Getting waterfront real estate in Auckland’s top suburbs for anything less than $5 million these days is a tough ask but since the city went into lockdown two beachside properties have sold for less than $300,000.
A three-bedroom, two bathroom unit on Tamaki Drive, in Kohimarama, which boasts a CV of $1.525 million, was snapped up for less than its list price of $225,000 and a three-bedroom brick and tile home three minutes away on Speight Road sold under the hammer for $280,000 – more than $800,000 below its CV.
The catch? They are both leasehold, meaning buyers will never own the land, or reap any significant capital gains from doing so, and instead will have to pay ground rent to the leaseholder.
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The price differences between leasehold and freehold can be immense – often by several millions of dollars. A freehold unit in Kohimarama that’s about the same size as the Tamaki Drive property recently sold for $2.1m.
Ray White Mission Bay agent Peter Coker told OneRoof there were several factors that had an influence on the sale price of the Tamaki Drive unit, which is on land that once belonged to the Melanesian Mission.
These included the fact the unit needed sprucing up and that the main lease is due to roll over in 2024. That means the annual ground rent could rise from $22,500 to $75,000.
Coker says these sorts of sales are not for everyone but for some they work just fine.
Because banks are reluctant to lend on leases nearing the end of their term, they are not a great way for first home buyers to get into the housing market, but Coker often sells leasehold properties to cashed-up retirees who don’t want to go into a retirement home.
Leasehold properties are also attractive to people who have a home outside of Auckland but who want a base in the city, as happened with the Tamaki Drive property.
“They now have their own property, they can do it up, add a bit of value to it, they can enjoy it, it’s right on the waterfront, and it’s all still for the same amount of rent they were going to pay anyway,” he says.
A three-bedroom brick and tile unit just three minutes from Kohimarama beach sold at auction for $280,000. Photo / Supplied
OneRoof data shows Auckland has a very small number of leasehold properties – just over 4300, or less than 1% of the city’s total housing stock.
Unlike the rest of the property market, where capital gain for many has been massive, there is not much change in the price of leasehold properties.
Over the last three year the median sale price for leasehold homes in Auckland and the rest of the country has fluctuated around the $200,000 mark.
James Wilson, valuations director for OneRoof’s data partner Valocity, says buying leasehold properties when the market is hot can be risky, because rapid increases in land values can mean rapid increases in ground rent.
“Rent increases will be in line with the market and suddenly you’re paying a heck of a lot more.”
Traditionally, residential leasehold stems from a trust or group once being gifted land but from time to time modern leaseholds are being created, such as in Auckland’s apartment market where there are a number of leasehold apartments for sale.
This three-bedroom Auckland CBD apartment is on the market for $190,000. Photo / Supplied
Wilson says leaseholds are used sometimes with Maori land as they enable the land to be developed and the right to occupy it be sold but the land is not given away forever.
Wynyard Quarter is a case in point where some new apartment buildings on Iwi-owned land have prepaid leases which might run for 100 or more years. Because of the long-term nature of the lease, those apartments are transacting almost at freehold values, says Wilson.
City Sales agent James Mairs says he often has leasehold apartments for sale with very attractive prices.
He says the market for them is strong and he’s getting a lot of inquiry even though Auckland’s in lockdown. Some buyers are those who like living in the city but another big group is investors.
“There is an educated group of buyers who do know the market very well and are keen to buy that kind of property because they are renting as if they were freehold property so the yields are obviously much higher.”
He has a one-bedroom apartment in the Hudson Brown building in the CBD listed for $170,000 and a three-bedroom in The Landings for $190,000.
“They’re very nice apartments and are selling for a fraction of what they would be if they were freehold.”
Wilson says media coverage of high-profile leasehold homes around Auckland’s Cornwall Park have probably helped educate people about the perils of ground rents suddenly going up without people being prepared enough.
But Tony Keegan, from Barfoot & Thompson Epsom, says leasehold can be a great way to get into a nice area. “One of the big advantages of leasehold is that you commit so little capital and yet you’ve got all the possessory rights of an owner.”
Some people like being able to get a nice house in a great location and instead of housing put their money into a different investment to give them the capital growth they want. “I can quote examples of where people have done pretty well.” Others, however, “stumble” into leasehold and they might not have such a great experience, he says.
The main thing to do is check the numbers work and to make sure there is a reasonable amount of time left before the ground rent goes up. “There are real pluses but if you get on the wrong side of the numbers it can be painful.”
