DO YOU HAVE A PLAN B?

Every country wants to attract the tourist dollar and long-term investment to boost their GDP.

NZ is no different and regulations are put in place to ensure the right workers are suitably enticed through immigration laws and business/property investment, as it relates to sensitive property (except residential) through the Overseas Investment Act.

There are a few exceptions to this, as any foreigner can buy freehold commercial property here as of right (1) and if you are Australian or Singaporean then through the Comprehensive and Progressive Trans-Pacific Partnership (CPTTP) Agreement, you can buy residential property here too.

The only other way around the foreign buyer ban with residential property is the developers that have gained an exception to sell a portion of their off-the-plan apartments and hotel operators, both of which need more than 20 units in the development and both will have conditions attached.

So, this is the current law, but is it working? Are we bringing in the right workers, are we bringing in sufficient capital investment? Immigration has certainly increased (2). Only about 13.7% of these immigrants with a residence visa purchased a house (3) in 2023, which is the highest ever number of properties sold to these visa holders. Even though this was a new record, over-all the number of migrants purchasing property is declining.

It is interesting why people flock into NZ when we have high unemployment, consumer products are higher than most countries and last year we were officially in a recession. Could it be the escalating threat of a war on their doorstep, is it because we are in a buyers-market and they all saw the huge growth in the last decade and they want a piece of it or was NZ always a Plan B? When things look like they are turning custard in their home countries, have they decided that it is never going to stop and decided to find another option?

Let’s see if we shine out there as far as property investment is concerned (4):

As far as yields go with property investment, looks like we are less than average in performance, however the lifestyle and capital growth seem to be the underlying clinchers.

Despite the ‘nothing to write home about’ GDP or yield, people arrive on our shores anyway, but are they contributing to the betterment of New Zealanders as a whole? Some countries restrict foreigners from buying at all, with the overall aim to protect their culture and the stability of their local property market.

Apart from a low turn out of foreigners buying expensive NZ poprerty, there is another option, that being ‘leasehold’.

Leasehold vs freehold

Several countries around the world don’t allow foreigners – or anyone, for that matter – to own freehold property. Yet they will allow you to own property by purchasing a long-term lease, lasting anywhere between 30 to 999 years.

However, this system of ownership does not give you the same amount of control as freehold ownership. The legally termed ‘bundle of rights’ is diminished with development rights and other conditions that you will need to agree to in the lease contract.

Perhaps more importantly, your lease on the property is a depreciating asset. As your lease term becomes shorter, the leasehold value declines substantially. Who is going to buy your property where there are only 10 years left. Or, which is more the case in NZ, who is going to buy list price for a leasehold property when a 7 year rent review is due in 2 years time, in a real estate boom.

Under a long-term lease, you’ll never truly own your property and permissions will need to be sought to develop the land. There is a lot of land on the waterfront in Auckland that is leasehold. The increase in the ground rent goes up with the land value and often the rent you receive when investing in this location is almost entirely eaten up by the ground rent and body corporate fees.

Sure, you could call it a lifestyle and purchase for less than $300k, however I have never understood why people buy these leasehold properties for investments. Not only is the yield sub-standard but any attributable capital growth from the economy is tempered by the diminishing years in the lease.

Anyway, I digress..

Many Asian countries allow foreigners to buy freehold property in some form. Yet five nations, specifically Vietnam, China, Indonesia, Hong Kong, and Laos, do not allow this at all.

Each of the above five countries approaches leasehold property ownership differently. Some nations, like China and Vietnam, have leasehold title systems engrained in their government’s communist origins and they are unlikely to change any time soon.

Others, like Indonesia, let their citizens own freehold real estate while banning foreign nationals from permanent ownership of any type of land or structure.

Thus, whether you want to invest in up-and-coming Vietnam or secure your dream beach villa/condo in Indonesia, you should understand how the following countries approach leasehold property ownership.

Vietnam (5)

In Vietnam, all land is collectively owned by the state. Consequently, in order to “own” a house or condo, you must lease it from the government.

Leaseholds in Vietnam are something you must deal with as a real estate owner, whether as a foreigner or a citizen. Most of these leases last either 50 or 70 years.

Over the past few decades, however, Vietnam’s leasehold ownership system has become more of a formality than anything else. Most leases in the country are renewed with little objection, and as the country transitions to a more liberal western-like society, its leasehold ownership system may loosen to allow freehold ownership.

As the country becomes more capitalist and leasehold interests disappear, a leasehold investment my evolve into a freehold one with little if any compensation required. Could be good to invest here.

China (6)

Similar to Vietnam, China’s property ownership laws reflect its communist regime from eons ago. In China, all plots of land are officially owned by the state.

However, Chinese citizens and foreigners alike can still lease from the government for periods between 40 and 70 years, depending on the land’s purpose and location.

The renewal process is pretty much a given and as long as you pay the man, the renewal of the lease should go without a hitch. However circa 200k people leave (negative migration) every year, so that might tell you something.

Indonesia (7)

Indonesia allows its own people to own freehold real estate within the country, however foreigners can only purchase leasehold property. Lease terms in Indonesia can range from 1-80 years, so not ideal. The social stability needs to be looked at as well with the new laws that were introduced in 2023.

The difference between Indonesia and China/Vietnam is that foreigners can lease from other freehold owners, beside the government. Similar to new Zealand.

Hong Kong (8)

Unlike other places with fixed terms, leasehold land leases in Hong Kong can potentially range anywhere from 50 years to 999 years. While Beijing has attempted to standardize lease terms in Hong Kong, those regulations mostly apply to new leases and not the current ones.

