In recent years, interest in overseas real estate investment as a part of asset building has been growing. In particular, New Zealand, with its stable economic growth and rich natural environment, is one country that has attracted the attention of many investors. However, in order to successfully invest in overseas real estate, it is essential to have a deep understanding of the local market characteristics, legal system, and cultural background.
In this article, INA & Associates, Inc., as a real estate expert, explains the fundamental differences between the New Zealand and Japanese real estate markets. In particular, we will focus on the value of pre-owned properties, the taxation of real estate acquisitions, and restrictions on foreign purchases. We hope this article will assist you in your international real estate investment strategy.
Fundamental Differences between the New Zealand and Japanese Real Estate Markets
There are some fundamental differences between the New Zealand and Japanese real estate markets that are difficult to understand at first glance. Understanding these differences is critical when considering real estate transactions in both countries. Below are four key differences, explained in detail with specific data.
Differences in Values for Pre-Owned Properties
One of the most striking differences is the perception of value in terms of pre-owned properties. This difference in values largely defines the market structure itself in both countries.
In Japan, there is a strong preference for new construction, and the distribution ratio of used properties is limited. It is generally believed that the value of buildings declines significantly with age, and that the land is the main source of asset value. This is thought to be due to the cultural background that regards housing as a kind of "consumable.
In New Zealand, on the other hand, the majority of houses are used, and new construction transactions are relatively rare. There is a strong sense that buildings are "meant to be lived in," and with appropriate maintenance and renovation, their value can be maintained or even improved. Since the value is unlikely to decline as the building ages, the market environment is suitable for long-term asset building.
| Item | Japan | New Zealand |
|---|---|---|
| Percentage of used properties | There is a strong preference for new construction, and the percentage of existing properties in circulation is relatively low. | The pre-owned market is very active, with pre-owned properties accounting for the majority of the total market. |
| Effect of building age | The value of buildings declines with building age, and land value is the main asset. | The influence of building age is relatively small, as the value can be easily maintained and improved through appropriate maintenance and management. |
| Rental value | Rents tend to decline with the age of the building. | Compared to Japan, the difference in rent by building age tends to be smaller. |
As described above, New Zealand has an entrenched culture that views real estate as a long-term asset and places importance on maintaining and improving its value. This is an important point to recognize as a major difference from the Japanese real estate market.
Differences in taxation and expenses when acquiring real estate
Taxes and fees incurred when acquiring real estate also differ greatly between the two countries. Particular attention should be paid to this when making financial plans, as it directly affects the initial cost on the purchaser's side.
In Japan, a 10% consumption tax is imposed on the purchase of new properties, brokerage fees, and renovation costs. In addition, both the buyer and seller generally pay commissions to real estate brokers based on the sales price. These fees are an important cost to consider in addition to the property price.
In contrast, in New Zealand, the buyer does not bear any additional GST in many private or second-hand housing transactions, but GST is included in the price, for example, in the purchase of a new building from a developer. Furthermore, as a rule, real estate brokerage fees are borne solely by the seller. As a result, initial costs on the buyer's side tend to be much lower than in Japan. This difference in taxation is one of the major attractions of New Zealand real estate investment.
| Item | Japan | New Zealand |
|---|---|---|
| Real Estate Brokerage Fee | Both the seller and buyer pay a commission based on the sales price. | In principle, only the seller pays, and in many cases, the buyer bears no responsibility. |
| Consumption Tax (GST) | Consumption tax (10%) is imposed on newly built properties and brokerage commissions. | No consumption tax (GST) is imposed on the purchase of residential properties. |
Purpose of using real estate and location selection
National differences are also evident in the purpose of purchasing real estate and the criteria for selecting a location.
In Japan, especially in central Tokyo, transportation access, such as convenience of commuting and distance from train stations, is extremely important. From an investment standpoint as well, the popularity tends to be concentrated in metropolitan areas, especially Tokyo, where high liquidity and stable rental demand can be expected.
On the other hand, New Zealand has an established culture of changing residences as lifestyles change. For example, changes in life stages such as marriage, the birth of a child, or retirement are the main motivations for relocating. Of particular importance are school districts, known as "school zones. Since properties located in reputable public school districts tend to have lower property values and higher rental demand, there is a strong tendency to choose properties in good school districts in anticipation of future sales and rental operations.
Differences in Real Estate Purchase Regulations by Foreigners
One of the most important things to check when considering an overseas real estate investment is whether there are any restrictions on purchases by foreigners.
In New Zealand, a 2018 amendment to the law prohibits the purchase of existing residential real estate (e.g., existing homes) by non-resident foreigners in principle. However, purchases are allowed for local residents, such as Japanese nationals who hold a New Zealand residence visa. The purpose of this regulation is to curb the rising price of housing in New Zealand and to ensure that New Zealanders have the opportunity to purchase housing. (Exceptions are made for certain investment visa holders, but only for high-value properties.)
In contrast, Japan is one of the countries in the world with less restrictive regulations on real estate purchases by foreigners. Even non-resident foreigners can acquire full ownership of land and buildings. This open market environment is a major attraction for foreign investors, and has been one of the reasons for the influx of foreign funds into the Japanese real estate market in recent years.
