The free trade agreement between Australian and New Zealand means Australians can invest in NZ property — here’s what you need to know.
No stamp duty. No land tax. A mortgage approved in as little as five working days. Affordable housing options with enormous potential for capital growth. These are just some of the reasons Australians could consider investing in New Zealand property.
But what are the things you should know before setting your sights on the property market in the neighbouring country? Let’s dive in.
Are foreigners allowed to invest in property in New Zealand?
Let’s be clear up front: thanks to a free trade agreement between Australia and New Zealand, Australians are exempt from New Zealand’s foreign ownership laws.
Australians also don’t have to pay the surcharge New Zealand usually charges foreigners who buy a property in the country, regardless of whether their purchase is intended as a place of residence or as an investment.
Essentially, Australians are treated as locals when it comes to buying houses or other properties.
However, conditions are tighter for other overseas buyers, who aren’t permitted to buy a house or land without meeting residency requirements and getting consent before any purchase. In 2018, the New Zealand government extended its overseas investment rules in a bid to cut the number of homes being sold to overseas buyers (more on the overseas investment restrictions below).
While these laws do not affect Australian purchasers, they do apply to temporary residents of Australia and those on Australian working visas.
While such temporary residents can purchase property in Australia, they can’t in New Zealand without meeting the country’s overseas investment regulations and paying a national surcharge on their transaction.
When do non-Australian foreign buyers need consent?
The 2018 Overseas Investment Amendment Act effectively banned most non-resident foreigners from buying existing homes or land in New Zealand by classifying the properties as ‘sensitive land’.
The amendments also introduced a residency test which effectively allows only New Zealand resident visa holders to buy or build a home to live in, but only with prior consent.
As a result, overseas buyers in New Zealand now need consent to invest when purchasing New Zealand assets, including homes, land, significant business assets, and fishing quotas.
Land Information New Zealand sets out the scenarios wherein foreign investors or buyers need consent for transactions involving the above-mentioned categories. Here are a few such scenarios:
- The overseas person is acquiring a direct interest in sensitive land or fishing quota
- The overseas person is acquiring an ownership or controlling interest of more than 25% of an entity that holds sensitive assets, where it previously held no interest
- A person who directly or indirectly has an interest in sensitive land or fishing quota has become an overseas person
Do Australians need special consent?
As mentioned earlier, the existing free trade agreement between Australia and New Zealand means Australians do not need such permission.
Australian citizens are not required to apply for permission in the Overseas Investment Office and are issued a New Zealand resident visa upon arrival in the country.
Singaporean citizens are also exempt under the free trade agreement between Singapore and New Zealand.
What are the steps to buying a property in New Zealand?
The process of buying a property in New Zealand is similar to the process of purchasing in Australia, with most home and land sales completed through an agent.
See also: Things you should never say to a real estate agent
1. Find a property
The best way to find available properties is to look at property websites that host listings from real estate agents and private sellers. Some agents will also have their own websites.
If you visit New Zealand, you can visit local real estate offices in the areas you’re interested in to gather local information and perhaps access listings that might not be available online.
2. Choosing the right property and doing some checks
In New Zealand, you will come across either attached or standalone properties. Townhouses and apartments are considered attached properties while standalones are what are often referred to as detached homes in Australia.
As in Australia, it is strongly recommended you do the usual checks on your chosen property before making any offers. Some sellers may commission their own reports which they give out to potential buyers. However, it’s always wise to ask for independent advice and do your own checks.
See also: House inspection checklist: 8 things to look for when buying a house
Homebuyers should also seek advice from a solicitor or a conveyancer, just as you would when purchasing property in Australia.
They can help you in the process of title checks or in obtaining the property’s Land Information Memorandum (LIM).
What is a LIM?
A LIM report is a summary of information held on a property including:
- Any issues with the property found after state of emergency situations
- Potential erosion or subsidence issues, flooding, and any presence of hazardous substances
- Public and private stormwater and sewerage drains
- Any overdue rates
- Building, plumbing, and planning consents
- Any special conditions over the property, including heritage listing
- Any other information the local council has been alerted to
A solicitor acting on your behalf may also help you to arrange an independent valuation, which you can use when negotiating prices with the seller.
3. Make an offer and sign the deal
Once you have done all the checks and you feel like the property is what you’re after, you’ll have to make an offer and sign the sale and purchase agreement.
At this stage, as in Australia, it’s wise to get your solicitor to check the contract before you actually pen your signature.
After that, you can carry out the usual pre-settlement arrangements and even have one final inspection.
4. Borrow money
This is where it gets a little complicated. Many banks and other lenders in New Zealand require borrowers to have some local credit history, which you might not have if you’re coming straight from Australia or plan to continue living there after your purchase in New Zealand.
