Investing in New Zealand Why international buyers are focusing on New Zealand

Sale methods

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bayleys.co.nz/commercial/international

Investing in New Zealand property is a relatively straightforward process. 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 titles which can be easily obtained and interpreted. Transactions can be conducted in reliance on the accuracy of this register.

You can generally buy commercial property up to NZ$100 million in value without the need for Government (Overseas Investment Office) approval. The exceptions to this are where the property encompasses more than five hectares of land or is located on “sensitive” land eg, property adjoining the waterfront or an esplanade reserve. If you do require Overseas Investment Office approval, Bayleys can put you in touch with lawyers who are experienced in making these applications and have a good success rate.

There are no exchange controls affecting remittances to and from New Zealand. A free flow of capital in and out of the country is permitted. You can purchase and sell property in New Zealand as an individual or through a company or trust. If you purchase through a real estate agency their fee will be paid by the vendor unless you have contracted an agent to act on your behalf for an agreed commission or fee.

If you are foreign based investor buying a property you are generally required to have a fully functioning bank account and an Inland Revenue Department (IRD) New Zealand tax number. Information on how to do this can be found at - http://www.ird.govt.nz/how-to/irdnumbers/yourirdnumber.html

All property purchasers and sellers must fill in and sign a one-page Land Transfer Tax Statement. This will require you to provide an IRD number unless you have been granted an exemption. You will also be required to disclose whether you are a taxpayer in another country and provide any taxpayer identification numbers you have in other countries.

These requirements were introduced late last year to enable the New Zealand Government to monitor the amount of foreign investment in New Zealand and strengthen anti-money laundering initiatives. New Zealand is one of the most corruption-free countries in the world and welcomes and facilitates foreign investment. If you are a reputable offshore purchaser you should have no problems complying with these requirements and acquiring a property here.

All investors should, however, seek independent professional advice and assistance before purchasing. If required, Bayleys can provide the names of well-regarded advisers, such as lawyers and accountants who can also assist you in this regard and in obtaining a bank account and tax number. Under their code of ethics, these advisers are required to act in your best interests.

Bayleys also has one of New Zealand’s largest commercial property and facilities management companies, Bayleys Property Services. It manages a large number of properties on behalf of offshore owners and can act on your behalf in dealings with tenants and other property matters.

INVESTING IN NEW ZEALAND

SALE METHODS

A variety of sales methods are used to sell property in New Zealand but the most common are by auction, tender or private treaty.

AuctionFor commercial and industrial properties valued at under $10 million, this is one the most popular methods of sale.

The auction process timeframe is usually over a 4 to 5 week period, with interested parties given relevant property information allowing them to undertake due diligence. A prospective purchaser can make an offer prior to the auction which, if the vendor accepts, will result in the auction date being brought forward.

At auction, a reserve price is set by the vendor and the property will be declared “on the market” only after this price has been met. It will then be sold to the highest bidder when the hammer comes down.

When a property is sold, the sale becomes unconditional, and a non-refundable 10% deposit is required to be paid. The date for settlement is generally one month from auction, unless the purchaser asks for a variation to this prior to auction date.

TenderTender is a popular method of sale particularly for larger, more complex properties. Prospective buyers prepare and submit confidential written offers for a property to the agent for the seller’s consideration. There is no reserve price and the vendor is under no obligation to accept any of the tenders made.

If you wish to submit a tender ask the agent for a copy of the tender documents. Read them carefully, including conditions and any amended clauses. You will be asked to fill in a sale and purchase agreement and submit it before the close of the tender. Following the tender deadline, the agent will provide all tenders to the seller who can weigh up offers and conditions and decide which, if any, they want to accept.

Private treaty / for sale by negotiationThis generally involves the sale of a property with a fixed price in mind. This is decided by the seller in discussion with the agent, taking into account the seller’s views and the agent’s appraisal of the property’s value.

The price will not necessarily be disclosed in marketing material particularly when it is hard to estimate what a property is likely to sell for. Each prospective buyer will be asked to make a signed written offer. The agent will present all offers to the seller who will weigh up which, if any, they want to accept.

There is generally no timeframe around this sales process so there is less pressure on vendors and purchasers.

You do not have to be in New Zealand to purchase a property. Provided you are registered, you can bid by telephone for a property that is being auctioned and we will assist you to do this. Offers by other methods of sale can be made electronically.

New Zealand property attracts very strong international investment for a variety of reasons:

High returns Commercial and industrial property returns in New Zealand are among the most attractive in the world. Quarterly monitoring of the New Zealand market is undertaken by MSCI, which compiles commercial property performance indices around the world, including total returns for a $16 billion New Zealand portfolio of investment-grade office, retail and industrial real estate.

These show average total returns (income plus capital growth) of:

• 11.3% currently and for the past 3 years

• 10.4% for the past 5 years

• 9.8% for the past decade

• 11.1% for the past 15 years

The New Zealand commercial property market is therefore providing a solid, long-run average return of around 10.5% a year. Income yields, predominantly between 5%-9%, are much higher than in many parts of the world. The New Zealand market is also less volatile than some other property markets and doesn’t exhibit sudden capital value swings.

Very low interest rates are the main market stimulant at present and this is likely to remain the case for the next few years because of current low levels of inflation in New Zealand.

No stamp duty and limited capital gains tax A passive offshore investor does not pay any stamp duty on the purchase or sale of a property in New Zealand. There is also no capital gains tax in New Zealand on any profit made on the sale of a property provided it has not been sold within two years of purchase and trading property is not your main vocation.

Favourable exchange rate There has been a significant correction in New Zealand’s previously overvalued currency from a peak of US$0.90 in 2014 to current levels around US$0.65-$0.67 where it has been for some time. There has also been a significant depreciation of the New Zealand dollar against the Chinese currency. This has increased the affordability of New Zealand property for offshore investors and in combination with very low mortgage interest rates is contributing to the current strong foreign investment interest in New Zealand.

Diversification opportunity With its well-developed legal and commercial systems, New Zealand provides a strong diversification option for property investors in a balanced service, rural, manufacturing and tourism driven economy in which many major multinationals are already invested. New Zealand has been one of the world’s top economic performers in recent years.

In a global context, the New Zealand commercial property market is a relatively uncomplicated and its manageable size is regarded as an advantage by many offshore investors.

WHY INTERNATIONAL BUYERS ARE FOCUSING ON NEW ZEALAND

WHY INTERNATIONAL BUYERS ARE FOCUSING ON NEW ZEALAND

Political stability

New Zealand has a stable, democratically elected parliamentary government, with elections held every three years. It does not have the added complication of separate state and federal governments and laws.

Stable banking sector

The financial system is sound and the banking sector is monitored by New Zealand’s central bank, the Reserve Bank, to ensure that stipulated capital, liquidity and funding buffers are in place. Many international banks operate

in New Zealand and a number of Chinese banks have established branches in recent years.

Corruption-Free New Zealand has a legal system similar to that of Great Britain, Australia and Canada. The judiciary is completely independent of Parliament. The political and legal systems are free from corruption and there is no civil unrest.

Safe Haven The attractiveness of New Zealand as a place to live and work is a key factor sparking international investor interest. Most parts of New Zealand are less than an hour’s drive from a stunning, unpolluted coastline and the South Island is internationally renowned for its mountainous beauty. With many countries over populated, struggling economically and facing security concerns, investors are looking to New Zealand as a safe haven for both investment and lifestyle.

bayleys.co.nz/commercial/international