When it comes to property investment, both Sydney and Auckland present unique opportunities and challenges. As two of the most prominent cities in their respective countries, understanding the nuances of each market is crucial for investors looking to maximise returns.
Population and Demographics
Auckland, New Zealand’s largest city, is home to about a third of the country’s population. With over 1.6 million residents, it is a hub of economic activity and cultural diversity. Sydney, on the other hand, is an international city with a population exceeding 5 million, more than the entire population of New Zealand. While it’s not Australia’s largest city, it is a global centre for finance, culture, and tourism, attracting wealthier migrants who often prioritise Sydney over Auckland as their first choice for settlement.
Development and Housing Supply
A key difference between the two cities lies in their approach to urban development and housing supply.
Auckland: The Auckland Unitary Plan, introduced to manage the city’s growth, allows for substantial redevelopment of existing properties. This includes the ability to convert single-family homes into multiple terraced houses, significantly increasing the housing supply. This liberal approach to development has led to more opportunities for property investors to add value through redevelopment, though it has also increased competition in the market.
Sydney: In contrast, Sydney’s development landscape is more restrictive. Many of its existing suburbs, particularly along the prized Eastern beaches and coastal areas, have limited development potential due to small land sizes and stringent regulations. The Development Application (DA) process in Sydney is notoriously challenging, requiring approval from neighbouring properties, which can often lead to objections and delays. This restrictive environment limits the supply of new properties, contributing to the city’s resilient property market.
Budget Considerations
Your investment budget plays a significant role in determining which city is more suitable for you:
Auckland: If you have a budget of around NZD 1 million, you can do quite well in Auckland. This budget allows for various investment opportunities, including the potential for redevelopment and value addition in many suburbs.
Sydney: In Sydney, however, a minimum budget of AUD 2 million to 2.5 million is generally required to find a property that offers reasonable value-add potential. The high demand and limited supply in desirable areas drive up property prices, making it more challenging for investors with smaller budgets.
Tax Implications
Tax considerations are also a key factor when comparing property investment in these two cities:
New Zealand: For property investors, New Zealand is relatively tax-friendly. There is no stamp duty on property purchases, no annual land tax (distinct from council rates), and no capital gains tax if you hold the property for more than two years. This favourable tax environment makes holding property in Auckland an attractive strategy for long-term investors.
Sydney: In contrast, Sydney imposes several taxes that can impact your investment returns. There is stamp duty on every property purchase, an annual land tax payable to the state government, and capital gains tax, which is reduced to 50% of the gain if you hold the property for more than 12 months. These taxes can make a holding strategy less attractive for Sydney property investors, especially when compared to the more lenient tax environment in New Zealand.
Overseas Buyers
When it comes to overseas buyers, the rules differ significantly between Auckland and Sydney:
Auckland: For residential properties, overseas buyers, including those on temporary visas such as work permits and student visas, can only purchase approved new-build apartments, even if they are living in New Zealand. This restriction significantly limits their investment options in the city.
Sydney: Overseas buyers have more flexibility. They can purchase any new builds, provided they add additional dwellings. However, they are not allowed to buy properties that involve a knockdown and rebuild. Additionally, temporary visa holders, including those with work permits or student visas living in Australia, are allowed to purchase established houses for their own residence. Although they are required to sell these properties when they leave Australia, insufficient management often means many hold onto these properties.
Notably, the National Party in New Zealand had plans to introduce a more lenient policy for overseas buyers, but this was declined by the coalition government, particularly due to opposition from NZ First. This difference in policy means that Sydney generally has a higher demand from overseas buyers compared to Auckland.
Market Performance
Sydney’s restrictive development environment has had a significant impact on its property market performance. Despite the downturn caused by interest rate hikes in 2022, Sydney’s market has rebounded strongly. As of 2024, the city continues to experience robust growth, with auction clearance rates consistently above 70%. This high demand and limited supply make Sydney an attractive market for investors, albeit a challenging one to enter.
In contrast, Auckland’s auction clearance rate hovers below 40%, indicating a slower market where only one in three houses is sold at auction. The more relaxed development rules have led to an increase in supply, which, combined with economic factors, has tempered market growth. However, this environment also provides opportunities for strategic investors who can navigate the market effectively.
Investment Strategies
Given the differences in these markets, the strategies for adding value to properties in Sydney and Auckland vary:
Auckland: Investors can potentially increase a property’s value by around 30% through renovation. However, if you’re aiming for a value increase of over a million dollars, redevelopment is often necessary. This could involve converting single-family homes into terraced houses or multi-unit dwellings. Auckland’s development-friendly policies make this a viable strategy for those looking to capitalise on the growing housing supply. However, this approach carries more risk due to the higher capital requirements and longer timeframes involved.
Sydney: In Sydney, the potential for value addition can be even higher, sometimes doubling the property’s value if investors know how to navigate the renovation process. There are usually two main types of developments available:
Knockdown and Rebuild: This involves demolishing the old dwelling and constructing a new one. Properties that undergo this process often sell for record prices in the area, attracting many investors to this strategy.
Duplex Build: In this approach, the investor knocks down the existing dwelling and rebuilds a duplex, where two dwellings share a common wall. Both strategies can generate multi-million dollar returns for investors.
The limited supply and high demand in desirable Sydney suburbs mean that successfully completing a development project can lead to substantial returns.
Both Sydney and Auckland offer compelling opportunities for property investors, but the key to success lies in understanding the distinct characteristics of each market. While Auckland offers more straightforward development opportunities and a favourable tax environment, Sydney’s restrictive development landscape and strong demand can yield higher returns for those who are able to overcome the challenges.
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