The cost of building in NZ

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A comment on building property in NZ:

"I have been amazed at the prices to build. They are about twice what I could build the same house for in the US. This is hard to understand since many of the materials are (lumber, stone) are from NZ and the labor rate is cheaper. We own the land so it is just construction cost. The house would be considered upper middle class nice in the US but nothing really special. The builders in NZ seem to be somewhat confounded".

I agree. Not sure why this person built a new house as that is the most expensive approach. There is plenty of housing stock around, and with interest rates about to go up because of inflation, I hope you have a low debt. It is expensive to build I think for five reasons:
1. Huge mark-ups on materials - did you buy the materials online? Should have got a list of materials from the architect.
2. Labour rate can be cheap - unless you use one of these national franchises. A lot of local labourers head to Australia for higher rates, so can be tight in areas.
3. Not all materials are made in NZ. A lot of things are imported. i.e. the high cost components.
4. There is a lack of competition compared to the USA
5. There are a lot of building regulations which effectively lock out handymen, who might otherwise provide some competition

It is so much cheaper to just buy an old house and renovate. Hamilton is a bit of a growth area, so maybe you had no choice. Anyone seeking to buy a house should rent for 1-2 years until inflation starts to hurt existing home owners. There are houses for sale in some areas which will only cost you $0-30,000 over land prices. Building the equivalent sized modern home would cost you $120,0000 and yet the old home is made out of quality hardwood which wood last another 100 years if well cared for.

If your a voter - that's the price you pay for supporting governments who embrace easy monetary policies that spark asset inflation.

Travelling from NZ

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It is fair to say that NZ is one of the more remote countries in the world, but it is not without its advantages. My partner put together the following comparison of Around-The-World flights for different countries/airlines, and New Zealand came up one of the best prospects for the countries we surveyed. Here is the list for airfares originating from different countries for 39k miles and 6 continents:
1. Malaysia - USD4,500
2. Thailand - USD4,400
3. United States - USD6,000
4. Australia - USD5,000
5. Philippines - USD5,000
6. New Zealand - USD3,500

If you want to book such flights you can visit the following site.
This is of course good news for people living in NZ wanting to make it a base for travelling around the world.
With respect to direct and indirect routes NZ still rates badly and there are several reasons for this:
1. Auckland is the only international airport offering many destinations
2. Auckland does not have the same number of destinations as some larger international airports
3. Connections to other cities like Sydney are an additional cost - albeit available through a discount airline like Jetstar or Pacific Blue (Virgin Group).
4. New Zealand is a low-traffic market so there is not a lot of competition on many routes.

I do note however that there are some attractive options from NZ:
1. Jetstar have a cheap flight from Auckland to Osaka/Tokyo. Tokyo is a good base to get to other Asian destinations
2. Jetstar to Gold Coast (Qld), then Air Asia to Malaysia

I hope this helps!

Comparing Australia & NZ

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The decision to live in Australia or NZ is a difficult one for some, and it very much depends on your personal context. Firstly I must say that Australia is a big country so there is a great deal more variety there in terms of climate. In that respect, I don't like NZ can compete with the East & West Coasts of Australia, where you will happily where a t-shirt for 10 mths a year. In NZ I seem to be wearing a jumper for 10mths a year, and I've almost given up hope of going whitewater canoeing without a wet suit.
Those important factors aside, lets look at other considerations:
1. Employment: Unless you can work on the internet or in essential services that NZ has a need for, then Australia offers far better job prospects, a higher standard of living, and greater prospects for getting a job you want. NZ however cannot be ignored.
2. Lifestyle: If you have savings or wealth NZ makes more sense as your wealth will go further, and it has a great life. The people are friendly, but not as aspirational. Its a relaxed, backwards place, and I mean that in a good way. It's quiet, its an adventure. I certainly think the rural setting in NZ is better. Its greener, and there are a number of good size, friendly country towns.
3. Variety: I think Australia offers greater variety, though the problem is you need to travel 1000s of kms to experience it. NZ is pretty homogenous English-type culture. Its basically city-country divide.
4. Climate: NZ is wet and windy. We find it mostly rains during the day, though its hard to plan. Australia is far more predictable, and just has a fresh breeze, which offers good relief from a hot sun. Australia is dry heat except for north of Brisbane. Its hard to enjoy water sports in NZ because you will need a wet suit. Australia has bad droughts, but its great for water sports.
5. Economy: Australia is still the mineral and food basket for the world. Over $50 billion of investment in mining & energy projects in the next few years will only increase its standing. Expect this to have an impact on local values. If you are aspirational, its the place to be. If you want the quiet life, try NZ or Tasmania (Australian island).
6. Cost of living: Goods in NZ are a little bit cheaper than Australia, except for processed foods. Australia is cheaper in terms of purchasing power. I find fresh produce including meat better quality in Australia. NZ is probably exporting its best.
7. Activities: If you like wining & dining then Australian cities are better than NZ cities, though NZ country towns are more cosmopolitan. Sporting activities in Australia & NZ are comparable.
8. Services: Both countries are similar in this respect.
9. Transport: Its pretty easy to get around in both countries, though speed cameras and police in Australia are more 'oppressive', and the long distances are a turn off. The flipside is that its a hassle and expense crossing the Cook Strait in NZ. It really divides the country. No prospect of a tunnel in this case.
10. Isolation: NZ is much more isolated, and its more expensive to fly to the rest of the world.
11. Nature: NZ is famous for its geographic wonders. Australia has just as many, the difference is that in NZ they can be viewed in 10 days on a fly & drive, whereas in Australia, you would need a 3-6 month trip covering 30,000 kms.

Here is a sample of NZ's natural wonders....the seal colony of Kaikoura, South Island.

NZ property still makes sense for some

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For Americans the price of property in NZ is looking rather expensive. For most others, the price is still cheap since most currencies have rallied strongly against the USD. Consider that the USD is at a 10-year low to the Yen, and a post-recession low for most other currencies. The implication is that NZ still makes a lot of sense for foreigners. The great tax concessions for property in NZ are still in place, and current expectations suggest a tax on property is only likely to apply to investment property. NZ has one of the most generous taxation policies on property in the world. (see previous posts).
NZ property is of course still expensive. There are those looking at current rises in prices and suggesting prices have bottomed. I would caution that we have yet to see any significant increases in inflation (i.e. interest rates), so highly indebted NZ households have yet to feel the full weight of home affordability pressures.
The implication is that there will be good buying ahead for NZ investors, so come patience is required. There is still low-priced properties you can buy if you are looking at lifestyle properties in rural towns. You can still buy houses for as little as $NZ60K in some areas of NZ.

