Two budgets, two markets and the fight for Australian investor attention

Two budgets landed in May. One tightened settings for property investors, while the other got out of the way. The contrast between Australia and New Zealand's fiscal settings has sharpened a question that was already forming: is the Tasman Sea wide enough to keep Australian investors from looking at what's on the other side? And how soon will they act?

What Australia changed

From 1 July 2027, the existing 50 per cent capital gains discount for assets held longer than a year will be replaced by an inflation-indexed method with a minimum 30 per cent tax on gains. Negative gearing on established rental properties purchased after budget night has been curtailed, meaning landlords will no longer be able to offset rental losses against other income, except on new builds.

The intent from Canberra is clear: reduce investor competition for established homes and redirect capital into new supply. But investors facing materially worse after-tax returns on established Australian property are now looking elsewhere. New Zealand is the most obvious alternative.

What New Zealand did instead

Budget 2026 in New Zealand took a different path. A disciplined fiscal package delivered an earlier-than-expected return to surplus in 2028/29, a credible deficit reduction track, and no new surprises for property investors. Tax settings for rental property are unchanged and no new compliance burdens were introduced.

A credible path back to surplus reduces pressure on inflation, giving the Reserve Bank room to keep the OCR lower for longer, a meaningful tailwind for mortgage holders and buyers. Treasury forecasts growth recovering to 2.3 per cent by June 2027, unemployment easing gradually, and inflation settling back around 2 per cent. That is the kind of macroeconomic backdrop in which a fragile property recovery can consolidate rather than stall.

No capital gains tax beyond the two-year bright-line test. No stamp duty. No land tax. Interest deductibility on investment properties, fully restored in April 2025, remains intact. The two markets are now pulling in opposite directions on tax, and Australian investors have noticed.

What New Zealand looks like from across the Tasman

The gap between the two markets has never been wider. Australian house prices have roughly doubled since 2016, while New Zealand values grew strongly through the pandemic boom before correcting sharply. New Zealand's national median peaked at $925,000 in November 2021 and has since fallen 16 to 18 per cent, settling within a narrow $750,000 to $800,000 band for the past three years.

The exchange rate compounds the advantage. One Australian dollar currently buys 1.22 New Zealand dollars, the highest it has been in over a decade. For an Australian buyer, New Zealand property is materially cheaper in real terms than it was 18 months ago, independent of any movement in NZD prices. New Zealand’s national median translates to approximately $635,000 AUD at today's exchange rate.

Beyond price and tax, the regulatory pathway for Australians is straightforward in a way that applies to almost no other foreign buyer group. Under New Zealand's Overseas Investment Act, most non-residents require Overseas Investment Office consent to purchase residential property. Australian citizens and permanent residents are largely exempt. They can buy houses, apartments, investment properties, and most lifestyle blocks without approval, and are treated similarly to New Zealand citizens.

Where interest is most likely to land

Regional variation over the past decade has been significant, and where you buy in New Zealand matters as much as whether you buy.

The strongest growth has come from more affordable regions. Gisborne at 188 per cent, Southland at 157 per cent, and Manawatu-Wanganui at 132 per cent have all more than doubled over ten years. That growth largely reflects domestic demand, buyers priced out of major centres seeking value elsewhere, rather than the lifestyle or international appeal that tends to attract offshore interest.

Otago at 107 per cent ten-year growth and a median of $700,000 is the more natural fit for Australian buyers. Within Otago, Queenstown-Lakes has long been a concentration point for international interest, driven by globally recognised lifestyle appeal and constrained supply that has supported values over the long run. Northland at $690,000 with 91.7 per cent ten-year growth is another candidate, combining coastal lifestyle credentials with an accessible price point familiar to many Australians who have visited the region.

Auckland, despite its size, is the least compelling case. At $1,020,000 it is New Zealand's most expensive market and its weakest long-run performer at just 22.9 per cent over ten years.

Are Australians actually buying?

Overseas buyers accounted for 2.6 per cent of home transfers in 2018, falling to 2.0 per cent in 2019 as the foreign buyer ban took effect, and have hovered around 0.4 per cent ever since. The most recent data runs to 2024, so it does not yet capture any shift following the Australian budget changes.

Migration data tells a similar story. Net Australian arrivals to New Zealand briefly turned positive around 2020 before reversing sharply. New Zealand is now losing around 28,800 people net to Australia annually, a figure back in line with what has characterised most of the past two decades.

New Zealand also has an election coming. Labour is heading into the 2026 vote with a proposal to introduce a capital gains tax on investment property sales. The tax settings Australian investors are currently eyeing may not be permanent, and any long-term decision should factor that in.