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With rolling green hills, glaciers, and glow worms, Aotearoa (or the land of the long white cloud) is home to more than just the All Blacks and The Lord of the Rings. It’s home to a real estate market where (in general) property prices double every 10-12 years, making it a hot spot for investors both locally and internationally. But with house prices soaring recently and several relatively new restraints having been put in place in an attempt to cool the market, is property in New Zealand still the best place to invest your hard-earned cash?
Hot property or cooled off market?
New Zealand real estate is booming, with record house prices experienced in 2021. In the year to July 2021 alone, median residential house prices increased by 25% – which represents a capital gain of $166,000 for homeowners – or more than double what an average full-time employee earns each year. So why is NZ property so hot?
- Predicable capital growth - fixed returns over the long-term are reasonably reliable, with New Zealand property showing an upwards trajectory in median house prices over the last 25 years.
- It’s an attractive place for business – New Zealand is rated number one for ease of doing business by the World Bank, is ranked as the world’s least corrupt country, and also comes in fifth in Forbes list of best countries to do business.
- Demand remains strong – while the issuing of housing consents is currently sitting at an all-time high, with pressures on the construction industry, it’s going to take a while for supply to meet current levels of demand. With the limited supply, demand for rentals has been on the rise, and consequently so have rents.
- The global sanctuary factor – New Zealand has been widely praised for its clear and effective response to the pandemic, which is likely to lead to an increase in migration once the country opens up. In addition, New Zealand is also rated as the best place in the world to survive global societal collapse, with Silicon Valley billionaires like Peter Thiel buying up large in recent years.
Location, location, location
To maximise the potential of your investment, it pays to make an educated decision about where to invest. Location has a huge impact on rental demand, the type of tenant you’re likely to secure, and what kind of return you can expect. So where can you find the magic combination of relatively affordable purchase prices and good rental returns? Here are our top 8 picks:
1. West Coast
As the only region in New Zealand with a rental yield of more than 5%, the West Coast also saw an increase in capital gains of over 26% year on year for the same period. Median house prices are still affordable, sitting at under $300,000, making it a reasonably priced addition to an investment portfolio or first step on the ladder.
With a median house price increase of almost 40% year on year, Gisborne has seen some of the greatest capital gains in the country. With house prices across Auckland and Wellington in excess of $1 million, and technology giving people greater freedom to work in different regions, the demand for housing and rental in areas like Gisborne will continue to rise.
Wānaka is the town next to the tourist hotspot Queenstown, with international visitors and Kiwis alike escaping to the area for a holiday. A summer and ski resort town itself, homes and Airbnbs in this district are in high demand, in addition to a 37.12% rental population. Wānaka is no exception to the NZ housing price boom, with a 47.5% increase year on year.
Home to the University of Canterbury and the largest city in the South Island of New Zealand, Christchurch is also the second largest city by urban population in the country after Auckland. With a strong student population, median rental yields are 4.05% according to Real Estate Investar. The average house value for the Garden City (a nickname due to its rose and water gardens) was reported to have the highest growth in the country at 38% in 2021, while still remaining comparably affordable to other towns in New Zealand.
The Taranaki is a small region in the North Island made up of towns such as New Plymouth and Hawera, and is named after its drawcard, the large dormant volcano Mount Taranaki. Taranaki currently has the lowest proportion of properties owned by investors, which may be set to change with an increase of Auckland buyers buying in the affordable area. Demand has been so high that the next stage of sales for a new residential subdivision, Longview, was brought up in just 5 months by developers. The median rental yield for the region sits at 4.63%.
Popular with Kiwis wanting to escape busy city life, and with strong employment opportunities across tourism and agriculture, house prices in Rotorua have risen over recent years, as has rental demand. Yields in some areas out of central Rotorua such as Ōwhata average above 5%, and the population is tipped to grow significantly in the coming years.
With a four-lane motorway connecting Auckland and Hamilton, and the 490-hectare Ruakura Superhub inland port both underway, Hamilton is poised for growth. With robust employment opportunities across farming, freight, and agriculture, the demand for housing isn’t going anywhere in a hurry. Average rental yields sit around the 4% mark, and average house prices have climbed a whopping 97% since the so-called market peak of 2007.
Experiencing huge growth in recent years (with property values up 33% in the past 12 months), Tauranga lures city-folk, young families, and professionals looking for a laid-back, beachy lifestyle. Data from the Real Estate Institute of New Zealand (REINZ) shows that Tauranga’s Mount Manganui has an average rental yield of just under 4%, but slightly further afield, suburbs such as Te Puke (known for its abundant kiwifruit orchards) can offer better returns. Ready to invest? Before jumping on the property investment bandwagon, it’s important to be clued up on all the intricacies. Here’s what you need to consider:
- Identify your goals and stick with them – while it can be easy to get swept up in the appeal of a beautiful villa or an enviable lifestyle block, keep your end goal in mind. With rental properties, ongoing maintenance, tenant demand, and potential for capital gains should be at the forefront of decision making. <\li>
- Explore equity in your existing home – in short, equity is the difference between the market value of your current home and the balance of your mortgage. If you’re in the fortunate position to have built up equity (by paying down your mortgage, through capital gains, or a bit of both), your lender can advise you how much usable equity you have available to invest. While you’ll need to speak to your lender to get a bank valuation on your property, your local First National Real Estate office can provide an indicative market valuation to get the ball rolling.
- Local market knowledge – whether you’re a local or looking to become a resident, recent changes to the property market have reshaped the landscape for investors. This includes the bright-line test (tax on any profit when selling residential property within 10 years), the loss of tax-deductibility on rental properties, and the introduction of the healthy homes legislation (which puts specific standards across heating, insulation, and more in place for rental properties). It pays to be au fait with these factors, as they can have a significant impact on your success as a property investor.
If it’s your first time investing, this Guide for First Time Investors is packed with plenty of practical tips, and First National Real Estate is always on hand to share our local knowledge and expertise.
Please note the information provided here is general in nature and should not constitute legal, financial, or professional advice.