Having just toured some people around NZ I can assure you the place is as beautiful as ever. There has been a lot of rural development over the last 10 years. The new places I'd be looking at are:
1. Wanganui
2. Oamaru-Palmerston
3. North coastline of Christchurch
4. Te Anau
5. Whakatane

Americans of course do not need to weight too much longer. I think you can expect a strong USD policy in future in order to build savings, just as Clinton did after Reagan. I would expect some shift to energy taxes as well. This makes a lot of sense in a country which is primarily a service economy, or a high value-add. It is a big country though, so expect an impact to non-discretionary spending as well. There should also be some dilution of the currency as well. This is so-called 'balanced monetary policy'. Other countries will be doing similar. Though I would expect a strong USD policy in future.

The implication is that Americans can still look at buying in NZ, but they should get a loan if they qualify and transfer their wealth later when the USD recovers. I would expect the AUD to pull away from the NZD in coming years due to the strong energy & mineral sectors there. The flipside is that inflation should keep personal spending at bay in Australia, as household debt payments rise. So I'm expecting the AUD (which currently is 20% stronger than the NZD) to increase the premium over the NZD in coming years.

Factors which may change this prospect would be the discovery of large oil & gas reserves in NZ, or strong economic reform. NZ really needs to stimulate higher value (non-food) exports. Historically it has done a bad job of that, and its savings rate is hopeless.

Places to live in NZ - the North Island

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Recently I have been tripping around the North Island as well. I am delighted to tell you that I think you could find a great many places which you might appreciate as places to live. Personal tastes will differ, but in terms of basic amenities, you might want to consider the following places:
1. Wanganui: This city has an undeserved reputation for its gang activity. I have lived in Wanganui for a year now and I find my neighbour's friendly and quiet. We heard verbal abuse on the street for the first time last night. We have public housing at the end of our street, and there has been some isolated gang incidents over a year ago, which resulted in a drive-by shooting. But essentially its a peaceful place. Yet this city has a bad reputation in NZ as a gang centre. It is a low-income city, though it also has lovely parks, a good beach, good services, a good climate, friendly people, and is well-positioned to provide access to the rest of the North Island, as well as for tours of the South Island. Property is cheap. Skiing is just 90 minutes away.

2. Stratford is a nice town near New Plymouth city. It is an inland town, though one might want to worry about being down-wind from Mt Egmont volcano. Perhaps not the most active volcano, so not too much to worry about. The Taranaki region appeals to many retirees. There are many lifestyle blocks around this area.


3. Whakatane: I liked this town because it offers good access to the Bay of Plenty coast and Gisborne. It is a reasonable size town with ok beaches, services, and not too far from Auckland.


4. Napier/Hastings: This area, like New Plymouth, attracts a lot of retirees, so there are a lot of lifestyle properties, and property prices are generally higher. The climate is more pleasant on the East coast, though sparingly so. The sea is still cold most of the time, and its still windy. The fact that there are two significant sized cities together appeals, even if its remote from Wellington and Auckland. A lot of wineries and fruit growing, and good services.


5. Lower Hutt: I like the idea of being on the coast, but if one must be inland, than the proximity of Lower Hutt makes this area a good choice. It has a walking/bike track along the river into Wellington, which appeals to me, as well as a railway connection, even though traffic is not so bad.
6. Whangerei: I have not been to this city before, and not to the region for a long time. Northland though is the northern-most part of NZ, and thus arguably the mildest climate in NZ. Its close to Auckland, but it does not have good access to the rest of the island.

I retain Wanganui as a preference as a place to live on the North Island. I would not be looking to buy property here for another 2 years until interest rates bite, but thereafter it will be a good place to buy in capital growth areas. These areas currently have too high property prices attached to them. No pain has yet to be applied in the recession because of government bail-outs. The pain will come in the form of higher inflation and interest rates. This allows the government to evade responsibility for its monetary manipulation. In any case, Wanganui is a nice place to live, and in 2-3 years I'd look at other places as lifestyle+investment choices if you are so motivated. I see no great growth in Wanganui unless there is a jobs stimulus in NZ. The culture seems more lifestyle orientated.

Places to live in NZ - the South Island

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We just returned from a week trip around the South Island of NZ. The trip started in Palmerston where we bought a 2nd hand 1997 Mitsubishi Carisma for just $3000. Second hand cars are very cheap in NZ. There is no reason to buy on TradeMe, from a car dealer or new given the plethora of quality Japanese and business cars on sale through auction.

We were a party of four. We tended to stay at motor lodges in places such as St Arnold, Frans Joseph Glacier, Te Anau, Dunedin and Kaikoura. Our trip started by taking on the West Coast first.

I find it difficult to decide between the North or South Island. The divide between them is unfortunate. It cost us $650 to take 4 people and a vehicle on a return trip across the Cook Strait. The South Island is a little colder, but the nature is more impressive. If your house is well-insulated its probably not an issue. Its not like you can swim at the beach elsewhere.

I am a fan on rural living, though I do appreciate reasonable accesses to services; at least those provided by a town of 40,000+ people. After reviewing the locations, I must say I could live in a number of places:
1. Murchison, NZ: This town has a lot of outdoor activities though its a little remote.
2. Haast, NZ: This is attractive coastline but its very wet and very remote. Great for people who want to catch and grow their own food. Few people live on this coast, and most people are international tourists passing through.
3. Te Anau: This is a small town, but its growing. It has good access to some large towns, it is not a full service service, but it can address most needs. It has good provisions for recreation and basic community services like groceries, libraries, etc. Years ago I liked Wanaka, but property prices there are high, so Te Anau makes more sense. Not far from Queenstown too. The satellite town of Manapouri is another option for cheaper property.
4. Oamaru: This is a regional town which services the inland irrigation communities. The port is no longer used but this town has character. The beaches are not so great in Oamaru, but head a few kms south to Palmerston, and there are good pickings.
5. North of Christchurch: I did not like Christchurch much, but there are some nice surburbs near the beach to the north of Christchurch, and they are just 30mins from the city if you want access for work or services.

