HIGH TOTAL RETURNS AND CAPITAL GAINS
New Zealand is the first country to see the sunrise and as dawn beckons on the third decade of the millennium, global investors are increasingly awakening to the attractions of the country’s commercial real estate.
New Zealand property total returns are among the more attractive and stable in the world. As interest rates have fallen, the demand for higher-yielding assets has risen. Competition has increased over recent years as international buyers have become more active and this increased competition has resulted in yield compression. Rentals have also been experiencing upward pressure as new business creation and expansion has driven vacancy rates to multi-year lows across many of the country’s major commercial precincts.
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
New Zealand’s banking system is profitable and all banks have capital, liquidity and stable funding ratios that exceed current regulatory requirements.
According to the Reserve Bank of New Zealand: Financial Stability Report, May 2019. The Reserve Bank of New Zealand, however, is moving to ensure the resilience of the New Zealand banking system, proposing that banks should increase the capital they hold so they have sufficient capital to withstand a one-in-200-year event.
INVESTMENT PERFORMANCE INDEX
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 global volatility has risen, investors have increasingly been looking to New Zealand as a safe haven for both investment and lifestyle.
WELCOMING FOREIGN INVESTMENT POLICY
Offshore buyers can generally purchase commercial property worth up to NZ$100 million without requiring Overseas Investment Office approval. This threshold rises to NZ$200 million for many investors from countries such as Canada, Chile, China, Hong Kong, Japan, Korea, Malaysia and Singapore, which are signatories of trade agreements including the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). In respect of certain Australian investors, the threshold rises to NZ$530 million.
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 64 cents against the United States dollar, below the 10-year average of 75 cents. Against the Australian dollar, the local currency is trading at approximately 94 cents which is ahead of its 10-year average of 87 cents. On a trade-weighted index (TWI) basis, the New Zealand dollar is around 71.2 cents.
EXCHANGE RATE OUTLOOK (NZIER)
The Reserve Bank of New Zealand survey of expectations shows analysts expect the NZD/USD will remain around current levels in a year’s time, reflecting the relatively lower interest rates in New Zealand. (NZIER Quarterly predictions September 2019)
New Zealand has fared relatively well in the wake of the Global Financial Crisis (GFC). Real GDP per capita is 10.7 percent higher than pre-GFC levels – second only to Korea among OECD countries. And it took less than three years (eleven quarters in fact) for New Zealand real GDP per capita to return to pre-GFC levels – faster than the OECD average of 23 quarters.
Annual GDP growth in the year to March 2019 was 2.7 percent, with the economy expanding for the 33rd successive quarter (the longest stretch since records began in 1947). The March quarter growth was 0.6 percent.
Construction was the main contributor to GDP growth in the first quarter of the year, rising 3.7 percent, on top of a 2.2 percent increase in the previous quarter. The increase in construction reflected higher investment in both residential and non-residential buildings.
Looking ahead, the New Zealand Institute of Economic Research expects further growth of in excess of 2 percent per annum over the next five years, stating that “the New Zealand economy is on a solid footing”. Annual GDP growth is tracking around 2.5 percent, the unemployment rate is at an 11-year low of 3.9 percent and construction demand is strong.