Master Class:

Property Investing In New Zealand

With Matthew Gilligan CA

www.gra.co.nz

We help investors

build and manage

their property portfolios

In partnership with…

Real Estate Investar’s tools

Portfolio Manager Membership

Managing, tracking and

accounting

From $49 p.m.

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Searching, researching, buying,

managing, tracking and accounting

From $99 p.m.

• Owns 5.54 properties,

• At an average value of

$335,120 each,

• And a total portfolio value

of $1.85m.

The average Real Estate Investar Member…

Time

Building a portfolio takes time

Portfolio Builder

Portfolio Manager

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Membership options to match your needs

Treat property investment as a business….

Maximise your results

Todays 9 topics

1. The market fundamentals, market size and historical performance.

2. The key drivers of property market growth.

3. Two speed property economy; Auckland and Christchurch and everywhere else.

4. Where to invest and what to avoid.

5. The key risks of offshore investing in New Zealand.

Todays 9 topics

6. From the Coalface: Case studies from Matthew Gilligan’s client base and personal experience as an investor and developer, and advisor to clients of his accounting practice in Auckland.

7. Tax planning considerations in New Zealand.

8. The support team you need in place on the ground to maximise your results.

9. Where to research, find and analyse New Zealand investment properties.

10. A live Q&A following the main presentation.

Introducing: Matthew Gilligan CANZ property & tax consultant

• Active property investor and developer

• 18 years experience

• Tax and legal

• Structure expert

• Approx. 100 full time staff

Helps GRA’s 2800 family groups

crunch property numbers

Property & tax author

Buy online at www.GRA.co.nz

The legalese

The views and opinions expressed in this presentation are not intended to be

individual advice. The views and opinions are general in nature, may not be relevant

to an individual's circumstances, and constitute generic concepts only.

The views and opinions expressed are those of the individual speakers and not

necessarily those of Gilligan Rowe & Associates LP or its employees, officers, or

subsidiary entities. Further any views expressed in this presentation are done so

under the exemptions specified under S14 of the the Financial Advisers Act 2008 for

Chartered Accountants.

Nothing contained in this presentation is endorsed by the Financial Markets

Authority. Before making any investment, insurance or other financial decisions, you

should consult an Authorised Financial Adviser.

Copyright GRA

All copyright is retained by GRA over content in this presentation

including graphs, data and concepts. Nothing is to be reproduced

without the written permission of Gilligan Rowe & Associates LP

NZ property fundamentals

Supply vs. Demand

Some pertinent New Zealand Stats

• About:

• Population: 4.5m as at 2015

• @ 2015 1.45m in Auckland (33%)

• 55% of population growth is in Auckland, since 1996.

• Projected to be 61% of the growth in the next 20 years

• Post GFC

• 2 Speed economy: Auckland vs rest of NZ

• Christchurch a close second

Population size of cities is small

NZS: 2014 Estimates

City size & ethnicity compared

Auckland’s population growing

• 1.45 million people live in Auckland, increasing 17,000 people per yr

• And this is pretty consistent over last 15 years

Auckland gets the

lions share of

population growth

Christchurch will

be 2nd biggest

growth going

forward

Where in NZ did the population growth go?

500,000 increase in population

Projected population growth 2011-2031

Source: GRA Data Analysis

NZ Population: main centres compared

Auckland population forecast to grow by 700k to 1m people in next 30 years (+50-66%)

Source: SNZ Subnational Population Projections: 2006 (base)–2031 (October 2012 update)

Annual net migration ( Ak v Rest of NZ)

Source of Auckland growth: Organic vs. immigration

GRA Data Analysis: NZ Stats

Supply is driven by

• Land availability

• Zoning laws

• Building activity / developer returns

• Availability of credit

GRA Data Analysis: NZ Stats

Auckland not making enough houses

Land prices soaring

2002 2012

Price of vacant land

Auckland district $100-125k $250-275k

20/25km Queen St radius $100-$125k $300-325k

Central government: Hon. Bill English 6 March 2014

“ Unfortunately, our planning rules and attitudes within councils (and to some extent government) have restricted the supply of new houses… if we're going to avoid significant ongoing increases in house prices and therefore even higher interest rates, we need councils to make more positive decisions for more housing supply “….

(Mr English is the Minister of Finance in NZ)

Auckland land supply issue…

The Auckland unitary plan

Council amalgamation & new town planning rules

• Auckland amalgamated 7 councils into one ‘super city’.

• A chance to think big and redesign town planning rules.

• The Auckland Strategic Plan formed 20+ sub plans, one of which is the Unitary Plan setting the rules for development.

• The unitary plan is in its third year of consultation and wont be in effect until late 2016.

• But parts are in operation now in special housing areas (SHAs)

The Unitary Plan: Intensification of land use

• A compact city vision;

• Only 30%-40% of growth will be in greenfields.

• The rest will be in existing neighbourhoods.

• High density, not sprawl. Up not out.

• Asks for quite a change in Aucklanders’ attitude to housing;

• Smaller houses.

• More apartments, units, terraced houses.

• Fewer, smaller backyards.

• More neighbours.

Introducing the new residential zones

4-8 Story

Unitary Plan infrastructure concerns

• Demand is ahead of supply.

• Plans for infrastructure intensification not aligned with residential intensification.

• Costs and who should pay? Timing mismatch…

• Infrastructure in some areas already inadequate especially water, wastewater and traffic congestion.

Infill vs. redevelopment economics

Services roll out

Old Pipe New Pipe

Auckland supply & demand + Unitary Plan

• Auckland is continuing to grow

• The Unitary Plan tightens land supply in the short run.

• With some exceptions Auckland can’t grow up until the services and rules come into effect.

• This is a great story for capital growth in the next decade.