Practical Considerations for Real Estate Investment
After understanding the differences between the real estate markets of the two countries, there are several practical points to keep in mind when actually proceeding with investment.
First, when considering the purchase of real estate in New Zealand, it is essential to have the support of a specialist who is familiar with local laws and regulations. In particular, it is necessary to confirm well in advance the status of the residence visa and the types of properties available for purchase. In addition, in order to accurately assess the condition of the property, it is common to request a BuildingInspection (building inspection) from a specialist. Pre-purchase inspections are widely conducted, and buyers can easily identify structural problems and areas in need of repair.
In real estate investment in Japan, location selection is the key to success. In particular, it is important to comprehensively analyze demographic trends, redevelopment plans, transportation infrastructure, and other factors to select a property that can be expected to maintain or increase its asset value in the future. In addition, if the property is intended for rental operation, it can be offered to the market as a competitive property by accurately grasping the needs of the target tenant base and making appropriate renovations and facility investments.
Managing currency risk is another factor that must not be forgotten in international real estate investment. Fluctuations in the exchange rate between the New Zealand dollar and the Japanese yen have a direct impact on investment returns. Even when investing from a long-term perspective, it is recommended to consider risk management measures such as currency hedging and asset diversification in multiple currencies.
Conclusion: Optimal real estate investment strategy from a global perspective
In this article, we have discussed four key differences between the New Zealand and Japanese real estate markets: the value of existing properties, the tax system, criteria for selecting a location, and restrictions on foreign purchases.
New Zealand is a market suitable for investments aimed at long-term asset building, as existing properties tend to retain their value and initial costs on the buyer's side are low. Japan, on the other hand, offers the advantages of high liquidity in urban areas and easy access to ownership for foreigners.
| Comparison Items | Features of the New Zealand Market | Features of the Japanese Market |
|---|---|---|
| Values | A "live-and-let-live" culture. Easy to maintain and improve the value even if used. | Expendable" aspect. Highest value when newly built. |
| Taxation and Expenses | Buyers bear less consumption tax and brokerage fees. | Buyer bears a large initial cost burden, such as consumption tax and brokerage fees. |
| Location Selection | Lifestyle and school district (school zone) are important. | Commuting convenience and access to the city center are top priorities. |
| Foreigner Restrictions | In principle, non-residents are prohibited from purchasing existing homes. | Less restrictive regulations allow foreigners to acquire ownership of land and buildings. |
A proper understanding of these differences and matching them with your own investment objectives and life plans is the key to successful cross-border real estate investment. It is not that one market is better than the other, but rather it is important to develop a strategy that takes advantage of the characteristics of each.
At INA&Associates K.K., our experts, who are well versed in both domestic and international real estate markets, can help you build the optimal real estate investment portfolio tailored to your individual situation. Please feel free to contact us if you would like to discuss your overseas real estate investment needs or would like more detailed information.
Frequently Asked Questions
Q1:Can Japanese nationals purchase real estate in New Zealand?
A1: Yes, you can. However, non-residents are generally prohibited from purchasing existing residential properties. If you are a Japanese national residing in the area, such as a New Zealand resident visa holder, you may purchase a property, including an existing home. There are some exceptional cases, such as large new developments, in which purchase is permitted, so please consult with a specialist.
Q2:What are the advantages of investing in New Zealand real estate?
A2:The main advantages are: 1) the asset value of even second-hand properties does not decline easily, and stable long-term returns can be expected; 2) no consumption tax is charged when purchasing residential properties, and the buyer bears no brokerage fees, so initial costs are low; and 3) a stable economy and political situation, as well as a high quality of life. 3) Stable economy and political climate, and high quality of life. In particular, the prospect of maintaining and increasing real estate value with proper management is a major attraction.
Q3: Why is Japanese real estate so popular with foreign investors?
A3:The most important reason is that, even from a global perspective, restrictions on foreigners purchasing real estate are very loose, allowing them to acquire complete ownership, including the land. Political stability, the reliability of the yen as an international currency, and the high liquidity and stable rental demand of Tokyo and other major cities are also attractive factors for foreign investors.
Q4:What is New Zealand's secret to maintaining the value of existing properties?
A4:The underlying culture is that houses are meant to be lived in. People take regular maintenance and renovation for granted and make every effort to keep the quality of their homes high. In addition, many houses are solidly built and building inspections are commonly conducted, making it difficult for defective properties to appear on the market, which contributes to maintaining confidence in the market as a whole and asset values.
Q5:What is the biggest difference in terms of taxation when purchasing real estate?
A5:The biggest difference is in the costs borne by the buyer. In Japan, there is a 10% consumption tax on new construction and brokerage fees, but in New Zealand, there is no consumption tax (GST) on the purchase of residential property. Also, real estate brokerage commissions are generally paid by the seller only, whereas in Japan they are paid by both buyer and seller. This makes it possible to greatly reduce the buyer's initial investment.
Daisuke Inazawa
Representative Director of INA&Associates Inc. Based in Osaka, Tokyo, and Kanagawa, he is engaged in real estate sales, leasing, and management. He provides services based on his extensive experience in the real estate industry. Based on the philosophy that “human resources are a company's most important asset,” he places great importance on human resource development. He continues to take on the challenge of creating sustainable corporate value.
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