The questions leaseholds should always pose is why buy instead of a freehold interest. The answer all to often is because it is cheap. Maybe the heading should be do you really understand what you are buying into? When you look at what your getting in the long term a cheap Cinderella looking buy now, will often turn into the ugly sister with the passing of time. And I don’t just mean the fine smile line wrinkles, I’m talking settlement cracks the size of the Wellington fault line. It seems to be a trend that developers are picking up on that they can create themselves a pension fund by creating leasehold interests in land, the benefactor being the gullible punter who does n’t ask questions and goes on a shopping spree.
Lets start though from the sellers point of view as expressed by the real estate companies. What’s the big selling point? They are cheap. And thats it, that is the one point of difference. The fact that they maybe beautifully designed and specified in an amazing location and look really great, does n’t mean its a good investment. We seem to be slow learners as Auckland has already suffered these problems and they have been well publicised ( goggle Beaumont Quarter and its all there.). These apartments are not for the down at heel.
The developers can’t be blamed if the buying public is so cavillier in its buying habits, the cost of a valuation would alert you to the pit falls of buying such real estate, what’s happened prior to the recession was that everybody believed they could make money just by being in the property market without doing any due diligence, and they were right. The chickens, pigeons, vultures only come home to roost with the passing of time and the activation of the first rent review clause, and if your still holding the title documents when the musics stopped its not just the chair your going to have pulled from under you.
The way somme but not all of these new leases are structured is to have a low, an artificially low ground rent in the first instance. (Its an intentional spelling mistake) So when buyers look at the outgoings it represents a very small part of the budget. After the first seven or five years the rent is reviewed to a market level and produces increases in the order of 400%( on the landlords reckoning). To add insult to injury we have seen rent reviews in one instance being at three yearly intervals and this is in Wellington, the cautious “we’re not like them “ (Northern Bombay Hillers) and they have been lapped up by the buying public. The only ones licking their lips now are the leasors, they might be having slim pickings at present, but come the first review they will be out to make the lessees wallet take on a severe case of bulimia