NZ New Zealand? Higher yields? Possible pitfalls?

Hi all

I have recently been attracted to NZ due to the greater affordability and higher yields seemingly available.

Obviously all standard due diligence will still apply, but apart from exchange rate, no stamp duty, higher LVR requirements and potentially lower growth expectations, is there anything else that is drastically different or needs to be considered?

I have started discussions with a NZ mortgage broker to explore the financing options available
(it also seems like a great excuse for a investment holiday )

However, just wanted to put the feelers out and see if anyone else has been there, done that?

 

Hi there. What areas are you looking into? A major concern is demographics so dd is needed.
Just remember Auckland has grown significantly over the last couple of years so a chance of a correction in the future.Cgt will apply if your in Aus. And there is a double taxation agreement between the countries.

I own in Auckland. Yields are 9-10% so not bad. Will be less on todays values unless you can find a great deal.

 

Excellent, thanks.
How did you find the process of buying over there?

Although Auckland has much higher population forecasts, it's a touch too pricey for what I'm looking for at the moment. So I'm looking at any of the cities with Unis or those that are projected to have continued population growth. I'm hesitant to consider Christchurch still due to the earthquakes and insurance, etc. Although, perhaps I should - where others perceive a problem is often where there are opportunities to be found. I'm also looking at the Bay of Plenty area, Dunedin and Richmond/Nelson area. I have personally been to most of the main areas in NZ, but will make sure I investigate any other area before putting investing there.

I'm currently prioritising cashflow/yield over capital growth for the moment in order to help cover the neg gearing I have on home soil. Any thoughts?

 

If you can get a hold of of paper from Queenstown ,with all the building work there is a massive under supply of rental properties ,,the entry price may be high but also is the rental price..imho..
http://www.odt.co.nz/news/queenstown-lakes

 

Dunedin. Is alot of work. The yields are alot higher when targeting students but they are tight and vacate during the holidays etc and don't look after things too well. Watch the show renters from over there lol.

I have friends /family that have invested in dunedin and palmerston north student accomodation and have since sold. The most important part will be finding the right pm and deciding to go one lease or individual leases
. But alot of people make money from it so
Theres ways to minmise the downfalls and take advantage of it.

 

I do have a major love of Queenstown.. perhaps it's time for a visit again.

lol, I will have to.

And that's the thing, I'm in a situation where I can take a bit of extra risk to get a bit of extra cashflow going, but it needs to be sustainable. Vacancies are ok, as long as the rents are high enough when it is filled (so on a yearly view, I'm still nicely in the black)
Any tips on solid PMs over there?

I had heard that it's getting a good PM that will be a challenge with investing in NZ.

 

Rents in Christchurch have been gradually declining over the past year on the back of strong supply coming through from EQ repairs and rebuilds and I'd say prices will probably start to follow soon if they aren't already.

The earthquakes impacted different parts of Christchurch at different scales - the eastern suburbs, Port Hills suburbs and city centre saw major damage to buildings and land while the western and northern suburbs were mostly unaffected by the quakes. I wouldn't use earthquakes as a reason to not invest as they can occur in most parts of New Zealand.

 

Yeap excellent, risk vs reward thats the way to look at it and base your decisions off. your right, the higher yields make up for the vacancies as long as you have relatively trouble free tenants. doesn't take much to wipe out your yearly positive returns.
I can recommend good pms in Auckland, but unfortunately none anywhere else in the country

 

Like anywhere, New Zealand definitely is dependant on where you buy. I would only purchase around major cities that have big infrastructure plans for the future. Unfortunately there is not a lot going on there and population growth isn't near what Australia has.

I'm just in the process of selling a property in my home town of Whangarei which is a small city of around 60,000 people, 2 hours north of Auckland. The property, a house which we paid $330k for 6 years ago is now worth $340k.

There are properties throughout the country throughout the country that you can find with good yields, however as far as growth is concerned it's a slower market

Scott

 

I've got one outside Nelson and as long as it doesn't tank in value I couldn't really care too much about cg. It pays for itself and I love the place.

