Types of Land Ownership
Leasehold
With leasehold you own the building but you do not own the land. Banks will typically only lend up to 65% on leasehold property. There are typically two types of leasehold. Church and Maori leasehold tends to be lower risk and better quality. It has been around a long-time and tends to be consistently priced. Commercial leasehold is riskier. Much of the recent apartment development in the inner cities has been done with low “honeymoon” lease costs that jump up as much as 100% at review date. One of the worst examples of leasehold is the Beaumont Quarter in Auckland.
- Your key consideration is how long until the next Ground Rent review and what is the likely step up in cost?
Leasehold has a bad reputation but it has its place. Leasehold allows people to live in areas and in a quality of building they otherwise could not afford due to land prices. The most important thing is making sure it is priced properly. Read this article on how to price leasehold.
Freehold
You own the whole lot and easily the best form of ownership. Long-term the value of a property is in the land hence the expression – worst house in the best street.
Cross-Lease
Cross-lease was common in the 70s and 80s in some districts as a cost effective way of subdividing properties. Essentially you own a share of the freehold title. The only thing to be aware of with cross-lease is that it may limit your ability to change the footprint of your house without sign-off from other owners on the cross-lease. Although uncommon, there could be other restrictions on the title that need to be checked out by your lawyer.
Strata or Unit Title
This form of ownership is common for apartments, townhouses and units. It is used to asribe ownership within a development. You will have ownership of your unit and an undivided share in the ownership of common areas.
- There will be Body Corporate fees associated with unit titles that pay for the upkeep of the common areas and services.
Types of Building
House
Usually has a roof, windows and a door.
Townhouse/Units
These are semi-attached and usually cross-lease or strata titled. Banks are a little more nervous about Town Houses in larger developments so may restrict lending to 70%. They tend to be more favourable older properties build in the 70s and less favourable towards anything built after 1985.
Apartments
Apartments are increasingly popular with buyers due to the low entry prices. My observation is that apartments are now often cheaper to own than to rent. One of the main reasons for this is that apartments are not viewed positively by lenders, which can make it much more difficult to get a mortgage on an apartment. Some banks are not lending on apartments at all, so it is worth talking to us from the outset.
The sale prices for apartments can be distorted. Typically the cheapest places will be the ones outside bank lending criteria because the market for these properties is much smaller. It is very difficult to get a mortgage on a small apartment (less than 40-50sqm) and leasehold apartments. For these types of properties you need to have at least a 40%-50% deposit. With larger apartments (two or more bedrooms) that are freehold you can get away with a 20%-30% deposit provided you have good stable income.
Lastly, for fun spend a night at a tired, dated, cheap hotel. This is the fastest lesson on what to look out for! Are the apartment common areas made from quality materials and well maintained? What sort of street noise (or other apartment noise) is there at night? If you have a view, can it be built out? Is the building largely tenanted or owner-occupied? Is there safe entry and exit from the building at night? What is the proximity to supermarkets, parks, transport?
Building Era
Pre 1940
Built with native timbers these often have survived fairly well. The most common issues to be aware of are:
- Some insurers will not do replacement value if the house has not been rewired. Yet banks will generally require a full replacement cost insurance policy on a property depending on how much you are borrowing, so make sure you check this out before going unconditional.
- The two most common renovations are reroofing (cost approx $10k) and repiling (cost approx $15k.) Repiling, if required, should always be the first major renovation.
1940-1960
Not the most exciting period except some of the art deco brick and concrete stuff. This period tended to have smaller windows and living spaces to trap in heat. It might just be me but the layout in these places is often all wrong so they can be expensive do ups.
1960-1985
This is my favourite period. I just love the 1970s brick and tiles straight out of Outrageous Fortune. Not only are they cool, but they are made from enduring materials and typically have good aspect and indoor outdoor flow. 70’s modernist architecture rocks! In my mind some of the best design was from the 70s.
- Insulation only became compulsory in 1979. Houses built before then might not have any and with Brick and Tiles this can make them quite cold. Look for mould on South facing walls.
- Asbestos. This was used widely in the 1960s and 70s as insulation and as a fire retardant. It has been extensively used in NZ houses and is safe provided you don’t play with it. Check whether or not the internal ceilings are asbestos. If they are, some lenders will restrict lending to 80%. Asbestos ceiling can be removed by specialists for around $5k.
1985-2003
This is the era of dodgy building practices so it pays to be careful. Properties built during this period have high potential to be “leaky buildings.” The key drivers of this were dodgy (get rich quick) developers cutting corners, DIY builders, untreated timber used in framing and poor quality cladding systems. By 2100 I’d imagine there will be no examples of 1990s architecture left in New Zealand!
Things to look out for:
- Monolithic cladding systems (“plaster houses” and panelling)
- Lack of eaves (roof overhangs)
- No window flashings (integrated metal trim above a window that deflects water)
- Balconies integrated into the cladding system (“solid”)
- Cladding or framing touching the ground
2003+
New building practices fixed the dodgy practices of the previous decade. Enough said.