Activities in NZ

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There are a lot of things to do in New Zealand. The question is really what suits your taste. Whether you are living here or staying for a short term holiday, NZ is a leader when it comes to activities. Some activities cost more than others, though you might like to consider the following:

1. Whitewater canoeing or kayaking - NZ has some beautiful natural waterways. The problem for most people will be the lack of variety in terms of experience. Most rivers are suitable for only advanced canoeists or rafting. I favour using an inflatable canoe because you can put it in the back of your van, so there is no security issues. You might need two vehicles unless you have a shuttle driver arranged.
2. Trout or ocean fishing - Fishing is popular in NZ. I've seen a lot of trout in the rivers, so there are plenty of opportunities. You are required to obtain a fishing license to fish in NZ.
3. Bush walking - I can't say that NZ has many walking trails, but where they do exist, they often offer spectacular views.
4. Garden viewing - Some people like gardens, and NZ has a lot of them. Of course English settlers had to bring a piece of England with them, so they can be found all over the country. See the following website.
5. Horse riding or trekking - Horse riding is a great way to see a country. If you are so inclined there is a website dedicated to this activity. The horse riding on the South Island is more expensive. Prices tend to reflect the value of scenery rather than the facilities, service or cost of service.
6. Rafting: There are various rafting companies around NZ. I have rafted several times in Australia, and I must say that canoeing is more fun because you have more control of the boat. Rafting is like using bumper cars, bouncing from one rock to the next. It does not require personal skill, and the social experiencing is more limiting as you soon tire of people cheering every rapid. It suits those who don't have the equipment or the experience, though rafting can involve more difficult rivers in order to give the exhilaration people desire. Rafting costs $100-200.
7. Mountain biking: The large tracts of forested land in NZ are great for mountain biking if you can get access.
8. Campervanning might not be considered a recreational activity, afterall its driving and sleeping. It does however offer the benefit of being able to stay anywhere (within the law & safety constraints), as well as the opportunity to save on hotel costs if you are travelling.

If you are prepared to spend more money consider the following:
1. Hot air ballooning: This will cost $300-600 per person, though its a once in a lifetime activity. Some people even get married this way. You can do it on the North Island, though I suggest if you are going to do this in NZ, best to do it on the South Island around the glaciers/Queenstown area, or the Canterbury Plains. Make sure you see a route map so you can see the area you will be crossing.
2. Heli-skiing: There is helicopter rides, but there is also the opportunity to combine a helicopter trip and ski trekking. Clearly the idea of two experiences for the price of one is appealing for those with adequate skiing experience.
3. Helicopter rides: For those out of season or not skilled in skiing, you can simply ride a helicopter for around $300-500. The flight time is around 30-60 minutes.

Other options for the adventurous are caving, canyoning, bungy jumping, sskiing, nowboarding, boating and sailing. I don't consider boating much of an adventure unless you spend your days cruising around Fiordland in a motor boat or a sea kayak. I have no interest in 5 seconds of exhilaration from bungy jumping.

Property prices in NZ

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Do you want to know the cheapest and most expensive houses in NZ?
Well its $7500 for the cheapest and $12.1 million for the most expensive - that's NZD of course, so multiple by 0.71 for the USD amounts. See the details at the NZ Herald. Unless you are buying at the lower end of the market its not time to be buying yet. Wait for global inflation to start hurting people.

Heating options and insulation in NZ

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NZ is a fairly cold place. Surprisingly a great many houses are still uninsulated. What is more crazy is that the NZ government is attempting to compete with a lot of European countries by trying to encourage greater fuel efficiency. Their policy comprises offering grants to households which install air or water heat pumps, insulation and solar units.
I like the idea of establishing these technologies. The simple fact however is that they are overpriced because governments are trying to promote their environmental credentials. It really is a false economy, much like the $14-21K first home grants in Australia, which only succeeded in forcing up the price of property, and further expanding household debt in Australia. Worst of all, the most vulnerable section of the economy is being sucked in during a time of recession. Governments are evil ....long live their stay in purgatory.

So what should you do? Well interestingly, its often the technologies which are not subsidised which make the most sense, particularly those which you can install yourself, i.e. Wool insulation as opposed to pink bats.

I have spent a lot of time researching the various options, and as much as I like a heat pump, I'd be inclined to wait for better technology options because a heat pump is basically the reverse of a $1000 refrigerator, yet they cost $4500-5500, plus installation $700-1000. That $1000 subsidy goes straight to the manufacturer because of the rip-off prices. Basically they are expensive because countries like Germany are providing huge subsidies.
At this point I would invest in a nice warm wool jumper. Same for insulation. Air foam for $4000, when 3 people can install it in a day, its overpriced. Wait for competition. There is no justification for it. Roof insulation makes more sense and you can install it yourself.
A $70 oil heater makes the only economic sense at the moment. Just wait until the manufacturing capacity grows, eventually prices will drop. There will also be new technologies like Stirling solar engines and fuel cells. A good woollen jumper costs you $300. Sorry, I paid too much :)
I might add that local governments are ripping off the people by charging $260 to install every little thing. A solar panel, a open fire place all require council approval. Would it not be better to just require licensed installers to by-pass such cost constraints, and perhaps for non-licensed installers to require such approvals. Please, in the interests of ending slavery to an unthinking state!

Life at the beach

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New Zealand is of course a volcanic archipelago so it tends to have black-brown sand beaches with a high proportion of feldspar, magnetite, organics, or even shell (carbonaceous) grit. Having said that there is a significant number of white sand beaches, particularly in the Bay of Plenty and Canterbury Plains.

I like the black sand beaches because you tend not to get grit/sand blown in your face, which is important in a country with strong winds. Also I figure that black sand absorbs more radiation from the sand than silica. It might just keep you warmer if the wind chill is running beach-wise. Yeh, a chance in hell of that.
The problem of course in NZ is the cold climate. You really need a wetsuit to enjoy the beach. This photo was taken at midday on a particularly nice day, in early September near Napier. If I was wet it would be freezing. Mind you its probably pleasant Nov-March in the North Island. The west coast (say Wellington-Wanganui-New Plymouth coast) is colder because its windy, and so in these areas, and on the South Island, the swimming season is shorter.
If you are a beach person, I recommend East Coast Australia, anywhere from Sydney to the Gold Coast. I lived in Port Macquarie, and grew up in Sydney, and the beach season is far longer.

Property prices rising in NZ

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A rise in property prices was not unexpected in NZ thanks to several factors:
1. The return of NZ expats from abroad - this will have increased home demand
2. The monetary stimulus - which essentially recapitalised the global monetary system, which keeps inflating asset prices
3. A fall in the NZD over the last year, resulting in very good market entries for foreign buyers
4. Latent demand - there is a shortage of property in many of the largest cities

For statistical info refer to this SMH story. The market can be expected to remain strong in the short to medium term, though inflation poses a risk to houseowners given the significant household debt levels. A conservative home equity is advised in the current market. Equities are far more liquid.

*Photo is from taken from city center, New Plymouth, New Zealand.