Additionally, questions remain surrounding the validity of land leases after China’s “One Country, Two Systems” policy ends in 2047. Beijing has stated that all leases will remain valid, although leaseholders remain concerned about their property rights after the handover.

The way I would look at this is as far as property investment is concerned, would be to see 2047 as the end of a lease term and the associated diminishing values between now and then. This may prove not to be the case, but the uncertainty of what will happen in 2047 makes it a fair bet.

Laos (9)

To buy property in Laos as a foreigner, you can both lease it from the government or a private Laotian citizen. You cannot own freehold real estate in Laos.

Lease terms in Laos can vary, typically 30 years yet they can be extended for up to 75 years in special economic zones allocated by the government.

Overall, the clock is ticking on the value and unless you got an incredible deal, it is not unlike buying a new car which devalues as soon as you drive it a off the lot.

My advice would be to not place your money here.

Thailand (10)

Foreigners cannot own land in Thailand on a freehold basis. However, foreign individuals can acquire freehold ownership of an apartment as long as you share the ownership with a local, to the tune of 51% for the local, enabling the citizen to have overall control.

You can get hold of the other 51% however, but only on a restricted lease agreement with the owner for a period up to 30 years.

Could be a good place to invest.

Dubai (11)

Many people wonder if foreigners can buy property in Dubai and whether it’s a good long-term investment. The answer is yes. Foreigners can buy freehold property in Dubai, either to live in for Foreign nationals or to invest in from abroad. However, there’s a catch: they can only buy property in certain areas designated as freehold zones by the Dubai government and you guessed it, these zones are not located in the cheapest parts of town.

According to the Dubai Sales Market Report for the first and second quarter of 2023, the top areas for property investments are: Dubai Marina, Jumeirah Village Circle (JVC), Downtown Dubai and DAMAC Hills 2. These freehold areas allow foreign buyers and offer both affordable and luxury real estate options. I believe Dubai is the bees knees when it comes to investment.

NZ could take a page out of Dubai’s book by offering foreign investment in certain area’s that need developing. In Auckland, there are many areas that are not being developed due to the Council dragging the chain with the infrastructure, due to lack of funds, resources and the RMA. If the door is opened to foreign investment in these targeted areas, then not unlike directing water through a hose, money would most likely start flowing and infrastructure will find its funding.

Another option – Plan B (12)

The above gives you an idea of how you can buy property in a sought after area on the planet where the sun shines most days through the year and consumer goods are affordable, well at least more affordable than NZ.

The other option is a 2-for-1 deal. Buying an investment property and getting your residency or even citizenship on the side, as part of the purchase.

Here are a few options to consider:

Residence by purchasing real estate

Place to escape to	Min Investment (NZ$)	Required time to stay there	Residency period
Turks & Calcios Islands	$500,000	None	Permanent
Malta	$ 630,000 or 5 yr rental	None	Renewable every 5 years
Greece	$ 813,000	None	Renewable every 5 years
Spain	$ 900,000	Visit 8 times every 2 years	Renewable every 5 years
Curacao (Netherlands)	$ 460,000	None	Renewable every 3 years
Columbia	$ 180,000	180 days per year	Renewable every 3 years
Cyprus	$ 650,000	Visit bi-yearly	Permanent
Cayman Islands	$ 1.96M	None	Permanent
Cambodia	$ 163,000	None	Permanent
Brazil	$ 240,000	30 days per year	Permanent

Citizenship by purchasing real estate

Place to escape to	Min Investment (NZ$)	Required time to stay there	Restrictions on purchasing real estate
Antigua & Barbuda	$ 330,000	None	None
Dominica	$ 326,000	None	Pre-approved RE
Grenada	$ 570,000	None	Pre-approved RE
Turkey	$ 650,000	None	None
St Lucia (Caribbean)	$ 325,000		Must be Commercial

This is a true Plan B, that those that can, should consider. The economy and culture of some of these countries should be studied to make sure any risk, be it social or economic are no worse than they are here in New Zealand. Ideally, they will be a lot better.

Sure, a mortgage might be a bit difficult to obtain at the local bank in one of these countries, but with the equity you might gain back here in the next property boom in NZ, this option might be a sensible one.

Apart from the smart move of hedging your bets with the economies/social stability of two countries as opposed to Gods zone alone, imagine living for half the year in your own house in the Caribbean islands (for $330k), then following the sun back to NZ to live here from October to February.

This not only is an enticing goal for those of you that can make your living on a laptop, but certainly for the retirees out there, tossing up where they want to settle.

Summary

There are a few systems throughout the world, all designed to benefit the countries that implement them. Whether it be only offering leasehold, allowing foreign freehold purchases, offering Permanent Residence/Citizenship or banning foreigners altogether. Which system is better for NZ will of course depend on our needs and the answer to this would be served with a much more intensive study on how these systems have affected the countries mentioned in this blog and which system we should copy.

Personally, my gut says we should drop the foreign buyers ban, offer leasehold property (up to 49%) and targeted freehold in areas where much needed developers cannot be found.

The current government allowance for foreign buyers to buy off-the-plan apartments and hotel units is outdated in a market where apartment developers are going under and tourism never quite bounced back. This solution is needed right now, to propel ourselves out of this recession, to bring down the unemployment rate and to give a nitro-boost of funding to the Councils to allow more infrastructure.

References

DO YOU HAVE A PLAN B?

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