Apartments – Now or Never?
While many Kiwi’s dream of the quarter acre, with backyards and green grass in today’s climate this is not possible for everyone, so how do you get on the property ladder? For Aucklanders many start to search further afield, the rise of subdivisions north and south show many are willing to travel and commutes are getting longer but are you really getting the lifestyle you dreamt of, in traffic for hours every day, buying off the plans for a house that’s going to finish in 12 months?
The idea of apartment living is not for everyone, but for first home buyers and investors alike, they should be a consideration. Cities around the world have long relied on apartments rather than sprawl to meeting housing needs, and with the property market in its current state, is an apartment now the right option?
The apartment market in New Zealand is growing, what was once limited to the city center of Auckland is spreading across the area with new projects across the region, and across the country, many of the major cities in New Zealand now have multiple apartment buildings, suitable to all budgets. But what should you consider when buying an apartment?
Is an apartment right for me?
Well, we can't answer that. It is important you consider what it is you need a property, for first home buyers it is important you consider that this is not your forever home, buying your first property can emotional, but it is vital you consider the long term, while having a backyard now might be great, what is the trade off? An hour plus drive from work? An extra $100,000 on the mortgage?
Are you able to get more m2 for your dollar with an apartment while saving money on travel, maintenance and enjoying a lifestyle?
Apartments can be a great way to build equity and move on to a better property for first home buyers, with many continuing to hold the apartment as a first investment.
Leasehold vs Freehold?
Firstly, before we get too technical, your lawyer should always be consulted when considering an apartment as the titles can be complicated and there has been many cases of buyers not fully understanding their rights and obligations, but with proper advice this can be overcome.
A leasehold apartment essentially means you own your apartment, but not the ground its built on. Generally leasehold apartments require you to pay Ground rent, which can be a reasonably large, and subject to large increases depending on location. Lending on leasehold apartments is difficult, while the upfront purchase price can look attractive on these, its important to consider the annual expenses and the whole picture, generally these are not a viable option for first home buyers as funding is extremely difficult. These can be an option for investors however and returns can be good if the overall picture is done right. Again, good advice is key here.
Freehold or Stratum in Freehold as is generally the case with apartments, means you own your apartment and any adjacent areas, courtyards etc. This is the preferred title when considering apartments.
Body Corporate rules and Levies
Owning an apartment can mean access to fantastic amenities like pools, gyms, lifts to avoid stairs, business areas, shared entertaining areas the list goes on. But with this, comes expenses, maintenance, management, and upkeep of common areas, and as an owner of an apartment, you are responsible for a share in these expense. In Auckland, body corporate fees vary from $3,000 per annum to $10,000, which can be a large expense, so ensure you understand your obligations and you have worked them in to your budget when considering a property.
Important considerations for lending on apartments:
Generally, banks will not consider an apartment under 40m2, so if you are looking at studios for an investment you may need to use equity from existing portfolios.
For first home buyers there are apartments that meet the First home buyer grant requirements, but not all of them, speak to your Broker or advisor first.
Check what is included, does it have carpark on the title, or a separate title and be sure you understand what you are getting in to.
There’s plenty more to consider, but being armed with options gives you a better chance at finding a property to suit you. For more information on whether an apartment would suit your financial position feel free to contact one of our Advisors today.
Disclaimer: This publication has been prepared for your general information. While all care has been taken in the preparation of this publication, no warranty is given as to the accuracy of the information and no responsibility is taken for any errors or omissions. This publication does not constitute financial or insurance product advice. It may not be relevant to individual circumstances. Nothing in this publication is, or should be taken as, an offer, invitation, or recommendation to buy, sell, or retain any investment in or make any deposit with any person. You should seek professional advice before taking any action in relation to the matters dealt within this publication. Publicly available Disclosure information can be found here.