Generally, Australians can obtain a home loan in New Zealand, but they must meet the usual eligibility criteria such as having a secure income, good credit history, and sometimes even being able to provide a larger deposit than local buyers.
First up, it’s wise to check whether your Australian bank or lender has a presence in New Zealand. This could boost the chances of your mortgage application getting approved.
It can also help to reach out to a specialist New Zealand-based broker to navigate the system of lending to non-resident buyers. There are also brokers in Australia who are accredited to write New Zealand loans.
You may find you qualify for a standard home or investment loan, which are much like they are in Australia, although lenders may vary some terms and conditions for non-residents.
There are also loan products specially designed for non-residents, including Australians. These may come with higher interest rates and extra conditions, as lenders can consider such loans higher risk.
You can apply for pre-approval with a New Zealand lender prior or during your property hunt. Pre-approval can give investors an added degree of confidence when they make an offer on a property.
5. Settle
An agreement between the buyers and the vendor is then drawn up and sent to each party’s solicitor.
Once finance has been arranged, the solicitor arranges for an inspection and for the preparation of the LIM.
Your solicitor will then draft an agreement for sale and purchase and, having received the mortgage documents from your New Zealand lender, prepares the transfer of title.
The best thing about settling on a New Zealand property, aside from the fact that it only takes around six weeks, is that you can do it from Australia. Your solicitor can courier the documents to you in Australia to sign, and the settlement can proceed as soon as you send them back.
What are the tax rules on Australian property ownership in New Zealand?
New Zealand’s similar political, legal, banking, and regulatory environments make it relatively easy for Australian investors to hold assets there.
While Australians can take out mortgages in NZ dollars to purchase investment properties, they must still pay tax on any income they earn from them in Australia.
The so-called Double Tax Agreement between Australia and New Zealand sees investors avoid being up for a double whammy of tax in both countries. However, Australian landlords are still required to file a New Zealand tax return for any earnings they make across the ditch.
If Australians are required to pay tax in New Zealand, they will generally be able to claim a Foreign Tax Credit against any Australian tax that’s payable on their rental income to avoid being hit twice.
Expenses such as interest incurred on borrowings, depreciation, and maintenance costs relating to investment properties in New Zealand can be offset against rental income received, as is the case in Australia.
It pays to have an accountant or tax advisor that’s across the taxation regulations in both countries so you understand the requirements.
Similarly, while New Zealand has no capital gains tax (CGT), Australian residents must still pay CGT in Australia on any gains derived from New Zealand-domiciled assets.
Image by Dan Freeman on Unsplash
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Important things to check on your home loan contract
When you’re excited about buying a property, it’s understandable to want to rush through finalising the deal. But taking the time to carefully check a home loan contract before signing is crucial.ON THIS PAGEWhat should you check before signing your home loan contract?What should you check before signing a contract of sale?What to look for in the property contract
Property transactions are complicated. Legalities – and contracts regarding financing and the sale – are a large part of the reason why.
Depending on your state, a property contract might be dozens of pages long and will detail all the particulars of the sale. Meanwhile, the home loan contract you’ll sign with your lender will set out all of your repayment obligations, any charges that you may incur over the loan term and details regarding the securitisation agreement on the property.
While you might be used to scrolling to the bottom of most terms and conditions and signing instantly, it’s not a great idea to do the same with a property sale contract or a home loan agreement.
Any sensible buyer would be wise to carefully review both contracts before signing, or have a conveyancer or solicitor do so on their behalf.
What should you check before signing your home loan contract?
Lenders must provide you with a detailed contract that sets out all the terms and conditions of your loan agreement.
Some of things that need to be specified in a loan contract, as per section 17 of the National Credit Code, include:
- The loan amount and loan purpose
- The interest rate and the comparison rate
- Any fees or charges that could apply
- A description of the property under mortgage
Some sections of your home loan agreement will likely be pretty generic, with your lender simply fulfilling its legal obligations, but it’s still worth checking carefully to make sure everything is in order.
There are a few clauses in particular that one should take a closer look at.
Fees
The home loan contract must set out all additional fees and charges that may apply.
These include any ongoing account keeping fees, late repayment charges, and break costs that might be incurred if a borrower pays off the loan early or refinances.
Such extra fees can become significant expenses and are worth keeping in mind when comparing home loans.
Security cover clause
Your lender also needs to detail the securitisation agreement on your property.
This section of the contract will establish that your lender has the right to repossess the property in the event you default on your home loan.
The contract should specify at what stage a default notice will be issued and how long you will have to address the situation before repossession proceedings will start.
Your personal information
Home loan contracts will generally contain a clause specifying that by signing it, you’re confirming all the information you have provided to the lender is accurate and complete.
Therefore, it’s worth double checking everything to make sure you have not misrepresented any details before signing, as overlooked mistakes could potentially be grounds for future legal action against you.
