Owning a home is a wonderful dream but unfortunately not a reality for many Aucklanders. With the average Auckland property still costing just over $1m people are looking for more affordable ways to get a piece of the property pie.
Buying leasehold may seem like the golden ticket to getting on the property ladder, but is it really worth it?
What is a leasehold property?
When you buy leasehold, you are buying the property but not the land on which it sits. This is common for high rise living, with a reported 15% of Auckland central apartments being on leasehold land. While leasehold is generally more affordable, it can be more difficult to finance and the landowner, not the property owner will benefit from the increasing value of the land.
The pros of buying leasehold:
Leasehold is an affordable way to purchase property that would normally be out of most Aucklander’s price range. As you are only paying for the value of the property and not the land, your money will stretch a little further. Buying leasehold could even work out cheaper than renting, particularly in central or affluent areas.
Buying leasehold gives homeownership opportunity to those who may struggle to get on the housing ladder in the current climate. As you own the property, you are free to rent it or decorate as you wish. You will also make a profit on the property should the value increase.
The cons of buying leasehold:
The land rent you agreed to pay at the beginning of your contract is not set in stone and is reviewed in line with the current property market. Your agreement will outline the frequency of the review periods, but the percentage of increase (or decrease) will reflect the demand. If there is a large boom in the area the land value can increase significantly, along with your land rent. What may have been affordable at the time could now leave you in a compromising situation and you may be forced to sell the property at a much lower price than you paid for it.
As you are only the owner of the property, you will not benefit from the increasing land prices. You could end up left with a house that is difficult to sell due to the increasing lease fees, particularly if you are approaching the review period.
Leasehold can also be more difficult to obtain finance for, and they usually demand a higher deposit. If you are having difficulty getting home loan, contact me at The Mortgage Supply Co and I will be happy to help.
The biggest long-term con of buying leasehold is you will not benefit from the increase in land value. As demand for housing in the area grows, your land rent will increase, along with the size of the landowner’s pockets.
There are many benefits to buying leasehold, particularly for young people trying to get a foot on the property ladder, but the small print could leave you with an unaffordable arrangement with no long-term benefits. If you are considering buying leasehold, seek the help of a good lawyer and mortgage adviser to help you through the process.
If you would like to discuss leasehold properties further or would like help with your home loan, I will be happy to help.
M 027 643 5454 | Ph 09 834 8682