PHOTO: Ketan Kumawat – PEXELS
Australian property investors are increasingly looking across the Tasman at New Zealand real estate, with Queenstown and other Kiwi lifestyle destinations emerging as potential beneficiaries of changes to Australia’s property investment landscape.
And for some Australian buyers, the numbers are apparently becoming difficult to ignore.
Queensland investors Dick and Penny Webster recently paid NZ$2.13 million for a three-bedroom Queenstown property with lake views, which they intend to operate as short-stay accommodation.
Their reason for choosing New Zealand rather than another Australian investment?
According to Dick Webster, once they compared the numbers, buying in New Zealand was a “no-brainer”.
The couple believes the Queenstown property could produce a return of around 10% on their money, compared with the roughly 5% to 7% Webster says they were seeing from other residential and commercial property opportunities closer to home.
But this could be about considerably more than one Australian couple buying a holiday rental.
There are signs that Australian investor interest in New Zealand property is increasing.
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Australian Tax Changes Could Be Sending Investors Our Way
The timing is particularly interesting.
Australian lenders and real estate agents have reported increased interest in New Zealand following changes to property investor tax concessions announced by Australia’s Labor government in May.
Changes affecting negative gearing and capital gains tax treatment have altered the calculations for some Australian property investors.
And when investors don’t like the rules in one market, capital has a habit of looking for alternatives.
New Zealand is sitting conveniently next door.
The countries share close economic, cultural and travel links, while Australians are generally able to purchase residential property in New Zealand without facing the restrictions applied to many other overseas buyers.
For an Australian investor looking internationally for the first time, New Zealand doesn’t necessarily feel particularly foreign.
As one economist quoted by the Australian Financial Review put it, Australians could almost view New Zealand as another state – just with different rules.
Australian Enquiries Reportedly Jump 650%
Perhaps the most eye-catching number isn’t a Queenstown house price.
It’s 650%.
Non-bank lender Pepper Money reportedly recorded a 650% increase in enquiries from Australians interested in purchasing New Zealand investment property following the Australian government’s May changes.
The lender would ordinarily receive around two such enquiries a month.
That reportedly jumped to 15 enquiries over four weeks.
Now, we’re dealing with a very small starting number, so the 650% figure shouldn’t be mistaken for a tidal wave of Australian investors suddenly descending on New Zealand.
But the direction of travel is interesting.
Especially when real estate agents are reporting something similar.
Queenstown Appears to Be Ground Zero
If Australian money does start flowing more strongly into New Zealand residential property, Queenstown looks like an obvious destination.
The Websters’ NZ$2.13m property reportedly attracted 68 enquiries when marketed.
Remarkably, 40 came from Australians.
That’s nearly 60% of the enquiries.
The attraction isn’t difficult to understand.
Queenstown offers something investors struggle to replicate in many ordinary residential markets:
Investment + tourism + lifestyle + personal use.
An Australian owner can potentially operate the property as short-stay accommodation for much of the year while retaining the ability to jump on a relatively short flight and use it themselves when available.
That’s a very different proposition from buying another suburban investment property in Sydney, Melbourne or Brisbane.
‘The Noosa of Australia’
Webster makes an interesting comparison.
He views Queenstown somewhat like Noosa – a premium tourism destination where desirable accommodation can command significant demand.
But the price differential caught his attention.
The AFR reported a median dwelling value of about A$2.065m in Noosa Heads, compared with approximately NZ$1.513m – around A$1.25m – in Queenstown.
Obviously those are broad median comparisons rather than like-for-like properties.
But to an Australian investor earning and holding assets in Australian dollars, the relative value can become compelling.
Then there’s the currency.
With the Australian dollar buying considerably more than one New Zealand dollar, Australians arrive with additional purchasing power.
Suddenly a premium Kiwi property can look rather different through Australian eyes.
It’s Not Just Queenstown
Queenstown may be attracting the headlines, but Australian interest reportedly extends further.
Other areas attracting attention include:
Wānaka
Central Otago
Auckland
Christchurch
Coastal areas north of Auckland
Central North Island lake districts
There’s a pattern there.
Australians aren’t necessarily looking for a three-bedroom rental in an anonymous suburban street.
They’re particularly interested in places that combine investment potential with lifestyle value.
In other words:
Make some money from it – and perhaps use it yourself one day.
That’s potentially a powerful proposition.
NZ Has Already Had Its Property Correction
There’s another reason New Zealand could suddenly look interesting to overseas investors.
We’ve already taken the pain.
New Zealand experienced a significant property correction after the extraordinary pandemic-era boom.
Higher interest rates hammered borrowing capacity, transactions fell and property values declined substantially from their peaks in many markets.
Australia’s experience has been different.
That means an Australian investor comparing the two countries could reasonably ask:
Which market is further through its correction?
New Zealand’s Official Cash Rate has fallen considerably from its previous highs, while the market has spent years adjusting to weaker conditions.
For investors who believe in buying after a correction rather than at the top of a boom, that’s interesting.
