New Zealand Attracting Local and Foreign Buyers, Sees Price Jumps and Record Sales

It’s been another record-breaking year for the New Zealand luxury property market and despite warnings of a housing bubble and forecasts of a downturn, the island’s most luxurious homes continue to attract overseas trophy hunters.

A strong economy, conservative and stable government, and its striking natural beauty, make New Zealand a favorable destination for buyers from Australia and increasingly the U.S., U.K. and China.

"We’ve always had a bit of interest from the U.S., the English and Chinese but it certainly has ramped up in the past 12 months," Prestige property agent Graham Wall said.

"We’ve gone from one inquiry a week to two-and-a-half inquires from offshore buyers. People are looking for one of two things:  trophy properties, but also for something in a quieter and less complicated world," Mr. Wall said.

Also helping fuel the interest is New Zealand’s foreign-buyer friendly policies—including no stamp duties, capital gains taxes, payroll tax, penalty rates or visa requirements—which makes the country even more attractive for local and offshore buyers alike.

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Leading luxury real estate brokerage New Zealand Sotheby’s International Realty announced this month that 2016 was a record-breaking year for the agency, with sales volume up 65% from the year prior.

In the country’s two strongest markets, Auckland and Queenstown, prices have been rising continuously for five years, according to Sotheby’s.

In the South Island’s boutique, ski and adventure capital of Queenstown, prices increased 25% to an average of nearly NZ$900,000 (US$620,000) in 2016 while Auckland property values jumped 16.1% for the same period to an average NZ$590,100 (US$407,000), according to Corelogic RP Data.

Top Properties

New Zealand’s top property transaction in 2016 was the NZ$32.5 million (US$22.4 million) sale of a 2,375-square-meter mansion in Coatesville, 30 kilometers northwest of Auckland. Spanning 22.6 hectares, the lifestyle property was sold by Chrisco Christmas hamper founder and millionaire Richard Bradley.

By comparison, the top sale for 2015 was in Auckland’s most exclusive area, Herne Bay, and traded hands for NZ$24 million (US$16.6 million).

Sold by Mr. Wall, the six-bedroom waterfront mansion is on more than 4,000 square meters of land and has a separate guest apartment, helipad, beach access and home-movie theater.

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Those areas most sought after by high net-worth individuals include inner city and harborfront suburbs of Auckland and Queenstown. The exclusive island of Waiheke, 30 minutes by boat from Auckland’s central business district, was also popular among international buyers for its exclusivity and luxury architectural homes.

Listings such as a NZ$21 million, 34-acre property on Church Bay Road, Waiheke Island, with its 1,800-square-meter Bryce Ardern-designed home and six-acre vineyard, are ideally suited to the international market.

And it’s the high end of the market that’s really thriving, according to Mr. Wall. "There’s a little bit of a pause in the ordinary priced property as the government has taken a few measures to cool the investment market but at the top end, fortunately, things are wonderful," he said.

"The all-encompassing word for it is safety," Mr. Wall said. "New Zealand is a safe place to have your money, there are no capital gains, there is a conservative, conventional government and New Zealanders are friendly and familiar and it’s a safe place to have capital."

And the big price tags are a direct result of high immigration and strong job growth, which have brought in people from rural areas to Auckland Central for employment.

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Property is King

The strength of New Zealand’s property market has become a topic of national discussion.

Fueled by open trade agreements, business-friendly regulations, and the fact that it’s regularly ranked as one of the world’s most prosperous nations, New Zealand’s buoyant economy has also put undue pressure on the housing market.

The most recent annual Demographia International Housing Affordability Survey, which ranks housing affordability around the world using house price data compared to household income, found Auckland’s median house price is 10 times that of a median annual salary.

A Property Council of New Zealand (PCNZ) commissioned report released in May, ranks the property industry as the country’s fourth largest employer with 160,000 locals working directly or indirectly within the industry. Almost 100,000 workers are employed as subcontractors, tradies and residential builders, according to the PCNZ report, compiled by Urban Economics.

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Property is also the country’s largest non-export industry, valued at NZ$83 billion (US$57 billion), according to the report, commissioned by the Property Council. It found the property industry is the backbone of the country, contributing NZ$29.8 billion (US$20.5 billion) to the New Zealand economy–about 13% of gross domestic product, more than manufacturing, agriculture or health.

The data confirmed the country’s citizens love property investments, spending triple the amount of money on bricks and mortar investments than on share, bonds or the New Zealand stock market.

Affordable Luxury

In 2015, Auckland was ranked the world’s "hottest" luxury market in the Christie’s Global Luxury Real Estate Report, based on overall prices, growth and demand, with properties valued at NZ$1 million (US$701,000) or more increasing in value 63%, but in the 2016 edition of the report, the city dropped to sixth place.t.

Local agents identify New Zealand’s hottest markets as Queenstown, Wellington, Nelson and Blenheim at the top of South Island and Dunedin, according to Ian Little, national research manager at Bayleys, an affiliate of Christie’s International Real Estate.

Sales transactions of luxury property, valued at NZ$1 million-plus, hit a high of 2,381 in 2016 compared to 1,874 in 2015, he said, while the Bank of New Zealand estimates foreign nationals account for 6% of New Zealand property purchases, and of those, a quarter are from Australia.

"New Zealand’s luxury sector continues to perform well with strong interest from both nationals and overseas purchasers," Mr. Little said.

"In Auckland, sales volumes are down and value appreciation has slowed," he added. "Elsewhere in the country values have been rising over the last two years following an extended period, post GFC [global financial crisis], when values were flat."

What’s Next

Mr. Little said concerns about a property bubble need to be considered in context and aren’t applicable to the market as a whole.

A shortage of housing and rising immigration levels had put unprecedented pressure on Auckland’s housing market, Mr. Little said, causing an increase in values of 80% between 2011 and 2016, but the intensity had since dropped off thanks to government measures.

"Late in 2016 the [New Zealand] central bank acted to cool the market by imposing lending restrictions upon investors," Mr. Little said.

"Investors must now have a minimum deposit of 40%.," he said. "In addition, the lending banks have also adopted a more risk-averse approach to lending, which has made property finance harder to obtain."

"As a result, in Auckland, sales activity has declined significantly and value appreciation has leveled off," Mr. Little said. "Over the last 12 months, median values have risen by approximately 6% while an annualized increase of over 20% was recorded in 2015 and early 2016."

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The Real Estate Institute of New Zealand (REINZ) confirms that tighter lending and buyer cautiousness have resulted in an increase in the time it takes to sell a property in Auckland and a drop in month-to-month prices, though they remain 11% higher year-over-year.

"There is a strong sense now that the Auckland market has peaked," according to Westpac senior economist Michael Gordon.

Global investment bank Goldman Sachs has also issued a warning this month that New Zealand's housing market has a "40% chance of going bust in the next two years."

In a research note published by Goldman, New Zealand's housing market is named as the most over-valued among the G-10 group of developed economies, and is said to face house price falls of 5% or more after adjusting for inflation.

Kathryn Hopkins contributed to this story.