While New Zealanders wait, Australian investors are already entering the market! Will tax reform, exchange rates and house prices ignite a trans-Tasman buying boom?
For many New Zealanders, the property market has offered little to get excited about over the past three years.
For many New Zealanders, the property market has offered little to get excited about over the past three years.
From Auckland to Wellington, and from investors to first-home buyers, house price corrections, soaring interest rates, a slowing economy and employment pressures have continued to erode market confidence. Although the official cash rate (OCR) has entered an easing cycle over the past year, overall sentiment remains cautious, with many people still waiting for a clearer signal.
Yet while many local buyers remain on the sidelines, a group of Australian investors has begun looking towards New Zealand.
Recent observations from several real estate agencies and economists suggest enquiries from Australian buyers are increasing. Their interest is no longer confined to Queenstown holiday homes, but is gradually extending to Auckland, Christchurch, Wellington, Tauranga, Taupō and even Northland. For many Australian investors, New Zealand's property market is beginning to look like an undervalued opportunity of a kind not seen for some time.
This raises a question: why are so many New Zealanders still worried about risk while Australian investors are beginning to see opportunity?
The same market, completely different sentiment
Property markets have never been purely a numbers game. Prices, interest rates and rental yields certainly matter, but market direction is often also shaped by something harder to quantify: confidence.
Over the past few years, New Zealand's property market has undergone a deep correction. House prices nationwide have fallen from their peaks, and many regions have yet to regain pandemic-era levels. For many local owners, the experience has left deep psychological scars.
Many bought near the peak and then watched their homes lose value. Numerous investors also faced pressure from rapidly rising interest rates, higher holding costs and changes to tax policy.
As prominent Australian auctioneer and The Block star Tom Panos put it: 'New Zealanders have been psychologically bruised by the market correction of recent years, while Australian investors see opportunity.'
Locals see the declines of the past three years, while outside investors see potential gains over the next few years.
Australian tax reform is changing where investment flows
Another important factor drawing Australian investors' attention to New Zealand is a changing policy environment at home.
This year's Australian federal Budget proposed several property investment tax reforms, including removing the long-standing negative gearing advantages for investment properties and adjusting the capital gains tax system.
Although the policies still require further legislation to take effect, the market has already begun reacting in anticipation.
Australian property investors have long used negative gearing to reduce their income tax while earning capital gains from rising house prices. The changing policy environment now means the future tax cost of property investment could rise significantly.
For some investors, this is prompting a reassessment of their asset allocation.
New Zealand is a natural point of comparison.
Both are English-speaking countries with established legal systems, separated by a flight of only about three hours. Yet their property tax systems differ markedly.
Just how cheap is New Zealand property for Australian investors?
A comparison between Australia and New Zealand makes the differences even clearer. New Zealand's average house price is currently around NZ$800,000, while Australia's is approaching A$1,000,000.
For investors living in major cities such as Sydney, Melbourne and Brisbane, house prices in many parts of New Zealand remain highly attractive.
Ray White economist Atom Go Tian notes that the price of a very ordinary property in urban Brisbane could buy a considerably more desirable property in Queenstown.
In Christchurch, Australian buyers are more interested in the large stock of newer homes created by the city's rebuild.
Many Australian investors no longer see Christchurch as a regional city in the traditional sense, but as a modern city with well-developed infrastructure, newer homes and relatively reasonable prices.
Meanwhile, some Australian investors are also beginning to view Auckland as an undervalued market.
For those who have experienced the sharp house price rises in Perth, Brisbane and Sydney over recent years, New Zealand's prices look relatively modest.
Beyond house prices: tax advantages
More attractive to Australian investors than house prices, in fact, is the tax system.
In Australia, buying an investment property often involves multiple costs, including stamp duty, capital gains tax, land tax in some areas and foreign buyer surcharges.
For overseas buyers in particular, these additional taxes and charges can be substantial.
In New Zealand, the situation is much simpler. There is no general capital gains tax, no stamp duty and no additional tax burden specifically for Australian buyers.
Tax specialist Mike Rudd says plainly that many Australian investors are surprised when they first learn about New Zealand's tax system.
For them, New Zealand's property investment environment is clearly simpler and more straightforward.
It is also worth highlighting that Australian citizens buying property in New Zealand generally receive the same treatment as local residents, whereas New Zealand residents buying in Australia often face higher taxes and stricter restrictions.
This asymmetry further strengthens New Zealand's appeal to Australian capital.
Exchange rate and yield advantages are emerging
Beyond tax and house prices, the exchange rate is another factor that cannot be overlooked.
The New Zealand dollar has remained weak against the Australian dollar in recent years. Investors holding Australian dollar assets can buy higher-value assets in New Zealand with the same funds, giving them an inherent purchasing power advantage.
Meanwhile, higher rental yields in some areas are also an important draw for investors.
Mortgage adviser Eugene Bartsaikin notes that, compared with many Australian investment properties that remain cash-flow negative over the long term, some New Zealand markets make it easier to break even on cash flow.
This has practical appeal for investors focused on returns from long-term ownership.
Will this spark a new wave of Australian property buying? The answer may be more complicated than it appears.
Despite growing interest, industry participants generally believe a large influx of Australian buyers into New Zealand may not materialise in the near term.
Bayleys head of research Chris Farhi believes growing Australian interest is more likely to be a 'slow burn' than a sudden flood of capital.
Many Australian investors are still researching rather than completing purchases. New Zealand's market is also limited in size, and Australian investors have other options. For some, continuing to invest in Melbourne or Brisbane remains more familiar and convenient.
The more likely outcome is therefore a gradual increase in Australian capital rather than an overnight transformation of the market.
Observations and reflections: are Australians seeing something New Zealanders have overlooked?
One of the most interesting things about property markets is that different people often draw completely different conclusions about the same market.
New Zealand's property market is at just such a point today. Many local buyers remain preoccupied with memories of the correction of recent years, making them more focused on risk.
Australian investors did not experience this downturn and see a different picture: a market that has adjusted for several years, with prices still below their peaks, relatively favourable taxation, established financing channels and an advantageous exchange rate, potentially poised at the start of the next economic recovery.
This does not mean Australian investors are necessarily right, or that house prices are about to surge. But history suggests that when locals are broadly pessimistic while outside capital starts taking an interest, the reasons deserve serious consideration.