Back Home 5 News 5 Surplus of high-end homes for sale as wealthy Kiwis quit NZ; rental glut in Wellington

Surplus of high-end homes for sale as wealthy Kiwis quit NZ; rental glut in Wellington

5 Jul 2024

| Author: Sally Lindsay

A rethink on the residential property foreign buyers ban is needed to offset the loss of millions of dollars in property and business investments heading to Australia, according to Caleb Paterson of Paterson Luxury, a property investment and advocacy firm. Paterson says he is concerned about the growing exodus of wealthy Kiwis, along with the money tied up in their $4 million to $14m+ homes and their businesses.

New data show more than 50% of vendors who have sold multi-million-dollar homes in the past six months have moved to Australia. Most had more than one property that was either rented out or leased commercially.

“Tens of millions of dollars’ worth of investment money is leaving the New Zealand economy each week,” Paterson says.

While only a comparatively small proportion of wealthy New Zealanders leave the country, they often have high asset holdings and may own businesses that employ hundreds of Kiwis. As a result, their departure has a disproportionately large impact on the economy.

“The cumulative loss of wealth we are seeing at the coalface in recent months has been staggering and is reducing the pool of buyers in this segment of the property market and creating a glut of multi-milliondollar residential homes.”

He says the lack of wealth being recycled at this level is contributing to a growing surplus of high-end properties around New Zealand.

Paterson says an opportunity needs to be created to fill the void created by millions of property investment and business dollars and skills going offshore. Urgent changes to the existing investor visa framework for wealthy migrants are needed.

“There are several ways to look at it. The best solution is lifting the foreign buyer ban and allowing them to purchase properties valued at $5m+ as an incentive under the investor visa scheme, making the pathway to residency for the uber-wealthy a lot easier.”

 

Investor numbers plunge

Bloomberg says it appears the new criteria for an investment visa has caused “rich foreigners to spurn New Zealand”

According to MBIE, just 15 people applied for the new investor visa in April last year, six months after it was launched. That compared with 492, who applied in 2021 under the previous criteria, which were in place until mid-2022.

Under the new criteria, applicants must invest at least $15m over more than three years, only half of which can be in passive investment, or $5m if the funds go directly to a New Zealand business. The old scheme required $10m investment, but it could be placed in very low-risk investments, like government bonds.

National had planned to ditch Labour’s 2018 foreign buyer ban and allow overseas buyers to purchase luxury New Zealand houses worth more than $2m if they paid a 15% tax. The policy had been pitched as a tax-raising initiative that could bring in $740m a year. As part of its coalition agreement with New Zealand First, National had to back down on the policy, but there is talk about revisiting it.

Deputy Prime Minister and NZ First leader Winston Peters said in March he was open to relaxing the foreign buyers ban for extremely expensive homes if there are economic benefits.

Paterson says he and other agents are keen for the government to consider lifting the ban and add incentives to the investor visa because so much wealth is disappearing offshore. “What is going to happen if that continues?” he says.

“What we know about the wealthy New Zealand demographic is they are extremely well-educated, skilled professionals who have the means to relocate to a new country without the constraints that many other Kiwis face.”

Most like where Australia is heading, even though it has the same interest-rate pressures as New Zealand. “I was working with one family recently who sold their house for more than $4m and then liquidated their business investments of a further $14m. These funds will now be invested into the Australian economy.”

Demand from high-net-worth Kiwis moving to Australia has been so high Paterson has established a trans-Tasman partnership with real estate agents in six Australian centres to help place them in new homes. The general trend for his clients moving to Australia is to secure a new family home, take three to six months to set up their new life and then start investing the rest of their money.

Paterson says his clients feel the Australian investment market is far more buoyant. “And it’s not just investment, it is everything about Australia, including the belief that the government will deliver on what it says it is going to do, that is giving them the confidence to invest and stay long-term.”

Paterson has a pipeline of clients who are going to put their high-end properties on the market by the end of the year and move to the “lucky country”. It is taking on average three to four months to sell a $4m property and up to a year for more expensive homes.

 

Red tape

Adding to the woes of agents selling luxury properties are reports suggesting it is easy for low-skilled foreign labour to enter the market, while the process for highnet-worth investors remains unnecessarily fraught with red tape.

Migrants frustrated with New Zealand’s investor visa process look for alternative ways to buy property here, such as getting residency in Singapore or simply giving up on this option and opting to gain entry to New Zealand via the more easily-expedited skilled migrant visa instead. Both create an avoidable loss of millions of dollars of investment to the economy, Paterson says.

This contributes to dramatic discounting and the creation of a buyer’s market. “For those on the look-out for a new luxury home and who have the ability to buy, these market conditions have created a significant opportunity. People needing to sell in the short-term and have been discounting in some cases in million-dollar increments. However, for those in a position to wait it out, one in every five listings, a record number, has been withdrawn from the market so far this year,” he says.

The surplus of luxury properties is a downstream consequence of the government’s decision to retain the foreign buyers ban.

When news of the potential lifting of the ban hit the market last year, property owners in the $3.5m+ segment began readying their homes for sale, Paterson says. “The short notice of the government announcement prevented these homes from listing for sale before the peak summer season and it was inevitable that we would see this wave of new listings enter the market since the start of the year,” he says.

Paterson says with indications that prices in the premium end of the market have bottomed out and economists forecasting a 5%-7% uplift by the end of the year, he is advising vendors who want to remain in the country to remove their homes from sale. Depending on their circumstances, there are other investments that will provide better returns for their portfolios, he says.

 

Rental glut

It is not only the luxury home market that is sitting in limbo.

In Wellington, a glut of rentals has meant 1,000 properties are sitting empty – a situation unheard of for this time of the year. Usually there are 650-700 properties available for rent.

Landlords are being urged to be competitive about pricing and even offer tenants incentives and early lease renewals.

Property Brokers property management general manager David Faulkner says several factors are contributing to the surge of untenanted rentals – a lack of confidence in the economy, redundancies in Wellington’s government ministries, people not prepared to relocate for work and the “accidental landlord”.

He says plenty of property owners have become accidental landlords after their property was appraised for sale. “Many have realised they will need to take a big hit on the price and have decided to put their property into the rental pool, even though they don’t want to be a landlord, and wait it out for 12-24 months until the market changes.”

Other factors are a slowdown in immigration and tenant movement. “When properties become available, they’re just sitting there that little bit longer.” Faulkner believes rents will drop as it’s an issue of supply and demand.

“That is not necessarily a bad thing. The way rents have increased year-on-year, particularly in the provinces where we operate, has been great for property brokers financially, but on a bigger scale, rents increasing at 8%-10% every year is not good for renters. There is only so much they can afford without it affecting the basics of living. Inflation is also tied to what is happening with rents and we can see the damage high inflation does to people.”

One Wellington agency is renting high-end property that would usually fetch $1,200-$1,300 a week for under $1,000 a week.

Wellington-based Tommy’s Rentals managing director Harrison Vaughan says landlords may need to start offering incentives to get people through the door.

“Recently we have worked with a number of owners to offer the first weeks rent-free on tenancies signed. This gives a property a bit of an edge over the competition.”

He says it is also a good time to consider allowing pets, and with the introduction of pet bonds around the corner, the risk is as low as it has ever been. “And if you have tenants in your investment property now, it would be a good time to talk to them about renewing their lease.” ■

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