Buying products in NZ

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Living in NZ poses several problems or challenges. Among the biggest challenges are:
1. The high cost of products - clearly price mark-ups are very high because retailers are unable to get adequate returns, but more likely its a case of inadequate competition. Thus the company with the best distribution-sales model wins the bulk of the market.
2. The small range of products - there is a small amount of product to choose from.
3. The low currency - the NZ dollar has weaken considerably over the last 50 years. NZ used to attract premium prices for its exports. Today, its terms of trade are far worse.

If one chooses to NZ there are few opportunities to overcome these unfavourable challenges, but there are several common approaches:
1. Second hand goods: There is the opportunity to buy products online at sites like TradeMe, or from garage sales.
2. Buy online: There are opportunities to buy products online direct from the manufacturer. The attraction of this strategy is that you are buying direct from the manufacturer, or near-so, you are avoiding a huge mark-up by the distributor and retailer, and you have a far greater range of product to choose from. Living in Australia & NZ I am accustomed to a lack of product choice. Online the choice is wide-ranging. There is a trust issue finding a credible manufacturer, so you need to search for a credible supplier online. My GF does the marketing for Modern Tailor, but you can find others online. They sell tailor-made business shirts online.

There are of course a great deal of products which can be bought online. There are however logistical, order size, risk and other issues buying online from some suppliers, so its nice when there is a business who offers an online presence which offers all the convenience you could want.

Maoris taking the wrong approach to self-empowerment

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Over the last few months the town of Wanganui has been wrangling with the issue of whether the council should change the name of the town to 'Whanganui', in accordance with the traditional Maori spelling. If changing the name was such an easy thing to do, we would of course conclude 'Why not'? The reality however is that a name change causes a great deal of inconvenience and cost to people because it requires:
1. Changing business names, changing address details, changing signs
2. Changing brochures, letterheads

My estimate is that it would cost $50 million to change these issues immediately, but far less if the change was graduated over 10-20 years since signs get revised, advertising gets re-written over time. After 10 years the cost might be as little as $2 million in terms of direct costs. But there is another problem.....confusion. People in NZ will of course be able to follow the issue, but for foreigners its a change that can only cause confusion. Maoris seem to have no regard for the impact of these superficial changes.

Is this the foundation of Maori pride? To have their rights neglected while they secure superficial name changes. The historical legacy of British occupation of the NZ islands was one of disrespect and ill-regard for Maoris. They have the basis upon which to demand significant concessions from their European custodians. But the best they can do is superficial name changes? Is this a strategy to weaken the enemy?

My belief is that if the Maoris continue to press cases for silly concessions like name changes, then they will surely only alienate empathy from Europeans who think they were ill-treated by the British. What is more concerning is that the Maori pursuit for recognition of rights could actually be a basis for wider recognition of rights for all NZ'ers. The problem as I see it is that people think the Bill of Rights actually gave them rights. This is more evidence of superficial thinking - this time by the Europeans. A Bill of Rights does not protect rights - it sabotages the possibility of having them. Have you read the book '1984'. Do you recall the concept of 'DoubleSpeak'. You have rights in name only. A right does not comprise a claim upon others rights. A right is not arbitrarily defined. A right is not a parliamentary sanction. A right is not a concession by a pack of politicians. When it is - you should be very very suspicious.

The way forward for Maoris is not arbitrary name changes - it is High Court challenges in the hope that they will eventually secure concessions as a result of judicial activism. Of course they will need an ethical argument to have success by this path. Personally I see little sign of long range thinking or the intellect to achieve such an outcome for all 'freedom-loving' people. For this reason I would suggest we will remain in a servile relationship with the state. Dutifully paying taxes with no choice, and no possibilities of standards of accountability, or any effective reproach. They have shored up the system so they have a two-party duopoly. Where is the justice?

Obtaining motorcycle license in NZ

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New Zealand is a great country to travel around. The rounds are reasonably good quality and they are not so congested. One does need to anticipate the car drivers because theu might be less inclined to look if traffic is coming. Most cars in the country are bought 2nd hand, whether sourced in NZ or 2nd hand imports from Japan. For this reason there is a lot of cheap 2nd hand cars around. A car is often more attractive because of the wet, cold weather, though you can’t go past a bike for fuel efficiency/savings. There are of course 1.6Litre cars which keep costs down, though for local travel, you might consider a bike.

If you are the type of person who does a lot of short distance driving, then ultimately the best solution is either:
1. Bicycle – great for exercise, and no fuel cost. Pick a bike up on TradeMe for as little as $50, or from auction houses.
2. Moped – These are fuel or electric powered motorbikes under 50cc or <2kW. They can be used with a standard driver’s licence.

Mopeds are very popular for senior citizens trying to save money, as well as for students and teens in their final years at school. They can be purchased for around $1000-2500. A 250cc bike will cost between $1200-5000 on the TradeMe website – see www.trademe.co.nz.
Any motorbike or scooter powered by an engine over 50cc requires the driver to attain a special motorcycle licence. This licence can be achieved by completing tests. The most popular scooters are Vespa, Piaggio, etc. Helmets are mandatory in NZ for all riders and passengers.
If you have never used a bike before, you will need to get a Basic Handling “certificate” before you can even apply for a Learner’s Licence. The certificate covers 6 handling skills. There are several firms that offer the Basic Handling program - see Roadsafe . When you have obtained the Basic Handling “certificate” you can apply for the Learner’s Class-6 licence. You will need to complete a questionnaire (multiple choice test) about normal NZ road rules as well as 10 motorcycle-specific questions. Once you pass the test, you need to present your certificate, pass the basic eye exam, then pay the fee to become a Learner.

Learner’s can drive their motorcycles subject to the following restrictions:
1. You can only ride between 5 AM and 10 PM
2. You can’t carry passengers
3. You can’t operate a bike with an engine larger than 250cc’s.
4. You cannot drive over 70kph. The police permit faster speeds for safety reasons as long as you are travelling with the traffic.
5. Learners must display the Learners ‘L plate’ on their bike

After 6 months on a Learner Licence you take the Restricted Licence Test which includes another written exam and a practical riding test, where they follow your motorcycle to evaluate your driving. A Restricted Licence has the same limitations as a Learner Licence, apart from the allowance to you legally drive full speed limit and with no L plate. After 6 months on the Restricted Licence you can apply for a Full Licence. You must take another written test and two practical exams. On a Full License you can ride any size bike and carry a passenger. There are ways to shorten the test cycle by taking additional official courses—usually offered by the same folks that run the Basic Handling courses. I think the most you can shorten it though is to 9 months.

The process of securing a motorcycle licence is expensive and time consuming. You will spend about $1500 on certificates, licence fees, gear, and bike registration. You will need to restrict yourself to a 250cc bike initially, and there are a great number of those bikes available because most people want to trade up to a more powerful bike when they
get their Full Licence. For more info on licensing see www.ltsa.govt.nz/licensing/motorcycle.

