So you managed to raise the deposit, navigate your way through the home loan market, and start shopping around for a house. Great work! You’ve come a long way already. But big decisions still lie ahead. Will it be an apartment or villa? Central or suburbs? One bedroom or three? Also – a big one – what type of land ownership is best for you?
There are four main types of ownership, and the differences can be confusing. But they make a significant difference to what you’re allowed to do.
The key differences in property ownership NZ:
In New Zealand, freehold or fee simple is the most common type of property ownership. Freehold is unencumbered ownership of the land and means the owner is able to build on that land without having to ask the neighbours. Any building or significant changes to the property, however, will still need to meet council rules and regulations. The ownership rights associated with freehold means you will usually pay more for the land.
Cross-leased property means there are a number of dwellings on the land. In this situation, owners co-own the land and lease their property from the tenants. If you buy a cross-lease property you will receive a “flats plan” showing the buildings and property, and this will need to be checked to make sure it is accurate.
Cross-lease property ownership would usually be less expensive than freehold property due to the constraints that are inherent in the titles. When you have a cross-lease property, you need to seek the permission of your neighbours to make significant external changes to your dwelling, and will need to work with your neighbours on any changes you might want to make to the use of the land.
Leasehold is when you own the building, but not the land. It is common in Europe and the UK, but not so widespread in New Zealand. It means you sign a lease agreement with the landowner when you buy the dwelling, and pay an annual ground rent. Lease terms vary but in New Zealand have historically been long term, such as 999 years. However, the landowner generally maintains the right to review the ground rent on a regular basis, and significant rises in land value can trigger rises in the ground rent.
Leasehold properties are generally cheaper but there are extra and ongoing costs. Lenders can also be more cautious around leasehold land given the potential for extra expenses.
Unit titles are, like leasehold, generally cheaper, but there are ongoing costs. A unit title means you own a certain part of the building, like an apartment. You share ownership and responsibility for other parts that everyone uses, like a staircase.
Unit titles are run by entities called Body Corporates, that are made up of and represented by all owners. The Body Corporate meets regularly and makes decisions around the ongoing maintenance and costs of common areas. Owners will need to pay a Body Corporate fee and they may be asked to contribute to an ongoing maintenance fund for the property.
If you are considering buying a unit title, it will be important to research the costs involved in the Body Corporate, as they can be high. It is also advisable to read the minutes of Body Corporate meetings to ensure you are informed of recent or upcoming maintenance and any associated issues.
Canstar compares financial products to help you narrow down your options. Whatever property type you are looking to buy, make sure you shop around for your home loan, to ensure you’re getting a product that works for you!