House hunting: what are the different types of properties?

This is usually most favourable for the banks. It’s when you own the property AND the land. Therefore, you have complete flexibility to do what you want with the property and the land.

This is when you own the property, but there’s usually an agreement in place that,if you want to make any changes to the property, you’ll have to get approval from the neighbours. For example, you might share a driveway or wall.

This is quite a common property type in NZ. People are usually put off by this, but don't dismiss it, as it isn't always a bad thing.

This is most common with apartments. You own the unit you live in but not the whole property, or the land. You ‘lease’ the land from its owner which is why it’s called a ‘leasehold’ property. This is more common overseas than in NZ.

The price of the property/house is usually cheaper than a freehold as you don’t own the land.

If it’s an apartment, you’ll have to pay body corporate costs, which are fees to the owner of the property/land to pay for common areas e.g lift maintenance, hallways, gardens etc. It’s kind of like taxes to the person who owns the land for upkeep purposes. These fees need to be factored into your budget, as body corp costs can be expensive.

Pros:

• Can typically buy with a 10% deposit (compared to an existing property where you need 20%).
• Get more contribution from First Home Grant for a new build (max $10k compared to max $5k for existing property).
• Generally hold their value for longer.
• Don’t need as much maintenance.
• Built to healthy homes standard, typically come with a 10 year builder warranty.
• Usually built in areas with good transport links/ amenities/ social hub.
• Some lenders offer lower rates specific to new builds.
• Bank approvals generally valid for longer (to allow for the build to happen).
• Interest deductible if you rented it out in the future.
• Can choose your chattels/ appliances/ specs.
• Blank slate – nobody has lived in it before.
• You have time to save additional deposit funds whilst the property is being built.You pay the developer 5/10% deposit upfront to secure the property, but while it’s being built you have time to save up more. This means less borrowing

Cons:

• The property value might drop between you buying and the settlement, which could affect the amount you can borrow.
• For example, say I signed the contract in 2021 and I bought it for $1M, with a $100k deposit = $900k mortgage needed. By the time it’s built in 2022, the property market has dropped and it’s now only worth $800k. The bank won't lend me $900k for something that’s now only worth $800k. They will lend me max $720k (90% of $800k).
• The bank lends against the lower of the purchase price or the value. If they had to repossess the property and sell it on to get their money back, that won't happen if they have lent you more than the property is worth.
• We’ve seen this a bit, recently, as property values have dropped so much. Buyers get close to settlement, get the valuation done, and the value is now way less than when they bought it – meaning they now have to find an extra $50k, for example.
• The build might get delayed. This is where a sunset clause might be actioned.
• A sunset clause is a condition in the sale & purchase agreement (the contract you sign when agreeing to buy the property) stating that, if the property isn’t completed by a certain date, you can exit the agreement. It’s basically your get out of jail free card if the developer doesn't deliver the property. This is usually roughly 1 – 1.5 years after the date it’s expected to be completed.

Pros:

• Normally have a bigger land area.
• Opportunity to add value (more land to subdivide and build on).
• Property is already built, you don't have to wait for completion – no chance of it being delayed, you can see it and touch it in its completed state, not relying on builders/developers.
• Settlement (i.e. how soon you can move in) is usually quicker than a new build.

Cons:

• More likely to have issues/ defects than a new build.
• Chain of buyers – vendor might drop out or delay settlement.