Podcast: How Easy Is It For Overseas Kiwis to Buy Property In New Zealand? | Ep. 259

Posted by Ed McKnight on 28/05/20
How Easy Is It For Overseas Kiwis to Buy Property In New Zealand 001
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Show Notes

What's Covered in the Show?

In this episode, we discuss whether it is easy or hard for New Zealanders living overseas to buy property in New Zealand.

Generally, the toughest issue is to get lending from banks in order to purchase property. Overseas investors are typically restricted to 65-70% of lending on properties, and their income is scaled back under the tests to 60-90% of usual income. That range is based on which country the borrower is located in and the risk of currency fluctuation.

We also mention our current podcast survey. We want to make sure that this is the best show in the world about investing in New Zealand property ... we love having you on the journey and we can't wait to get your feedback. Once you've taken the survey we will send you your very own Property Academy Podcast mug.


Transcript of the Podcast

Ed McKnight: Hello and welcome along to the Property Academy podcast. I'm your host Ed McKnight, and I'm Andrew Nicol, and today on the show we're talking about New Zealanders living overseas and their ability to buy property over here in New Zealand, buy investment properties here in New Zealand.

Now we've been doing some more webinars over the last couple of weeks and we've had more and more Kiwis coming from overseas, but be interested in how can I buy investment property back home, back in New Zealand.

And initially I thought, I wonder why that's the case. And then I realised that when I look at my world clock, when we're recording our webinars, 7:00 PM in the evening, that's 4:00 PM in Seoul, in South Korea and 3:00 PM in Singapore and Hong Kong. So, some people perhaps taking the afternoon off to listen to us.

Relatively wise, I'd think in that case. But that's got us into thinking about, well, what are the different rules and between people who are living in New Zealand or living overseas, and their ability to get lending from the bank.

So Andrew, I know you've been thinking about this all afternoon. Give us some of the details.

How are the rules different and how are banks treating this?

Andrew Nicol: Cool. So I just want to talk firstly about the overseas investment act. So for anyone listening that's living overseas at the moment, if you are a Kiwi, you can still technically own property in New Zealand. You can still purchase a property in New Zealand.

If you're from overseas and you live overseas, then you can't. So you've got to be a New Zealand resident to buy property here in New Zealand. Well, the couple of exemptions, so Australians, we don't mind their money. And Singaporeans, we don't mind their money.

So if you're from Singapore or Australia, absolutely, you still can own property in New Zealand with the exemption of anything that's outside of the overseas investment act. And it's pretty tough to beat that. But there are some small exemptions, but pretty rare. So we won't go into that.

So if you are overseas at the moment and you either qualify for the exemption or you're a Kiwi, then you can technically still borrow money here but it's hard.

And so I just spoke to Tony Mounce, who's one of the top brokers in the South Island just to get the lay of the land as of today. And so the maximum that you can expect to borrow from a bank is 70% LVR. So you need a 30% deposit, but more commonly he is seeing it more around the 65%, so pretty low LVR.

Having said there's, if you've got property overseas where you have equity in that you can potentially leverage against that property.

So what that means is if you're in Australia and you own an apartment in Melbourne and you only have 50% debt on that, you could go to the bank and ask them for a 30 to 35% loan against that property, send that money over to New Zealand as your cash deposit, and then use that to leverage against the new property you buy New Zealand, so that is still possible. You still have to meet the Australian banks criteria and part of that as they're going to ask what the money is for.

It's really important to banks now that they understand the purpose that you're borrowing the money for, and if the purpose is for an investment, they're going to make sure that you can meet their servicing criteria and it's their servicing criteria, not the New Zealand banks. Then you come to New Zealand and you've got to pass their test as well.

Now there's some other complexities around the testing of servicing. So if you're living overseas, they look at your income converted to New Zealand dollars, and they use a pretty conservative calculation there, and then they scale it back. So the same as when they do with rental income, they scale it back and they use between 60 most commonly and 90%.

So if you're an Australian, you're more likely to get 90% of your income used in New Zealand dollars. If you're from, say, Hong Kong on the other hand, it's more likely to be closer to 60% or 70% so they really bring that down.

And then of course, remember it's on the test rate and on a principal and interest loan, even if it's for investment purposes.

Ed McKnight: And Andrew, is that because, is the difference between our currencies, or countries, is that because of currency and currency fluctuations that we don't expect to see as much fluctuation between the Australia and New Zealand dollar?

