How to buy a house in New Zealand?

Property Title Types

So, you've done the hard yards and get your first home deposit. Your lender has given you a home loan pre approval. Great! 

Remember in the first section, we asked you to think about what your dream home would look like and prioritise them. One of most important factor you want to consider and lots of homeowners treat it as non-negotiable criteria is the property type. 

Before you go property search, it’s a good idea to become familiar with the different types of real property ownership by understanding what each of them means and the pros and cons.

Here are some of the key property title types in New Zealand:

Fee simple (freehold title)

Fee simple and freehold are often used interchangeably. It is the most common and highest form of property ownership. This type of real property ownership is preferred by many as you own both the land and the property. You can make alterations to your property (subject to town planning and council consent requirements) without having to get consent from your neighbours. It’s important to note that fee simple (freehold) can still have restrictions to its use in covenants and easements – your lawyer can review the title to see if there is anything you must be aware of.

Cross-lease

A cross-lease is where two or more people own the same piece of freehold land, with more than one dwelling on the property, and then lease the use of these from each other. Historically, cross-leases were a common way of subdividing land so you’re more likely to see this type of ownership in older properties with two or more homes, and single-level blocks of flats.

A cross-lease creates two layers of rights – the right of ownership and the right of use. The underlying fee simple (freehold) title is owned jointly by the owners of each property within the cross-lease. These owners, as a group, then lease parts of the land back to each other. The leases create the rights of exclusive use for each property and the rights to common areas.

Problems can arise when owners build garages, decks or carports on the land without their neighbour’s consent and without completing a new “flats plan”. What is shown on the certificate of title plan is all that should be on the land. So, if you’re thinking about purchasing a property with a cross-lease title, it’s important that you discuss the terms of the lease with your lawyer and ask them to explain all the elements to you.

Unit title (Stratum Title)

This ownership type is when there is a group of properties held on one piece of land involving shared facilities (common property) i.e. a shared driveway, gym facilities, lifts and swimming pools. it is commonly used for apartments you own a defined part of the building, such as an apartment and a car park, and share ownership in the common property. Unit titles can involve either fee simple or leasehold developments. This means that within a fee simple development, each property is allocated a share of the underlying piece of land that the development is built on, and with a leasehold development, a ground rent will need to be paid to the landowner.

As an owner of a unit title property, you’ll automatically become part of the body corporate which will manage the common property and decide the rules that will govern its use. Owners will usually pay an annual body corporate fee to cover day-to-day expenses like maintenance, administration, insurance, ground rent (if leasehold) and other utility costs associated with the property. Also be mindful that there can be special one-off costs charged to owners if the annual fee doesn’t cover all costs. This could range from a small cost with a share of a lift repair to something more significant like a share of the cost of weather tightening the building.   Given the complex nature of unit titles, it is advised that you should seek advice from a lawyer to help you understand your rights, restrictions, and responsibilities.

Leasehold

What is leasehold properyt in New Zealand? This is where you own the building and any improvements on the site, but NOT the land. The land is leased to you at a certain rental per annum by the landowner.

While the lease may be affordable at the time of purchase, there will be rent review periods where the ground rent is periodically assessed in line with current property market values. This means that if the value of the freehold land increases there’s a risk that the ground rent could also increase significantly. It’s for this reason that leasehold properties can become more difficult to sell if they’re nearing the end of their lease or approaching a review period.

With leasehold properties, you also need to be aware that there can often be restrictions to your use of the land and all outgoings like council rates, body corporate fees, insurance, and maintenance may be your responsibility. So, if you’re thinking about purchasing a leasehold property it’s important you talk to your lawyer before making an offer and ensure you understand all the terms and costs involved with having a lease.

Please note banks will not usually have an appetite on this ownership type therefore from a finance perspective, it is not recommended.

Property Search

Once you have the ‘want’ list in priority order, then the fun part starts – property search. You can always contact a salesperson but the most popular approach is online such as realestate.co.nz, trademe.co.nz, and HouGarden.com. you can set up email alert ensure you are among the first to know when new properties that meet your criteria hit the market, helping you find your perfect property faster.

How to make an offer on a house in New Zealand?

There are many ways to purchase property which is largely determined by the vendor. Before you make an offer on the property you love, it’s important to understand what buying rules the vendor sets.

Buying a house by negotiation

Negotiation is the most common one when buying a house in New Zealand. When properties are advertised with a price, a price band or by negotiation, people are invited to make an offer on the property by entering Sale and Purchase agreement. This allows the buyer to negotiate with the seller on price through a Real Estate Agent. The vendor may accept your offer or send back a counter offer that you can accept or walk away. In the situation of multiple offers, you have to place the best offer you can as the vendor can accept another offer or choose to negotiate with the highest or ‘cleanest’ offer.

You can put as many conditions as you want in your property sale and purchse agreement, such as Finance, LIM report, building report, meth testing, valuation etc. However, remember, the more conditions there are in an offer, the less attractive that offer will be to a vendor. if you are in a competitive situation (e.g. multi-offer or back up offer) then you either must be offering a good price or have as few conditions as possible. At Prosperity Finance, we can help you to confirm the property acceptance even before you place a purchase offer so you don’t have to finance conditions and put yourself a stronger negating position. 

Buying a house by auctions

Buy at auctions have been very common in some parts of NZ where the property demand is very high such as Auckland, Queenstown. This method can be scary to the first home buyer as once your bid becomes the highest and it passes the reserve price, the purchase is unconditional. Do your homework first and go to a few auctions to observe and learn some tricks.

You may want to make a pre-auction offer but it works best if the property is only on a market for a short period time and it has not been seen by many people. You could get a bargain by doing it this way, but the vendor can bring forward the auction using your offer as the opening bid. you can still be outbid.

Buying a house by a tender

When a house is sold by tender, it means the property is open to prospective buyers who can make their ‘best’ offer which needs to be submitted by a set date and time. And then the vendor chooses the one they like the best. You can put conditions on your offer but be aware the more conditions there are, the less likely your offer will succeed. If you go through this process it is recommended before making an offer you undertake as much of your investigations as possible so you can reduce the number of conditions you include in your offer.

Buying a house by private sale

This is when a vendor sells a property bypassing a real estate agent and negotiating directly with the buyers. Because the vendor is not paying real estate agents fees, you may be able to buy property at a discounted price. However, it’s vital that you’re up to speed on your rights so you can protect yourself. It is strongly recommended that before you sign the agreement that you get your solicitor to review the agreement first.

With our client at Prosperity Finance, we provide FREE property appraisal reports, which include

•             Property information

•             Sales history

•             Ownership search

•             Certificate of title overview details (including Mortgage information)

•             Recent sales result for the properties similar to the one you are looking to buy

The reports will help you determine how much you should offer. 

What does it mean to go unconditional?

What is an unconditional offer on a house?

Once your offer is accepted by the vendor, you must meet finance conditions as detailed in your home loan pre-approval letter and any other conditions you have included.

We will help you through this process especially around finance conditions and acceptance of the property security. We may also help you order valuation report or refer you to the right people who can help you with building report, insurance etc or whatever we can do to help you.

How does an unconditional offer work?

Once your offer becomes unconditional, you will be asked to pay some deposit to secure the property, this is often 5% -10% of the purchase price and can be negotiable. Please note you can only pay the cash available on your account, other deposit such as gifting or KiwiSaver withdraw may not available at the time of winning the property so be careful what you put down in deposit clause and we are then in a position to work with you to help you make a decision on interest rate terms and negotiate the best interest rate and cash back offer (if applicable).