Unitary Plan implications

• Reduced traffic, diluted service costs, better city.

• But it’s inflationary:keeps land scarce.

• Coupled with the LVR rules, its socially regressive;

What chance do poor people to get a house, unless they have rich parents to provide a deposit?

How can they save a deposit with rampant house price inflation?

• Great story long term for investors.

Regional variances

• Auckland has the highest capital growth post the GFC.

• Historically the regions keep up with growth rates.

• But Auckland’s cost basis is higher.

• Regional cashflow can be an investor trap.

• Stay out of one horse towns.

Source: Core Logic

Housing stats misleading….black line has Auckland in it….

GRA Data Analysis – Core Logic Medians Post GFC to Dec 2014

Real house prices

GRA Data Analysis – Core Logic Medians Post GFC to Dec 2014

Auckland post GFC

Christchurch

GRA Data Analysis – Core Logic Medians Post GFC to Dec 2014

Wellington & Tauranga

GRA Data Analysis – Core Logic Medians Post GFC to Dec 2014

GRA Data Analysis – Core Logic Medians

North Island Regions

North Island Regions cont…

GRA Data Analysis – Core Logic Medians Post GFC to Dec 2014

GRA Data Analysis – Core Logic Medians

South Island Regions

My view of Auckland house prices

• I think most Kiwis are cautious of perceived Auckland “peak”.

• It seems Chinese buyers are immune to our caution.

• LVR ratios a question mark.

• Auckland is a bubble, but less volatile than other NZ markets.

• Property cycle: Value elsewhere in NZ, with ripple effect.

Key Point:

Auckland has tight supply and bullet proof demand.

This reduces risk

Build cashflow and capital growth

$10k

positive

$10k

neg

Where the opportunities lay

• Growth ‘ripples around’.

• Local knowledge helps to stay ‘ahead of the market’.

• Some suburbs in Auckland have done better than others.

• Same story in Christchurch.

• Understanding what’s going on helps us to identify where opportunities to grow wealth might lay.

Rest of NZ?

As long the area has good fundamentals.

Our view: why leave Auckland?

Maybe for cashflow & counter cyclical story…

New Zealand property cycle

• Past peaks: 1987 – 1997 – 2007

• Past downturns commenced: 1988 – 1998 – 2008

• Feels very much like 2005 in Auckland;

• Very hot property market.

• Everyone thinks property is ‘overvalued’.

• Prices are rising.

• No one knows. Past performance is not a guarantee of future performance.

The effect of getting timing wrong

$

Loss of Wealth

Gain

Loss of Potential Equity

Gain

Most people buy here !

Most people sell here !

Some deals I have purchased recently

182 Shirley Road, Papatoetoe, Auckland

182 Shirley Road, Papatoetoe, Auckland

182 Shirley Road, Papatoetoe, Auckland

3 Jodie Place, Flat Bush, Auckland

686 Great North Road, Grey Lyn, Auckland

686 Great North Road, Grey Lyn, Auckland

You can get growth andcashflow together in one asset in NZ

8 Westwood Tce, St. Mary’s Bay, Auckland

8 Westwood Tce, St. Mary’s Bay, Auckland

Might build this ? X 3

www.gra.co.nz

Tax structures in New Zealand

How should you own your NZ assets ?

Aussie – NZ tax considerations

• New Zealand has:

• No capital gains tax.

• No stamp duty.

• You still have to pay CGT on your world wide income, to the ATO in Australia.

NZ tax considerations

• Your tax structure needs to be driven by your local accountant in Australia

• What works in NZ can be a disaster in Aussie;

• Companies get no CGT discount, lock up losses.

• Migrating out of the wrong structure triggers CGT.

• You can get trapped into the wrong structure and exposed to tax you don’t need to pay.

Aussie – NZ tax considerations

• How are property gains taxed in NZ?

• Intention test – what was in your mind ?

• Buy to hold – capital gains not taxable.

• Buy to sell – gains form part of business income/taxable.

NZ Tax Considerations

• More next month on tax structures in our next webinar including;

• GST.

• Smart angles to NZ tax for Aussies investing in NZ.

• Development and building exemptions.

• Deduction limitations for Aussies to watch out for.

Typical Kiwi StructureNot Suitable For Aussies

Bob

Property

$15k losses

Mary

Look Through

Company

Spouse

Salary

Home

Protect Your Home

Trust

Trading Trust StructureBetter For Aussies

Investment

Trust

Income Split

To Aussie

FamilySmith Family

Trustee Limited

NZ Lawyer /

Accountant

(Shareholder)

John Smith

(Director / Shr)

NZ Property Business

John Smith

+ Spouse ?

Trading Trust StructureBetter For Aussies

John Smith

NZ Property Business

High Income Earner

No double tax

on profits

Loss flow through

across jurisdictions

CGT Discount

www.gra.co.nz

www.gra.co.nz/requestameeting

Tax structure meetings

• Generic discussion on NZ Tax & Property;

• Structure design and dove tailing into your Australian advisor.

• NZ accounting & tax support.

• NZ cross boarder tax specialists – most countries.

• Introduction to NZ buyers and seller’s agents for property.

• Setting up Xero & helping support Real Estate Investar.

Property & tax author

Buy online at www.GRA.co.nz

• NZ membership available at www.realestateinvestar.co.nz.

• Australian members can add on NZ My Valuer & My research tools for $99 month. Email david@realestateinvestar.com.au to arrange upgrade.

• Do you research. All NZ suburb performance reports are online for members.

• Build a team. Whether you are a new or experienced investor, you need a team behind you to maximise your results.

How can Real Estate Investar help in NZ?

Start today and your

first 21 days are freewww.realestateinvestar.com.auwww.realestateinvestar.co.nz

Questions? www.gra.co.nz