$1,000 leasehold Auckland house – but it’s no bargain

FUZO Property, Property investing NZ, property investment Auckland


Stuff’s asking ‘What housing crisis?’ as a leasehold property in St Johns is listed for $1,000. The writer says it’s “surely a bargain”, but obviously it’s not, otherwise the vendor would have been able to sell it at the original price of $10,000. This property costs $38,000 a year in ground rent, plus your $2,327 in rates. That’s $3,360 a month without any real possibility of capital gains. Spend your $3,360 on a 90%, 30-year mortgage at 4.5% and you could buy something for $737,000. That way you get to enjoy the increasing long-term value and stable mortgage repayments, rather than the frightening thought that the leasehold ground rents could rocket skyward in the future.

The major fundamental problem with leasehold property is that, in general, land goes up in value, while the house decreases in value. So buying leasehold property means buying the only bit that doesn’t generally go up in value. Because savvy investors know this, nobody wants that $1,000 house. On the other hand, if you can wangle that lease out of the clutches of the landowner at a reasonable price, you could make a fantastic profit – we’ve heard of a couple of people who have managed this; if you can pull this off you deserve every dollar!