment destination.
High Total Returns & Capital Gains
New Zealand property total returns are among the more attractive and stable in the world. Following the post GFC recovery, commercial and industrial property investments have consistently generated double digit returns according to the latest Investment indices calculated by MSCI. Returns over recent years have been generated by upward pressure on rentals and yield compression across all sectors.
Straightforward Land Title System
New Zealand has an easily understood land title system based on the Torrens system of Land Registration. The Land Transfer Act 1952 provides for a public register of land and transactions may be conducted in reliance on the register.
With its well-developed legal and trading systems, New Zealand provides a strong diversification option for property investors internationally in a balanced service, rural and manufacturing economy, in which many major international corporates are already invested.
New Zealand is a constitutional monarchy with a stable, democratically elected parliamentary government.
Stable Banking Sector
All banks are solvent and are maintaining capital buffers in excess of the Reserve Bank’s current minimum requirements. The system-wide total capital ratio increased to 14.4 percent of risk-weighted assets in March, up from 12.8 percent three years ago. Most of this growth has beenachieved through higher levels of additional Tier 1 (AT1) capital. This has been driven by large banks, which issue the majority of AT1 capital instruments. Smaller banks are typically reliant on common equity Tier 1 (CET1) capital, which is the highest quality of capital.
New Zealand’s banking system is among the most profitable in the OECD. The profitability of New Zealand’s four largest banks increased over the past year, with their average return on assets increasing from 1 to 1.1 percent. Historically, the four largest banks have been more profitable than smaller banks, on average. This reflects the significant economies of scale and funding advantages of the large banks relative to smaller banks.
Corruption-Free, ‘Clean Green’ Image
New Zealand has a legal system similar to that of Great Britain, Australia and Canada. It does not have the added complication of separate state and federal laws. The judiciary is completely independent of Parliament. The political and legal systems are free from corruption and there is no civil unrest. The attractiveness of New Zealand as a place to live and work is becoming a key factor in sparking international investor interest. As many countries experience internal economic strife and uncertainty, investors are looking to New Zealand as a safe haven for both investment and lifestyle.
Welcoming Foreign Investment Policy
Foreign investors wishing to acquire commercial property in New Zealand can freely do so without the approval of the Overseas Investment Office (OIO) for most classes of property at sale prices of less than $100 million. For those properties requiring OIO approval, it is recommended that legal advice is sought.
There are no exchange controls affecting remittances to and from New Zealand. A free flow of capital in and out of the country is permitted.
No Stamp Duty or Capital Gains Tax
A passive offshore investor does not pay any stamp duty on purchase or capital gains tax in New Zealand on any profit made on the sale of a property.
At the time of writing, the New Zealand dollar was trading at approximately 67 cents against the United States dollar, below the ten year average of 74 cents. Against the Australian Dollar the local currency is trading at approximately 91.5 cents which is ahead of its ten year average of 86 cents. On a Trade Weighted Index (TWI) basis, the New Zealand dollar is around 72.5.
The USD/NZD exchange rate has come under considerable pressure over recent months on the back of negative New Zealand interest differentials to the US, both for short- and long-term yields.
Our forecasts assume that the OCR will remain at its current level of 1.75 percent until early 2020. That would imply a gradual widening of the negative differential to US short-term rates to about 150bps by late 2019. That scenario appears to be priced into the USD/NZD rate already, but we expect further New Zealand dollar weakness against other currencies where monetary tightening proceeds at a faster pace.
The New Zealand economy recorded a 0.5 percent increase in Gross Domestic Product in the March 2018 quarter. This follows a 0.6 percent rise in the December 2017 quarter. Growth was driven by expansion within the primary and service sectors according to Statistics New Zealand. Investment in fixed assets was up 0.7 percent in the March 2018 quarter, following a 2.3 percent increase in the December 2017 quarter. Investment in fixed assets grew 3.9 percent for the year ended March 2018. Economic growth over the year to March 2018 was 2.7 percent. Looking ahead NZIER forecasts GDP growth to average just under 3 percent over the next five years.