 

Does anyone know if the serviceability calculations are more generous in NZ?

 

Basically the same as here in Australia. As you are probably aware the thing that is making NZ appealing is the No stamp duty cost and no capital gains tax. There is talk of bringing a capital gains tax in on investment properties sold in under 2 years of ownership but it hasn't passed yet. A lot of major lenders are wanting 30% deposits on investment properties especially in Auckland.

 

I'm pretty sure the government has imposed a 30% deposit for Auckland investment properties.

I believe servicibility calculations are similar to pre-APRA Australian calculations. Reading between the lines of what the broker I'm in contact with has been saying, it sounds likely that there could be changes here. I'm looking to buy mid next year and he's suggesting not to wait so long as the rules could change.

www.propertytalk.com is the NZ equivalent to this site so it's worth a browse. It's been around quite some time now.

I'm looking to buy in the BOP as an investment or up around Waipu and Mangawhai to get a place near the beach for eventual retirement. Wellsford would be worth looking into as the new motorway is going to make Auckland a short commute.

 

If you are an Australian tax resident buying in NZ, capital gains tax applies the same way as if the property had been purchased in Australia. Also you would need separate quantity surveyor depreciation schedules prepared for the NZ IRD (tax office) and the Australian ATO. NZ is not nearly as generous with depreciation as Australia is!. A non resident NZ tax return has to be lodged, as well as including the property in your Australian return.

I would not be investing in Auckland as it has had Sydney like growth (with chinese investment) and is just peaking. Anywhere else in NZ is a risk as far as I am concerned due to economic fluctuations. Also exchange rates have to be taken in to account. At the moment A$1 is NZ$1.07. This is unusual and the historical average rate is around A$1 equals NZ$1.25. Therefore you could well lose equity through exchange rate movements. Finally interest rates are usually 1-2% higher in NZ than Australia. That is not the case at the moment but it is is definatley a risk factor.

 

So it's not worth it if you are an Australian resident then.
The reality is that you want to rent to New Zealanders, just buy a property in Logan or Coomera.

 

Personally I don't think it is worth investing in NZ it at this stage with the risk factors I have mentioned. What is commonly not known is Australians make up a similar percentage of New Zealand's population as NZ'ers do in Australia. So if you buy a property in NZ you could well be renting to an Aussie!.

 

Good point about the currency play, I did not understand this when I invested in NZ fortunately it worked in my favour, but it can also work against you.

MTR

 

Thanks all for the responses and discussion,
According to my trading platform, the average AUDNZD is around 1.18-1.19, so it seems that yes the rate is quite low at the moment. A move back up to the mean could mean a 10% reduction is both property value and rent in AUD$. In fact, the lowest it dropped to over the last 20 years was around 1.03. May be better off waiting out a return back to mean (or an overshoot, considering the forex market), before making a move into NZ.

Also, just to add to the information in this thread (for future reference), the broker I was discussing terms with in NZ stated that the following conditions apply for Aus investors:
- max LVR is 70%
- Total serviceability is scaled to only 80% for all evaluations (so potentially, lowering maximum loan amount by 80%), and rental income from the property is scaled to 75%.
- Investors require a NZ bank account and IRD

I think I need to sit back and put together my strategy.

My initial thoughts are that NZ may end up playing a part in it, but it now seems that it won't be within the next year or so. However, I will keep researching the market and will keep it on the agenda for the time being simply due to its affordability.

Thanks all.

 

Around 25% of New Zealands population live overseas.
Around 5% of Australias population live overseas.
At least 650,000 New Zealanders live in Australia, that's more than 15 percent of New Zealand's population.
Around 65,000 Australian's live in New Zealand, that's 0.27 percent of Australia's population and 1.55% of New Zealands population.
So New Zealanders make up 2.71 percent of Australia's population.

Maths wasn't your strong point was it Sonny Bill? ...... or spelling for that matter..

 

I'd say 1.55% and 2.71% could be called similar.