Mauri party seats on Auckland City Council

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There is a debate raging in NZ over whether Maoris should have seats on the Auckland City Council. The arguments between vested interests appear to be divided over:
1. Democratic representation: This argument holds that we live in a democracy, and the principle of democracy is that each person has a vote, irrespective of their race.
2. Treaty settlement: This argument holds that Auckland is not simply about democratic traditions, but rather was the result of a Treaty settlement with the original inhabitants of the area.

The problem I have with each of these arguments is the following:
1. Democracy is not a desirable political system in as much as reason is not the standard of value. Numbers matter more than reasons, so I would argue that Maoris have too much 'numbers' power in the Greater NZ political system, so I would not be so keen to offer Maoris a similar share of a bad system. Having said that, Maoris should have a voice in a system where reason is the standard.
2. Auckland is not a national government. There is a great deal of difference between a national government which subsumes universal education, defence, etc policies and a regional government which tends to dictate land use patterns. I think there is an important distinction to be made in terms of traditional Maori issues, and the origin of those issues. I think Auckland is a Western 'modified environment', so it ought to be evident that it should be driven by Western values, not Maori values. That said, Maoris still have a presence in Auckland. They therefore ought to have recourse through the court system, and of course they do on matters of principle.
3. Maori Party is not necessarily representative. The Maori Party does not necessarily represent all Maori people, even if most Maoris do vote with the party, there should be no necessity that they do. Clearly a push by the Maori Party for more representation in the Auckland City government is an attempt to get more 'arbitrary' power. What is really needs, and only has a right to is the power and influence of a better argument. Judging by their lack of 'influence' in national politics, they would hardly be the best custodian of Maori interests anyway. That is of course the decision of Maoris to decide, and to the extent that democracy and legal provisions offer that participation, that is the sensible approach. Of course I maintain my objections to democracy. Its a poor system that shackles the creative genius of the human mind.

In conclusion the Maori Party does not deserve seats on the Auckland City Government. If it wants to protect the interests of its people, it should engage with the national government on sovereign issues. It could greatly benefit by engaging in judicial activism.

Want to learn about a better system? Read here.

Driving age rising for NZ drivers

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After a spate of young driver-related deaths it appears probable that the minimum driving age will rise from 15 years to 17 years. This increase will of course make a difference to road fatalities, however it will not end the pattern of youth-related deaths. What is often not appreciated is the nature of those deaths. At the moment the license precludes the young drivers from having passengers. The problem is that young drivers routinely breach this rule, and the fact that alcohol is illegal is little discouragement since its easy for kids to get alcohol. It is a recipe for disaster.
NZ is of course a rural-based economy so no youth license is an obstacle for rural families more than city families. I can understand the need to raise the driving age, but actually kids up to 25yo tend to be pretty irresponsible. I would suggest a string of other measures:
1. A link in the driving age to school results. Kids who show a strong average school grade should only be given the right to get an early drivers license.
2. Continued restriction on youth drivers having passengers

NZ taxation under scrutiny

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New Zealand is considering changes to its taxation policy in order to make the country more competitive for foreign investment. In this task they are destined to fail. Let me suggest why. There are several failures the NZ government will make.
1. It will fail to consider efficiency measures - it will focus on raising money rather than improving efficiency/productivity or cutting expenditure. e.g. From hospitals
2. It will fail to recognise where the prospects for economic growth come from. It will focus on cutting the corporate tax rates in order to attract large companies. The scope for expanding business in NZ does not rest on big business, it rests on small business. The reason I say this is because NZ is a very small market, and any decision to align with Australia is only going to reinforce the belief that any regional office in Australia (Syd/Melb/Bris) can service the NZ market. For most countries, NZ does not even justify a presence. This could actually be a strategic advantage for NZ small business.

There are likely to be two serious contenders for tax increases:
1. Capital gains tax on investment property - this would be consistent with the tax regime in Australia, and there is considerable appeal in aligning the tax systems.
2. Stamp duty on property transactions - expect a tax of up to 3%
3. An increase in the GST - I don't expect this tax increase to succeed, least of all at at time of recession. Frankly the suggestion that it is a serious prospect I believe is intended to make people feel like they actual 'won' a concession, when in fact the government will look at the other taxation options.

These tax increases will be used to fund tax reductions for business. The question is - do these tax cuts make sense? Given my arguments above, I believe any revenue increases should be used to invest in NZ small business rather than big business who really only invest in primary resources. Resource producers stand the best chance of passing through costs in this recession, so they are not the group of investors I would be looking to support.

Some time ago NZ joined the chorus of governments which adopted libertarian policies. I consider myself libertarian, but one has to maintain a sense of reality. It I was a taxpayer with any voting power I would not sell an asset based on prices of $0.12/kWh, only to allow the new owner to raise prices to the marginal cost required to commission new generating capacity, which is $0.24/kWh. The reason is because the power companies can generate ample profits at $0.12/kWh, given the cost of generation capacity is zero for most hydro plant (which is 70% of total capacity). Privatisation was a bad deal for NZ'ers. That does not mean it always is; just in this case. This is hardly an incentive for business investment. Of course big business can negotiate harder by 'threatening' to build their own generating capacity.

Another case of bad policy was the decision by the NZ government some years ago NOT to support 'winners'. I understand the sentiments of not providing subsidies to business, but there other choices. Small business in most countries have difficulty raising capital. Its even harder in small markets like NZ. This country needs strategic industries. Students need an assurance of jobs if they are going to study such subjects. This country needs to support niche industries, whether its manufacturing of niche sporting equipment, whether its subsidising a cargo vessels to make regular low-cost shipments to certain markets, whether its a trade shared vision for trade. I see that 10 wine growers in Australia are gathering to promote their wines. NZ needs the same shared vision. The challenges are:
1. Ensuring accountability so the money is not wasted
2. Ensuring that its not a tax scheme but an investment scheme because I hate the idea of trampling on people's rights.

It is all to often forgotten that taxation is a breach of the taxpayers rights to determine their own destiny. I can understand the counter-argument that there needs to be shared expenses like road funding, say with a road petrol tax, rather than tolls everywhere. Such taxes should be user pays as much as possible, and I think people should be able to sue the government for relief from such taxes. People should not not funding schemes they have no benefit from. We don't want bad schemes funded. There needs to be a pay-off. We need schemes to have objective standards of value, so that people and judges can establish their value. This is the vision of this report.

