Understanding Leasehold Land in New Zealand

Understanding Leasehold Land in New Zealand

Are you exploring the diverse landscape of residential properties in New Zealand? It's essential to conduct thorough research before committing to a property purchase. Whether you're eyeing a freehold, cross lease, unit title, or leasehold property, ensuring it aligns with your needs is paramount.

Leasehold properties, while less common, offer unique opportunities, often found in sought-after locations like Auckland's waterfront areas such as the Viaduct and Mission Bay.

Here's what you should know before diving into a leasehold property:

1. Understanding the Lease: With a leasehold property, you're purchasing the exclusive right to occupy the land and its structures for a specified duration, not the land itself. The land remains under the ownership of the freehold owner, commonly referred to as the "landowner."

2. Lease Terms: Lease terms vary widely, ranging from a few years to over a century. Your legal advisor will delve into the lease document, outlining its duration, rent details, rent review mechanisms, and your obligations as the leaseholder.

3. Financial Considerations: Leasehold properties with longer lease terms tend to command higher prices due to extended usage rights. As a leaseholder, you're responsible for regular ground rent payments to the landowner, along with operating expenses like rates and, for unit titles, body corporate fees and insurance.

4. Rent Reviews: Rent reviews can significantly impact your financial obligations. These reviews, influenced by property valuation, can lead to substantial rent increases, potentially affecting your ability to maintain the property.
   
   At the time of writing Ground Rents are anywhere from $5,000 per annum for a less desirable area (not waterfront), to $13,000 per annum for an average sized apartment. Increasing to $17,000+ per annum for an average townhouse. And $50,000+ per annum for large, luxury properties, right on the water. 
    

5. Resale Challenges: Properties with shorter remaining lease terms may face challenges in resale, particularly if there's no option to renew the ground lease.

While leasehold properties offer affordability and desirable locations, it's crucial to weigh the pros and cons:

• Pros: Potential cost savings compared to renting, lower initial purchase costs, typically waterfront views.

• Cons: Uncertainty with rent reviews, limited control over property, and challenges in resale due to unfamiliarity with leasehold concepts.

Anticipating the end of the lease term is essential:

• End of Lease: Upon lease expiration, (if it is not extended) the leasehold owner returns the property to the landowner without compensation.

Navigating the nuances of leasehold properties requires expert guidance. Whether you're considering leasehold or any other property type in New Zealand, we're here to assist you every step of the way. We've been experts in the City Market for over 25 years. We have the knowledge to be able to assist you.