Andrew Nicol: Yeah, that's probably the biggest part of it. So that the stability of the, the currency, because if you have a major change in the New Zealand dollar and say the US dollar, then that affects someone's servicing ability.

So they want to protect against that, and certainly there have been cases a number of years ago where the New Zealand dollar weakened and we were getting loans from overseas. So you'd get a Hong Kong dollar loan, for example.

All of a sudden the Hong Kong dollar outperformed New Zealand and people were paying a huge amount on their mortgage, and then the bank was basically doing call ups and asking people to pay down their loans, which was very stressful for people. And actually, I'm pretty sure that I remember Mouncey telling me that, I think he might've even had some loans like that at that stage when he was working at the BNZ and he said it was very, very, very stressful for him.

Now, remember this is the normal banks. The non-bank lenders, they will allow you to do a little bit more in some cases. You still again, have to meet the overseas investment act, so it's not like the LVR restrictions that only apply to banks, where you can, you know, you can borrow more money from, from say, Resimac, you still have to meet the overseas investment act.

If you don't, you're not getting money from Resimac either. But, for one case of one of Mouncey's clients he got from Resimac, 80% on three rental properties. So 80, 80, 80, which was pretty good to be able to get 80% on three rental properties is hard enough when you're a Kiwi, let alone for an overseas person.

Now, just the disclaimer there, it was an Australian, he was in a high paid job, it was very strong, so it wasn't a high risk. And so that's why they took that on. But Resimac are absolutely doing stuff outside of the box. Sorry, it was an English accountant, an English accountant, he got a Resimac one.

No, no, sorry. That was a different case. And English accountant got one from Resimac as well, and that was at 70%. And so, yeah, there is still the ability to do that. Resimac's interest rate, just so we cover that off as about 3.39% at the moment.

So it was pretty reasonable. It's yes, it's higher than a normal bank or a bank, sorry, but it's still pretty affordable. And if you're buying a rental property, hopefully the tenants paying for all of that anyway.

Ed McKnight: And the big question as well, for anybody overseas is, well what's the alternative as well? We do know that the New Zealand or parts of New Zealand, I should say, parts of New Zealand have really strong fundamentals in terms of high demand, relatively high incomes.

And when I say high demand I mean high demand for housing. Limited supply of land, limited supply of properties. And so are were some really good fundamentals. So even though you can't leverage to the full extent that you could as than if you were in New Zealand, then it may still add up as a really good investment.

And in fact, there's one, we often talk about in Upper Hutt. I think it was one of the case studies that we used in one of our recent webinars, Andrew, of somebody that was one of your clients living in Macau. Do you remember? Do you remember who I'm talking about?

Andrew Nicol: Yeah, I remember that.

Ed McKnight: And I think the property went up by something like 300 K over the course of a four year period that they owned it while living over in Macau, came back and was really stoked when they found out that the GV, they've got sent a letter from the Hutt city council, saying that their property's, the new GV for the property was about 300 K higher than what they originally purchased it for over four years.

So if you are living overseas property can still work for you. You perhaps can't leverage it as much. Perhaps there are a few more hoops to jump through, but it's definitely still possible. So if you're keen to do that, or even if you think you might come back to New Zealand at some point and want to own some property here, then it's still achievable.

You're just going to want somebody on the ground as well who can actually help you do it and execute on that strategy properly.

Andrew Nicol: And certainly that's what we're seeing a lot of at the moment. A lot of inquiry from overseas people, Kiwis overseas, who are planning on moving back in a number of years, in the next couple of years, even a friend of mine actually called me the other day purely because her husband's a pilot and she's working part time at the moment.

And because obviously his income is a lot more uncertain than it was three months ago, there's a possibility they'll move back from Doha to New Zealand sooner. And so now they're looking at more properties over here.

Ed McKnight: And even though we'd always recommend not to put, make property investment an emotional decision, I totally understand why.

Look, if worse comes to worse, you could move back to New Zealand, kick your tenants out of the property and live it yourself, if you really had to, and I understand why people really like that kind of certainty.

But of course, look, if you would like one of our Property Academy mugs, these are the official mugs of the Property Academy podcast, then you can get one absolutely for free.

Andrew and I will lovingly package it up and send it ourselves, all we ask you...

Andrew Nicol: Wine not supplied.

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Thanks for listening to the Property Academy podcast. I'm your host, Ed McKnight, and I'm Andrew Nicol, and we're going to be back again tomorrow with even more daily strategies, tactics, and insights to help you get the most out of the New Zealand property market.

Until next time.