For example, if you are a foreign investor, the contract might specify that you need to have Foreign Investment Review Board (FIRB) approval before entering into the loan agreement.
It’s a good idea to look through this section and double check you have disclosed everything you need to and fulfilled all your obligations.
Amendments to the contract
Home loan contracts also typically set out how the details may be amended if needed.
For example, when variable rates change, your repayments will likely change. You should make sure the contract specifies that your lender needs to notify you every time there is any such amendment, and take note of how much notice it needs to provide.
What should you check before signing a contract of sale?
Now you know what to look for in the home loan contract, but the paperwork doesn’t stop there!
When it comes to the contract of sale, there are a few extra things you should attend to before signing, or at the very least before the cooling off period expires.
Cancelling during the cooling off period often carries a penalty (0.25% of the purchase price in NSW, for example). The earlier you get to assessing the below points, the better.
Read more: The basics of a contract of sale
Inspections
It’s highly advisable to conduct thorough inspections of any property before making the commitment to buy.
These can include pest and termite inspections, building inspections, and in depth assessments of whether the property is suitable for you.
For example, if a property is located on a busy main road, you might want to visit it at night to ensure you don’t find it unexpectedly and unbearably loud once you move in.
Financing (and the rest)
If a buyer signs a contract of sale without a subject to finance clause and isn’t ultimately approved for the necessary home loan, there might still an obligation for them to buy the property.
Spurned sellers can generally take legal action to recoup any losses they bear in these circumstances, so it’s essential to take precautions to make sure you aren’t on the receiving end of such action.
A ‘subject to finance’ clause included in the contract offers protection from such occurrences, while getting pre-approved for a home loan before entering any agreement is also generally a good idea.
What details won’t be included in the contract?
The details that need to be included in a contract of sale vary between states and territories.
In the ACT for example, a seller needs to provide prospective buyers with all relevant details pertinent to the property, including information on land title and mandatory building inspections. Conversely, vendor disclosure statements are not mandatory in Tasmania, although they are highly recommended.
It’s important to know what property details a seller is and is not obligated to share with you in your state or territory.
For example, in Tasmania a seller would not be obliged to disclose a restrictive covenant on the property that forbids development, which could reduce the value of the property.
Ideally, you should lean on your conveyancer or solicitor so to understand all the relevant information before buying.
Current tenancy situation
If you’re buying a tenanted property, the current occupants are typically entitled to see out their current lease.
For some buyers – those who need to move in within a certain timeframe, for example – this might cause an issue
If you plan on taking advantage of the First Home Owner Grant in your state, for instance, a common stipulation is that you must move in within one year of the completed transaction. If you’re buying a property that’s tenanted for the next eighteen months, you probably won’t be eligible.
What to look for in the property contract
Generally, the property contract will be prepared by the seller before the property is listed, and then amended with the purchase details.
It’s vital for you or your representative to carefully review all of the included conditions and address any concerns you may have.
These are some of the most common issues buyers uncover in contracts of sale.
Fixtures and fittings
It’s important to review the contract of sale to see which fixtures and fittings are to be included in the sale.
A fixture is something that is permanently attached or built in to the property. Built in ovens, dishwashers and wardrobes are all examples.
A fitting, on the other hand, is something that isn’t attached or is easily removed, like curtains or carpets.
In general, fixtures are assumed to be included in the sale and fittings are not unless specified in the contract. You’ll want to go through these details to make sure you get everything you’re expecting.
Title details and encumbrances
In most states, sellers are required to provide title information as part of the contract of sale. Title refers to the legal documents that outline the ownership of the property.
If a property is owned outright by the seller, the title is simple. Though, it can be more complicated if there is an existing mortgage on it.
It’s important to have a thorough understanding of all the parties that have an interest in the property (or all of the encumbrances), as this can affect both the value of the property and how you will be able to use it. Such interests might include easements, like a public footpath through the property, or restrictive covenants on future development.
Special conditions
As long as a contract of sale satisfies the requirements of the state or territory it pertains to, any provisions it contains are likely to be upheld by the courts.
There are, therefore, all manner of clauses that you might find in a contract of sale.
Some can benefit you as the buyer, like if the contract is subject to finance or satisfactory searches.
In other cases, a close inspection of the contract might reveal that the buyer will be completely liable for GST, or that a ludicrously high interest rate is to be charged in the event of late settlement.
Buying a home or looking to refinance? The table below features home loans with some of the lowest interest rates on the market for owner occupiers.
| Lender | Interest Rate | Comparison Rate* | |||
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| 5.29% p.a. | 5.33% p.a. | Owner OccupierVariablePrincipal & Interest10% Min DepositRedrawExtra Repayments | Available for purchase or refinance, min 10 |
