Leasehold-The Quickest Way To Lose Money.

Are leasehold properties a good buy?


Most Kiwi property owners aspire to own both their house and the land, but there is another option which is miles cheaper.
It’s called leasehold, where the homeowner only owns the building and rents the land.

More commonly used for rural and commercial properties, leasehold residences are scattered around the country, often owned by church groups or councils.
But they are most visible in central Auckland where about 15 per cent of the central city’s apartments are thought to be on leasehold land.

The allure of leasehold is easy to see. In a city where freehold apartments cost about $7000 per sq m to build, leasehold apartment values have tumbled to about $2000 per sq m.

However, there’s a good reason why leasehold prices have plummeted.
The annual “ground rent” is subject to review every seven or 21 years, depending on the lease.

Rent reviews are usually based on a fixed percentage of the land value and with Auckland’s soaring land prices, they can be a shock.

Olly Newland, an Auckland property commentator and investor, is not a fan. He recommends people steer clear of leasehold

Leasehold land was a good idea 100 years ago because they used to have what is known as Glasgow leases which went forever and were reviewed every 21 years, when inflation or your land price, were flat, he said.

 And so there were just gentle increases every 21 years. It was a cheap way for people buy farms or houses. But it all screwed up in the last 50 years when land prices roared up and the rent went with it. So it’s a very bad investment now.” he said.

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