In 2018, New Zealand passed a law prohibiting foreigners, with a few exceptions, from buying residential properties in order to stop the hike in real estate prices. A government report had previously highlighted that residential real estate had risen by 30 percent in five years, twice as much as wage growth, and even four times more in Auckland. As a result, the homeownership rate had been at its lowest for 60 years.
The new legislation will now prohibit investors living abroad, especially in China, from buying homes in New Zealand, leaving many opportunities for locals, but way less for foreigners. So, what does it mean for the property market in New Zealand? What will be the impact of the law for non-resident and residents?
Is the property market completely closed to foreigners?
The passing of the law resulted from an electoral promise by Prime Minister Jacinda Ardern, who had committed before the election to make real estate more affordable to her fellow citizens. Mrs. Ardern attributed the situation to the growing property appetite of foreign investors with a higher purchasing power superior to the New Zealanders. She even identified Chinese investors as the main culprits for the price hike in Auckland.
The law provides that non-resident investors – people who are neither New Zealand citizens nor permanent residents in New Zealand – will not be able to purchase existing homes or residential land.
However, after the reform, it will still be possible to invest in new buildings of more than 20 apartments by buying off plan, and for rental purposes only. A buyer will no longer be able to occupy the property as a pied-à-terre. In addition, non-residents will still be able to invest in commercial real estate.
Are property prices still on a hike?
For the past 10 years, the property market has seen a huge hike in prices in New Zealand, particularly in Auckland, which is the largest urban area in the country. Property prices peaked in 2017 in Auckland and have remained stable till date. This is mainly due to a heavy shortage of houses in the region compared to its strong demographic growth. The average price of a house was around 916 900 dollars last year, up 2.2% from the previous year.
Since 2010, the number of homes for sale has dropped by 58%, which has pushed up the average price by 88%! This is a perfect illustration of Auckland’s housing shortage. To cope with the issue, especially in Auckland, and to allow New Zealanders to have access to their first home, the labour party is planning on building 100,000 new homes across the KiwiBuild Program. The problem is that the construction industry does not have enough skilled workers to meet the demand. This hampers any rapid progress and considerably increases the cost of construction.
The new law, therefore, aims to make homes more affordable for New Zealand buyers and to slow speculation in the real estate market by banning the purchase of property by non-residents. But in reality, foreign investors make only 3% of the investors… So, it’s not sure whether this reform will have any impact on property prices in the long run.
What could be a good real estate investment right now?
This reform is however likely to impact those who wish to buy a house or apartment as a secondary investment. But each investment project is different in New Zealand, depending on the reason for the purchase of a property. For people who want to get regular rental incomes and mid-term or long-term capital gains, it’s advised to invest in student flats in city centres, where most educational institutions are located, and where the prices are rising the fastest. A flat in the centre of Auckland could be a great and easy investment as the management can be given to rental agencies.
For those who want to buy a secondary residence to enjoy school holidays in the country, the coastal areas and the low-populated hinterlands are beautiful regions with amazing nature, quality transport and the infrastructure, where the property is available at reasonable prices due to limited demand. Think about a house around Lake Taupo or a flat in Queenstown to enjoy the skiing season. You can always put your property for sale later on, as the price should not go down any time soon in these regions.
What you should look at when buying a property in New Zealand
Purchasing real estate will commit you for many years. In addition to investing all your savings in the project, you will commit to repaying a loan over 15 years, 20 years or even 30 years. So it’s better to think carefully about the different characteristics of the property, be it an apartment or a house, and being careful about the conditions of your loan.
Is the rate too high? Is the price the market price? Are there some restorations to be planned and can you finance them? Are condominium fees reasonable? Can you pay the loan, the charges, and the property tax without zeroing down on your account at the end of the month?
Before you start calling a furniture moving company or a shipping container hire enterprise, you have to ask yourself these questions, at the time of your real estate hunt. Also, before you buy in New Zealand, keep in mind these four key points to consider, as per official recommendations.
- Am I free to choose the person or company that manages my property?
- Can I terminate the contract with the person or company that manages my property if it does not suit me?
- Can I choose my own lawyer for the transaction? What about the mortgage advisor?
- Is the person who sells real estate in New Zealand registered as a real estate agent? Be careful, it is mandatory for the real estate agent to have a license with the New Zealand government and not only a real estate agent with the agency.
And with that, we’ve wrapped up our update on the property market in New Zealand.