Property investing in New Zealand

No stamp duty. No land tax. A mortgage approved in as little as five working days. Affordable housing options with enormous potential for capital growth. These are just some of the reasons Australians could consider investing in New Zealand property.

But what are the things you should know before setting your sights on the property market in the neighbouring country? Let's dive in.

Are foreigners allowed to invest in property in New Zealand?

Let's be clear up front: thanks to a free trade agreement between Australia and New Zealand, Australians are exempt from New Zealand's foreign ownership laws.

Australians also don't have to pay the surcharge New Zealand usually charges foreigners who buy a property in the country, regardless of whether their purchase is intended as a place of residence or as an investment.

Essentially, Australians are treated as locals when it comes to buying houses or other properties.

However, conditions are tighter for other overseas buyers, who aren't permitted to buy a house or land without meeting residency requirements and getting consent before any purchase. In 2018, the New Zealand government extended its overseas investment rules in a bid to cut the number of homes being sold to overseas buyers (more on the overseas investment restrictions below).

While these laws do not affect Australian purchasers, they do apply to temporary residents of Australia and those on Australian working visas.

While such temporary residents can purchase property in Australia, they can't in New Zealand without meeting the country's overseas investment regulations and paying a national surcharge on their transaction.

When do non-Australian foreign buyers need consent?

The 2018 Overseas Investment Amendment Act effectively banned most non-resident foreigners from buying existing homes or land in New Zealand by classifying the properties as 'sensitive land'.

The amendments also introduced a residency test which effectively allows only New Zealand resident visa holders to buy or build a home to live in, but only with prior consent.

As a result, overseas buyers in New Zealand now need consent to invest when purchasing New Zealand assets, including homes, land, significant business assets, and fishing quotas.

Land Information New Zealand sets out the scenarios wherein foreign investors or buyers need consent for transactions involving the above-mentioned categories. Here are a few such scenarios:

• The overseas person is acquiring a direct interest in sensitive land or fishing quota

• The overseas person is acquiring an ownership or controlling interest of more than 25% of an entity that holds sensitive assets, where it previously held no interest

• A person who directly or indirectly has an interest in sensitive land or fishing quota has become an overseas person

Do Australians need special consent?

As mentioned earlier, the existing free trade agreement between Australia and New Zealand means Australians do not need such permission.

Australian citizens are not required to apply for permission in the Overseas Investment Office and are issued a New Zealand resident visa upon arrival in the country.

Singaporean citizens are also exempt under the free trade agreement between Singapore and New Zealand.

What are the steps to buying a property in New Zealand?

The process of buying a property in New Zealand is similar to the process of purchasing in Australia, with most home and land sales completed through an agent.

See also: Things you should never say to a real estate agent

1. Find a property

The best way to find available properties is to look at property websites that host listings from real estate agents and private sellers. Some agents will also have their own websites.

If you visit New Zealand, you can visit local real estate offices in the areas you're interested in to gather local information and perhaps access listings that might not be available online.

2. Choosing the right property and doing some checks

In New Zealand, you will come across either attached or standalone properties. Townhouses and apartments are considered attached properties while standalones are what are often referred to as detached homes in Australia.

As in Australia, it is strongly recommended you do the usual checks on your chosen property before making any offers. Some sellers may commission their own reports which they give out to potential buyers. However, it's always wise to ask for independent advice and do your own checks.

See also: House inspection checklist: 8 things to look for when buying a house

Homebuyers should also seek advice from a solicitor or a conveyancer, just as you would when purchasing property in Australia.

They can help you in the process of title checks or in obtaining the property's Land Information Memorandum (LIM).

What is a LIM?

A LIM report is a summary of information held on a property including:

• Any issues with the property found after state of emergency situations

• Potential erosion or subsidence issues, flooding, and any presence of hazardous substances

• Public and private stormwater and sewerage drains

• Any overdue rates

• Building, plumbing, and planning consents

• Any special conditions over the property, including heritage listing

• Any other information the local council has been alerted to

A solicitor acting on your behalf may also help you to arrange an independent valuation, which you can use when negotiating prices with the seller.

3. Make an offer and sign the deal

Once you have done all the checks and you feel like the property is what you're after, you'll have to make an offer and sign the sale and purchase agreement.

At this stage, as in Australia, it's wise to get your solicitor to check the contract before you actually pen your signature.

After that, you can carry out the usual pre-settlement arrangements and even have one final inspection.

4. Borrow money

This is where it gets a little complicated. Many banks and other lenders in New Zealand require borrowers to have some local credit history, which you might not have if you're coming straight from Australia or plan to continue living there after your purchase in New Zealand.

Generally, Australians can obtain a home loan in New Zealand, but they must meet the usual eligibility criteria such as having a secure income, good credit history, and sometimes even being able to provide a larger deposit than local buyers.

First up, it's wise to check whether your Australian bank or lender has a presence in New Zealand. This could boost the chances of your mortgage application getting approved.

It can also help to reach out to a specialist New Zealand-based broker to navigate the system of lending to non-resident buyers. There are also brokers in Australia who are accredited to write New Zealand loans.

You may find you qualify for a standard home or investment loan, which are much like they are in Australia, although lenders may vary some terms and conditions for non-residents.

There are also loan products specially designed for non-residents, including Australians. These may come with higher interest rates and extra conditions, as lenders can consider such loans higher risk.

You can apply for pre-approval with a New Zealand lender prior or during your property hunt. Pre-approval can give investors an added degree of confidence when they make an offer on a property.

5. Settle

An agreement between the buyers and the vendor is then drawn up and sent to each party's solicitor.

Once finance has been arranged, the solicitor arranges for an inspection and for the preparation of the LIM.

Your solicitor will then draft an agreement for sale and purchase and, having received the mortgage documents from your New Zealand lender, prepares the transfer of title.

The best thing about settling on a New Zealand property, aside from the fact that it only takes around six weeks, is that you can do it from Australia. Your solicitor can courier the documents to you in Australia to sign, and the settlement can proceed as soon as you send them back.

What are the tax rules on Australian property ownership in New Zealand?

New Zealand's similar political, legal, banking, and regulatory environments make it relatively easy for Australian investors to hold assets there.

While Australians can take out mortgages in NZ dollars to purchase investment properties, they must still pay tax on any income they earn from them in Australia.

The so-called Double Tax Agreement between Australia and New Zealand sees investors avoid being up for a double whammy of tax in both countries. However, Australian landlords are still required to file a New Zealand tax return for any earnings they make across the ditch.

If Australians are required to pay tax in New Zealand, they will generally be able to claim a Foreign Tax Credit against any Australian tax that's payable on their rental income to avoid being hit twice.

Expenses such as interest incurred on borrowings, depreciation, and maintenance costs relating to investment properties in New Zealand can be offset against rental income received, as is the case in Australia.

It pays to have an accountant or tax advisor that's across the taxation regulations in both countries so you understand the requirements.

Similarly, while New Zealand has no capital gains tax (CGT), Australian residents must still pay CGT in Australia on any gains derived from New Zealand-domiciled assets.

Image by Dan Freeman on Unsplash