I am reminded of the book 'Bad Samaritans' by Ha-Joon Chang. It looks at history and discovers that the industrial giants, whether Britain in the 17th century, the USA in the 19th century, Germany and Japan in the 20th century, all existed as a result of protectionism. Only when these industries had established themselves did the governments wind back the subsidies. This is not to suggest the model of these countries is desirable. In fact there are many better ideas to boost investment. One option might be a family-based subsidy for business. It needs more thought by myself.

I think there are many successful business people in the world who succeeded because of help from family and friends. The reason that some form of incentive is needed is because people have a tragic sense of live. They are inclined to be cynical about others, and thus people end up with no savings, no customers, no feedback and no service. Ultimately a more prosperous economy today tends to arise only because of government stimulus, though such stimulus arises for the wrong reasons, in order to maintain demand, to keep governments elected; even if it hurts the economy.

Upon completion of this book I will demonstrate a scheme which will provide for the most efficient use of funds. Give me time...so many other books to write. :)

Australia-NZ Closer Economic Relationship (CER)

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One of the most important policy changes in coming years might well be the Closer Economic Relationship (CER) between Australia & NZ. Having moved to NZ to escape the stupidity of the Australian tax system, I would like to warn NZ'ers they might be moving inextricably towards fascism faster than they already are, if PM John Keys keeps forging ahead with his CER agreement. NZ'ers might be thinking that Australia is the stronger economy, so how bad could the tax system be? Well its a nightmare. The reason the Australian economy has out-performed the NZ economy lies in factors such as:
1. The larger size of its economy
2. The huge stimulus provided by Australia's commodity resources
3. Less generous welfare policies - no entrenched welfare system
4. Stronger savings culture
5. Greater commercial acumen

The negatives of NZ joining Australia as one country have already been provided for in the Australian Constitution. The Founding Fathers saw the prospect of NZ being part of Australia. Perhaps they considered the possibility of economic failure. But NZ is far from a failure. Its just that the country would benefit from greater market integration. Certainly foreign investors are less inclined to invest in a different country with 'another' tax regime. If NZ could market itself as Australia 'plus' lower taxes, that would certainly be a great benefit for the country. Of course it has to be good for NZ business as well. I would think that the NZ economy is equal in size to Queensland. Its no 'Sunshine Coast', but rest assured with greater integration, you will see more Australians moving to NZ for the sake of lower property prices, as well as to buy holiday houses.

So when is the property boom going to start? Well given the tight property market in both countries, we might ask what will the focus be? I have no doubt that the greatest attraction for Australians is likely to be the tourist centres of South Island. In order of priority I would think:
1. Queenstown-Wanaka: Lower (domestic) travel costs between Sydney, Melb, Brisbane and Queenstown will result in far greater investment in these areas. We must remember that Wanaka and Queenstown have panoramic views of lakes and mountains, and they occupy confined valleys, so the value of those views is going to skyrocket, and I dare say these places will be destroyed if not properly managed.
2. Blenheim-Picton: The problem for this area is that there is no airport servicing this area for Australians, though I am guessing this will change with greater market deregulation.
3. Christchurch: This city has a lot of appeal too because it is a larger commercial hub, and its at least in the proximity of the North Island attractions, particularly Mt Cook.
4. Auckland: Auckland is NZ's largest commercial centre. No great value in itself, though people might appreciate it as a transport and North Island hub.

How are NZ'ers likely to respond to the thought of being part of Australia? Well there is always proud people who want to keep their own identity. Certainly being a state gives them that, but with some loss of independence? Does it matter if you are controlled by a government in Canberra or Wellington? Yes, clearly it does if federal policy is different. But isn't Keys indicating a desire to shift us towards Australian policy, or is NZ going to be a state with a difference?

Keys is signalling that travel could be as much as 20% cheaper, and that taxation systems will be alligned. He said that travel will be streamlined by Xmas, which is the far more important issue for property investors. Allignment of tax systems will take longer of course. So what will NZ'ers think? Are we the same?

Having lived in NZ, I find NZ'ers more outgoing, more reliant on the State, more easy-going. They are more lifestyle-orientated, less money-orientated. Of course this analysis is skewed by the fact that I've shifted from an Australian city to a rural NZ town, so herein lies the problem. City-siders in NZ are likely to welcome the integration, but rural NZ'ers might regret it. Of course it comes down to values. But towns which were slow, friendly places might resent the invasion of Aussies during the holiday season. Not because they are Aussies, but because they have changed the town's culture. It would be no different than the Wellington school excursion to New Plymouth, which resulted in the students trashing a motel. It upsets local communities. Australia is something bigger. People will have to adjust, and they don't want to. They will not make the connection between these issues and increased business activity and jobs.

Clearly the biggest benefit will be in property prices, which is why we recommend buying property here. The appeal is particularly attractive for Australians given the fact that:
1. The Australian dollar is even stronger than the NZD
2. There is a lot of property already in foreclosure, mostly city apartments in Auckland and Christchurch. People have lost jobs.

One does need to watch the exchange rates. High end properties are still too expensive. Apartment yields are good, and rural property in towns are often still very cheap, even if you are close to the beach. Want to know more about buying property in NZ - see our $20 study.

Best climate & weather in New Zealand

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People often ask what is the weather or climate like in New Zealand. Often its the English or Canadians trying to escape the cold.
First some general rules.
1. It gets colder as you move south in the Southern Hemisphere
2. It gets colder as you rise in elevation
3. The diurnal temperature range (variability) of temperatures increases as you move inland

Bear in mind that weather readings are derived from weather stations, so if you are basing you decisions on city climate data, buy property in an equivalent place, i.e. A similar distance from the coast, as opposed to 10km inland because you want a rural life.

You should also appreciate that cold air sinks into the valleys at night. Its called a temperature inversion, and those areas are slow to get sun in the mornings, and early to lose sunshine in the afternoon. So avoid mountain shade, or opt for those locations with east-west trending mountain ranges or ridge lines which will not conceal sun.