It doesn’t mean New Zealand prices are guaranteed to rise.
Far from it.
But perceptions matter.
And the perception that New Zealand has already had its reset could attract capital looking for value.
Then There’s Stamp Duty – Or Rather, There Isn’t
Here’s another number Australian investors understand very well.
$0.
New Zealand doesn’t impose the kind of stamp duty on residential property purchases that Australian states do.
On an expensive Australian property, stamp duty can run into tens of thousands of dollars – and potentially around six figures on a $2m purchase depending on the jurisdiction and buyer circumstances.
New Zealand abolished stamp duty decades ago.
So an Australian looking at two similarly priced properties immediately sees a significant difference in upfront transaction costs.
That’s attractive.
But there’s a very important catch.
Australians Don’t Escape Australian Tax by Buying in NZ
This is where anyone thinking they’ve discovered a clever trans-Tasman tax loophole needs to be careful.
Buying a New Zealand property doesn’t automatically remove an Australian resident from Australian taxation.
Australian residents generally need to declare foreign income to the Australian Taxation Office, and Australian capital gains tax rules can remain relevant to overseas assets.
New Zealand rental income also has its own tax treatment.
So while New Zealand may not impose a general stamp duty and its property taxation differs from Australia’s, an Australian resident can’t simply buy a Queenstown house and pretend the ATO doesn’t exist.
Anyone contemplating this strategy needs proper New Zealand and Australian tax advice.
The ‘No Capital Gains Tax’ Line Also Needs Context
It’s also overly simplistic to say New Zealand has no capital gains tax and leave it there.
New Zealand does not have a comprehensive capital gains tax of the type found in Australia.
But property gains can still be taxable in particular circumstances, including under the bright-line rules and where property was acquired with an intention of resale.
For Australian tax residents, Australian tax obligations may apply as well.
So the tax situation is potentially attractive in some respects – but it isn’t a free-for-all.
Short-Stay Returns Aren’t Guaranteed Either
A claimed 10% return from a Queenstown short-stay property certainly grabs attention.
But investors need to look beyond the headline yield.
Short-term accommodation can bring substantial expenses:
Management.
Cleaning.
Platform fees.
Rates.
Maintenance.
Insurance.
Furnishings.
Utilities.
Periods without guests.
And potentially regulatory restrictions.
Queenstown may enjoy extraordinary international tourism demand, but a projected occupancy rate is still a projection.
An Airbnb isn’t an ATM.
Insurance Is Another Kiwi Reality
Australian buyers also need to understand something New Zealand homeowners know very well.
Natural-hazard risk matters.
Earthquakes, flooding, landslides and other hazards can affect insurance availability and premiums depending on location and property.
Insurance costs have risen substantially in New Zealand, and obtaining appropriate cover should be part of the due-diligence process – particularly for an overseas investor unfamiliar with local risk.
A property that looks cheap compared with Australia can become less compelling if its holding costs are significantly higher than anticipated.
Could Australian Money Put Pressure on Kiwi Holiday Hotspots?
This is where the story becomes particularly interesting for New Zealanders.
If the current increase in enquiry translates into actual transactions, what happens in markets such as Queenstown and Wānaka?
These are already expensive places for local residents.
If Australian investors armed with stronger currency and significant equity begin viewing NZ$1.5m–$2m properties as comparatively good value, local purchasers could find themselves competing against a new source of demand.
That’s unlikely to transform the entire New Zealand housing market.
But property markets are local.
It doesn’t take tens of thousands of overseas buyers to influence a tightly held premium market.
Australia Has Something New Zealand Wants – Money
There’s an uncomfortable economic reality sitting behind all this.
Australia is a substantially wealthier economy.
Many Australian homeowners have also accumulated enormous amounts of property equity after years of price growth.
Now imagine even a relatively small percentage deciding:
Maybe my next investment doesn’t need to be in Australia.
New Zealand is close.
We speak the same language.
The legal systems are familiar.
Flights are easy.
The lifestyle is attractive.
There are no foreign-buyer restrictions applying to Australians in the same way they apply to most overseas purchasers.
And, through Australian eyes, some New Zealand property may suddenly look cheap.
That’s a powerful combination.
New Zealand Property’s Next Buyer Could Be Across the Tasman
Nobody should interpret a few weeks of elevated enquiry as the beginning of an Australian invasion of the New Zealand housing market.
It’s far too early for that.
But it is worth watching.
Because something interesting happens when governments change the economics of property investment:
Investors change their behaviour.
Australia has altered some of its incentives.
New Zealand has already experienced a substantial housing correction.
Our dollar gives Australian purchasers additional buying power.
And some of our most desirable tourism markets combine investment with something Australians understand extremely well:
a great place to holiday.
For Dick and Penny Webster, the calculation led them to a NZ$2.13m Queenstown property rather than another Australian investment.
Their verdict?
A “no-brainer”.
The question for New Zealand property is whether they’re an interesting exception – or among the first signs of a much bigger trans-Tasman investment trend.
SOURCE: AFR