Bare Land | Tax Haven | Capital Gains Tax | Lifestyle Land | Subdivision
In recent years, buying land in New Zealand has become fashionable with the very rich, who have been buying large estates in a number of locations – for example the 42,000-acre estate near Lake Wanaka bought by singer Shania Twain.
Bare building land in Canterbury
New Zealand as a Land Investor’s Tax Haven
One major incentive for investing in bare land in New Zealand is that New Zealand has no capital gains tax. There is no tax to pay when you sell your land for a profit.
If, however, the tax authorities believe you are trading in land (buying and selling for a profit) your profits will taxed as part of your income.
Caution: New Zealand’s lack of capital-gains tax is unusual in the developed world. It would be imprudent to make investment decisions based solely on the fact that there is currently no such tax. It is possible a tax could be introduced in future.
Buying Land in New Zealand from Overseas
If you are not a New Zealand resident you need approval from the Overseas Investment Office for purchases of more than five hectares (12.5 acres) of land.
Bare Land as an Investment
The drawback of bare land is that it generally provides only a small cash flow (from grazing perhaps) or no cash flow. Buyers often need to have deep pockets to wait for land values to rise. In cities, it has become popular for investors to buy old houses with large gardens. Rent from the old house provides some cash flow while the land appreciates in value. The investor has the choice of selling the property as is or demolishing the house and subdividing the land for development or sale.
Buying Land to Subdivide
It is not difficult to find land advertised in New Zealand with a suggestion from the advertiser that the land could be split into sections / plots and sold off individually for profit. The buyer should beware. Subdividing land in New Zealand can be a costly exercise – fees of tens of thousands of dollars will be payable to the local council. You should only take on a project such as this if you have familiarized yourself with local regulations and are absolutely certain of your costs. Many people who have been through the process declare that they will “never dream of doing it again”. Those who carry out the subdivision process successfully, however, can make large amounts of money.
Subdivision has become so expensive that, in many circ*mstances, cross-leasing land is becoming more popular – especially in cities. Instead of legally splitting land into different sections and building a house on each one, the land legally remains as one section. Several houses are built on the single section. The goodwill of the people who buy the houses is then relied upon to prevent “border disputes” happening as, legally, each house owner owns a share in the land on which all of the houses have been built.
Buying Lifestyle Land
The lifestyle block is a popular purchase in New Zealand. These typically consist of 4 hectares (10 acres) of land. Depending on the block, they are commonly around a 15 to 60 minute drive from cities. Lifestyle block land has proved to be a strong investment in recent years with average values increasing faster than urban areas.
Will Land Values Continue to Go Up?
Provided New Zealand’s population continues to increase and economic growth is satisfactory, land prices will continue rising – with an occasional blip caused by drought, for example.
There will continue to be fads, such as the recent one for coastal property. Coastal land prices have rocketed in recent years. If, as we are warned, sea levels continue to rise relentlessly over the coming decades, the attractions of owning land right beside the sea may fade.
Land is most likely to appreciate in value where there is high demand from a growing population with growing disposable incomes. Look to New Zealand’s growth centres – such as Auckland, Christchurch and Tauranga, for example – for the greatest likelihood of land performing well as an investment.
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Disclaimer: The information we provide on these pages is offered in good faith. It should not be construed as investment advice. If you require investment advice, please consult a qualified financial advisor.