Having lived in NZ for 8mths now, watching the weather and scarcely travelled around NZ in a campervan, I would suggest to you, if you don't like the cold, best to be located in towns along the coasts of the Bay of Plenty, Wanganui-Taranaki regions, Napier/Hastings regions, as they are about 4degC warmer than the South Island. Gisborne area is good too, but more remote, and Gisborne is the only reasonable size city.
Even the top of the Sth Island is very much colder, despite the fact that it has as many sunny days, if not more, than the North Island. That is based on 30 years statistics from NIWA.
Now, if you travel inland from Christchurch it will be particularly cold in the mornings/nights, and particularly hot during mid-day. I understand the appeal of the South Island, but it is colder in winter. I recommend Hastings/Napier, Wanganui (my town). The only difference is property prices. Wanganui is not overpriced. You can buy a house in Wanganui for as little as $NZ80,000 (USD48,000). Its 17degC here today thanks to a northerly, same as Auckland, which has worse weather (slightly), and its 10degC in Christchurch/Dunedin. Blenheim on the north tip of SI is a compromise at 13degC. The morning temperature is 10degC, but if there is a southerly, it can be as cold as 2degC.
Another benefit of the North Island is access to the two largest cities - Auckland and Wellington. If you fly a lot, that comes in handy, but also the inter-island ferry is expensive. Christchurch though is a growing and vibrant city, so its a good choice too, just colder. Of course there is heating, but bear in mind:
1. The prospect of a carbon tax
2. Greater heating costs in winter in the South Island

Photos of NZ volcanoes on the North Island

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Returning to NZ this time from the Philippines I had a stomach upset. This is common for me. I often get sick going from a hot to cold climate. No nausea or fever this time, so I thought it was because of food poisoning or an old nut bar in the bottom of my luggage. As it turns out, it was just travel. Should have been obvious to me..

Anyway, getting the bus back to Wanganui I caught these photos of Mt Ruepehu which I thought I'd share with you. There are 3 impressive volcanoes on the North Island. I'm almost an expert on these because I climbed them as a geology student at Macquarie University. This I think is Ruepehu, the other big ones are Tongariro (nearby), Mt Egmont (near New Plymouth) and Mt Tawawera. Mt Tawawera is like the kiddies favourite because you can run or 'ski' down to the crater floor. A lot of fun given that you cannot see where you're going because of the fog.

New migrants rendered homeless by policy

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According to an article on Stuff.co.nz “Redundant migrants forced out” on the 4th July 2009 recent migrants to NZ are being forced to leave the country within 21 days unless they can find a new job. Many of the new migrants are not disclosing that they have lost their jobs to avoid having their visas revoked. As a result many of these new migrants are ending up living homeless on the streets. Another aspect of the Government's policy was also causing grief. The government is denying migrants a renewal of their work visas.

The problem of course is a lack of foresight by all concerned. The problem arose because:
1. The NZ government failed to ensure new migrants had adequate savings to cover job loss, apart from any investment they might make in housing.
2. The migrant failed to make provision for mishaps like a downturn in the economy

It is not unreasonable for the government to deny new migrants residency or citizenship, and as a result, to deny them benefits such as unemployment payments. It is however unreasonable treatment given that these people were paying tax and had no part in the problem. The problem of course is a long term recession caused by government stimulus. The stimulus was mostly from the US government, but most Western governments are guilty by indifference. Any taxpayer might also be considered partially responsible. I'm proud to say that I have only voted once in my life, and that was for a libertarian Senator in Australia. Waste of time of course.

The solution of course is to not migrate to NZ unless you have adequate sayings. I am thinking that a lot of people migrate here thinking its a poor man's paradise. The reality however is that whilst welfare is generous, its only available to those with Australian or NZ citizenship or permanent residence.

Do NZ property inventories indicate anything?

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SMH Online has reported that property inventories in NZ appear to have bottomed. The weeks of sales inventory has fallen from a peak of 50.2 weeks in June 2008 to 31.5 weeks this June 2009. This need not translate into higher sales, but I believe it has. We bought our place in November 2008, which we think was the perfect time to buy because of the calamity on financial markets. We bought from an old couple in their 70s who probably thought we were looking at another Great Depression.
Insofar as market timing is concerned I believe buyers will have another opportunity to enter the NZ property market. I would also suggest that city properties have further to fall. I would not be buying city property at this time. My advise is to buy under-loved rural property if you must, as we did. We bought a lovely Victorian home in a small 40,000 town reasonably close to Wellington for $NZ78,000 ($US40,000). Since then the exchange rate has recovered and we believe the property has found a floor in this segment.
The next opportunity will come with city property, but not until people are squeezed by higher inflation. The property market is highly leveraged, and NZ is worse than most countries in this respect, which means great opportunities. Such issues are discussed in our Buying NZ Property report.
I don't want people to read too much into these inventory numbers because people are only going to sell at the top if they think the market has a lot more to fall. Buyers in rural areas will have recognised a bottom and pulled their property from the market. Buyers in the city will mostly be thinking their home is a long term investment, that it no longer makes sense to sell. That does not mean prices will not fall more. It just means people cannot see the inflationary outlook. Clearly that is going to impact on employment, interest rates, and the average over-leveraged home owners capacity to pay off their mortgage.

How should the NZ government boost the economy?

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It so happens that the NZ places a great deal of weight on what I think. In fact every day before the Prime Minister eats his Sultana Bran he calls me up and asks me "Andrew Andrew, what should I do, I can't live without your insights". Anyway, I thought I'd share some of the advice I gave him today.....

First of all, I am no Keynesian advocate. I deplore the idea of stimulating the economy simply because I deplore the economic policies that leave the economy in a situation where there is excess capacity, whether because of over-investment or over-consumption. Over-investment is of course the result of bad planning, over-consumption the result of excess debt creation. In the case of the later, this occurs because of government. The US government is key because:
1. Its the largest economy in the world
2. It is the largest financial centre in the world, and London is just as bad
3. It is the world's reserve currency, which means that most debt is denominated in USD, so they don't have to worry about repaying foreign currencies, since they just print their own cruddy currency to repay the world. This of course tells you to expect a fall in the USD. Which makes me think the Japanese have more to worry about then the USA. China will be ok as well because they are the centre of future growth. Poor Japan though. Those innocent souls investing in postal savings bonds at 1% return on investment.. he he. No wonder the governments wanted to sell the scheme. hehe. Nope, very sad. I keep telling people you cannot trust government. They are evil people. Why do you vote for them.

Ok, I've fallen off topic here. So back to stimulus. Given that the US and other Western governments have created this slump in demand, and they did that by stimulating household debt/demand. Surely the only justification for now going out and stimulating government demand/debt is by increasing the productive capacity of the economy. So how might the government do that. I can suggest the following ideas:
1. Investments that use as much local content as possible
2. Investments that provide stimulus to every aspect of the economy, eg. rural and city, white collar and labourers.
3. Investments that increase the domestic productive capacity, reduce costs, or increase efficiency, prefereably in those areas that need it.
4. Investments that will provide work to small business as opposed to big contractors sending most of the profits abroad

So lets look at some possible projects:
1. A very fast rail service from Auckland to Wellington: Such a service will go through mountains (like Japan), or alternatively around the coast via New Plymouth if that saves on capital costs. The attraction is the jobs created, local railway making, local raw materials (iron sands). The trains could be made in Australia, the technology imported from Germany, France or Japan. This is one of my favourites because it would be more energy efficient, reduce emissions, replace old train services, stimulate regional economies before & after. The argument could be made that NZ'ers could not afford to buy the tickets. True. Next!
2. Energy projects would make a lot of sense but NZ already uses renewable and domestic energy supplies, so there is no point in investing in them, unless it was a proposal which would reduce imported oil used as a transport fuel. This makes a lot of sense. The question is how? The railway idea helps, but its probably not viable. NZ has no car industry, so it does not make sense to start one given the small size of the economy. It would not be feasible to convert cars to electric engines, or to replace them. An attractive option however is to produce biodiesel from wye and bio-ethanol from timber. This would take time mind you, but why not start the problem with annual crops like maize and sugarbeet. Within a decade NZ would no longer need imported oil. Another compelling program would be a search for coal seam gas. I actually know a lot about this having just prepared an energy report on the subject. The intent or hope is that by government kickstarting coal seam gas expenditure through Solid Energy, it will be able to establish a competitive gas supply to the conventional suppliers, and it will also kickstart investments in gas reticulation pipelines on both islands. The consequence will be cheap gas, which will attract more industrial activity as well given the weakish NZD.
3. Communications projects make a lot of sense as well. The future is very much going to be technology driven, and I think by offering cheaper, high speed internet NZ has the potential to rejoin the technology race. It is lagging in this respect. I think the key to improving things is to make NZ a more attractive place to live. Over-investing in property did not help as now we are going to witness a lot of job losses. High speed data therefore makes a lot of sense, as well as getting computers into schools.
4. Education makes a lot of sense too, but what is the point if people just go overseas. Unless NZ can appeal to people, attract higher income jobs, it has little hope of doing that. I think most people have a bad perception of education frankly. There is this obsession with formal education. I consider myself a pretty smart guy, and truth be told, I learned most of it by reading books, analysing issues, breaking down arguments. Any education needs to be critical and systematic, it does not need to be formal, and it does not need the sanction of government. There are better ways to convey credibility to prospective employers than getting a certificate from a government.

I can't think of any other investments that people should make, but there are probably more. Tell me what you think!

Staying in Wellington

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We have just come back from Wellington. We don't know it very well, but we are pretty happy with our stay. Previously I have stayed at the YMCA, which used to cost $40-50/night, though apparently prices have risen to around $85/night, so you might want to consider other options. If you are looking at a city hotel don't forget to ask about carparking costs. I don't like driving through the city because I am still driving on my Australian drivers license, which means I have to pay twice as much excess, plus my van has no rear view so there are a lot of blind spots, so I avoid busy areas.
For this reason we stayed at the Petone Homestay. This is a bed & breakfast on the north side of Wellington Harbour. It cost $90/night, and there is street parking out front if you arrive early or late, otherwise we just moved our car outside the next morning. This place is well located because its just 30mins into the city, and its not a bad urban area. The Bed & Breakfast is just 2 rooms which they usually rent as one. Its just 30m from the main street and bus. There are a lot of cafes and restaurants in the area. I recommend Yolsi Indian Restaurant. I have not had Indian food & service like that since I ate at the Gaylord Indian Restaurant in Bombay (Mumbai). That is in the main street (Jackson Street), between Elizabeth & Bruik Streets. There was internet cafe there, and free wifi (if its working) at a Turkish restaurant going towards the city. The library is hidden in the area too, and that offers internet access as well, but only in standard business hours. The internet service is not great in the area.
Petone Homestay was good service. It is fully fitted out for all your needs, eg. Microwave, refrigerator, 2 beds, ironing board, TV, working table, etc. The interior design is a little weird....missing only the shrunken heads from Peru, but it was very cozy and good value. There is a shopping centre in the area, McDonalds, banks. It was easy to find as there is an exit off the Wellington to Upper Hutt Motorway, and that brings you out onto Jackson St, and then its easy to find Elizabeth Street. You need to make advanced bookings on tel: 64-4-9700299, ask for Ron or Colleen.

Foreign Income Tax Exemption for new residents

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In 2006 the NZ government made changes to the New Zealand’s income tax code which make immigrating or resettling in NZ particularly attractive for foreigners. New residents will be able to have an exemption on all foreign earnings for four years. This does not strike me as a particularly sensible law because the recession will last 4 years, so people might be prone to just leave the country in 4 years. But hell - who doesn't love a tax break!

New immigrants to New Zealand qualify for the automatic tax exemption on their individual overseas income under the Taxation Act 2006. The tax exemption is targeted to encourage prospective migrants to consider New Zealand as a viable and competitive place to live and work. The exemption also applies to returning New Zealanders who have not been resident for tax purposes for at least 10 years before their arrival.

It operates to exempt all “transitional residents” from New Zealand tax on their foreign-sourced income by treating it as being derived by a non-resident. A person will be deemed a transitional resident if on or after April 1, 2006:
1. They have a permanent abode in New Zealand, and
2. Immediately before acquiring that permanent abode, they were continuously non-resident for at least 10 years, and
3. They have not previously been a transitional resident.

It is possible for a person who has visited New Zealand before acquiring a permanent abode – for example, to attend interviews or to look for housing – and who would otherwise be deemed resident in New Zealand (because they had been in the country for more than a total of 183 days in any 12-month period) to benefit from the exemption.

The transitional resident status will last for four years, ending on the last day of the 48th month after the month in which the person acquired a permanent abode in New Zealand; or the day the person ceases to reside in New Zealand. After expiry of this period, the person is treated as a resident, and their foreign-sourced income becomes liable to income tax in New Zealand.

The only types of foreign income not tax exempt in New Zealand are those derived from overseas employment performed while receiving the exemption, and business income relating to services performed offshore. All other foreign-sourced amounts (including interest, dividends, and employment and bonus income from previous employment) derived by the transitional resident are exempt.

The new legislation also provides that, where a settlor of a foreign trust becomes a transitional resident in New Zealand, they or any beneficiary or trustee of the trust will now have up to five years to elect for the foreign trust to become a qualifying trust. A foreign trust means that no settlor is resident in New Zealand from when the trust is settled until a distribution is made. A foreign trust is not required to pay New Zealand tax on its foreign-sourced income. If the election is not made, the foreign trust becomes a non-qualifying trust, with distributions of accumulated income or capital derived taxed at a penal rate of 45 percent. Previously, if a settlor of a foreign trust became resident in New Zealand, any of the settlor, trustee or beneficiary had only one year to elect to convert the foreign trust into a qualifying trust.