Quality apartments in Auck?

[Beano]

What lawyers think about leasehold.

"a few examples for whom Leasehold is a good idea:

Those on short-term appointments
Wanting to be in-school zones
Considering renting as an option
Business owners
Out of town’ers (another residence)

Think of it as renting with additional benefits

And to be located in an area where they wish to be but freehold is not available

[Bobsyouruncle]

That may occasionally be true but in Auckland it is about $$ more.

[Beano]

Buying the lessors interest (freehold land) with a lessee (leasehold) is not easy as the banks require 50pc deposit (effectively the same deposit as for the leasehold) evenue when the net yield is over 6pc

[Bob Kane]

If they built 7 units on the site and charge $200pw ground rental would that be affordable?

I might be wrong but I think those leasehold Cornwall Park houses can't be modified, can't be demolish, can't be removed and can't be subdivided.
So you buy one and you're stuck with what you get.
And you pay $70k pa to live there.
If you were offered one for $1, would you buy it?
I gather the Trust has one and cannot sell it.
I read that there are at least 6 other owners who cannot sell.
What would you estimate their market value is?

[Bob Kane]

There seems to be a fundamental misunderstanding here about what we're talking about, at a very base level. I will keep an open mind that the misunderstanding may be mine, but I feel like it's yours.

<snipped>
If everyone refused to pay me $70k for it, I'd have to consider whether to rent it out for less, or to sell the asset and invest my million elsewhere.

This is the point that I've been trying to make - perhaps badly.
Everyone is refusing to pay the $70k.
These leasehold properties are not selling.
One lady couldn't sell her place so she handed the keys back and walked away.
Many other owners have tried to sell without success.
Why would a house fail to sell?
Usually it would be because the price is too high.
But when you offer a house for $1 and get no takers, you can't blame the asking price.
So is the $70k pa lease the problem?
How can the Cornwall Park Trust overcome this problem?

[Bob Kane]

Agreed.

You wouldn't, no one has suggested you would.

Agreed.

Disagreed. It will determine the value of the leasehold on the property, not the property itself.

Agreed. No one has suggested that the value of the leasehold would double. But the underlying property (the land itself) must obey the same laws as the freehold land next door.

We seem to agree on a lot of things.
The Cornwall Park Trust has a big problem with it's leases and seems to be taking a crazy approach which I can't see will work.
I think they will be forced to change their approach.
I've suggested how they can solve their problem.
There will be other alternatives.

[Bob Kane]

I'm talking about the land value.
Leasehold land and freehold land are the same value.

Let's say a freehold property next to Cornwall Park sells for $1.5m - with land value $1m and house $500k.
Let's also say a leasehold property next to it sells for a $1 - remember the lady who walked away and left the keys.
If the land is the same (leasehold and freehold: $1m) then how do you calculate the house value to end up with a sale price of $1?
If you think a sale price of $1 is silly then substitute a figure that you're more comfortable with - say $200k?
If the leasehold land is $1m then how much is the house worth to reach the sale price of $200k?

[Beano]

Let's say a freehold property next to Cornwall Park sells for $1.5m - with land value $1m and house $500k.
Let's also say a leasehold property next to it sells for a $1 - remember the lady who walked away and left the keys.
If the land is the same (leasehold and freehold: $1m) then how do you calculate the house value to end up with a sale price of $1?
If you think a sale price of $1 is silly then substitute a figure that you're more comfortable with - say $200k?
If the leasehold land is $1m then how much is the house worth to reach the sale price of $200k?

I would say the next door has a land value of $1.5m and a improvement value of zero
In 1994 I purchased a leasehold (lessees interest) for $257k in Wgton (yes I do realise I was dopey )
The land was worth approx $126k
Today the land is worth approx $900k but the improvements are worth nothing
Ps I did freehold the site a few years after purchase ....over those years I saw the land value grow and the improvements fall in value
Today I don't bother looking at the improvements ...I just look at the land value ...at least every 7 to 12years

[Wayne]

So is the $70k pa lease the problem?
How can the Cornwall Park Trust overcome this problem?

As ever in the free market economy - drop the price till you get the sale.
This, of course, affects their other properties as it creates a new market value for the leases.
Expect to see the grass grow long in the park when they don't have the money for the maintenance.

[Anthonyacat]

As ever in the free market economy - drop the price till you get the sale.
This, of course, affects their other properties as it creates a new market value for the leases.
Expect to see the grass grow long in the park when they don't have the money for the maintenance.

The thing I don't understand is, 7% isn't exactly an outrageous return. If too significant a drop is required, they could sell the land and invest elsewhere. Or raise a mortgage on the land, and invest the proceeds.

[eri]

Chen bought a house, on the edge of Auckland's Cornwall Park, on leasehold land in 2005 for $450,000

but in 2010 her annual rent increased from $8300 to $73,750.

Chen tried to negotiate to freehold the property and adjust the rent if her lease was renewed but vacated the house in November 2011.

Cornwall Park Trust Board, which owns the land, later chased Chen in the High Court for close to $300,000 in back rent and repair work on the property, which is now being tenanted.

Chen fought the claim and in 2014 a judge dismissed the attempt to get backdated rent at the increased rate.

However, Chen was ordered to pay $119,327 of repair costs.

Chen has won the right to go the Supreme Court.

http://www.nzherald.co.nz/business/n...ectid=11668516

There is a formula set in statute (or the trust deed, but I think it's statute) whereby annual rent is 5% of the market value of the land.

The Board have no discretion to change that, even though it isn't really working now that land prices are soaring and rent isn't keeping up.

https://www.reddit.com/r/newzealand/...trust_can_put/

[Wayne]

The thing I don't understand is, 7% isn't exactly an outrageous return. If too significant a drop is required, they could sell the land and invest elsewhere. Or raise a mortgage on the land, and invest the proceeds.

Could be said to be outrageous when 'investors' buy houses to rent at <3% return.
Maybe it should be pegged at x% above the risk free rate (the one the Govt talks about). Not sure what that rate is at the moment.

The funny thing is people didn't have a problem before when it was 7% but you could get 15% in the bank - no complaints then.

[Wayne]

I wonder how often the ground lease is re-set with the Cornwall properties?
Some around are something like 21yrs - look expensive now and cheap in 20yrs.

Will be interesting to see what the Supreme Court has to say.
Don't buy leasehold! The value is in the land and you don't own it!!!

[Beano]

Could be said to be outrageous when 'investors' buy houses to rent at <3% return.
Maybe it should be pegged at x% above the risk free rate (the one the Govt talks about). Not sure what that rate is at the moment.

The funny thing is people didn't have a problem before when it was 7% but you could get 15% in the bank - no complaints then.

Don't get fixed on the Cornwell park rental calculations
There are various formula's
One of mine has "a fair market rental" others are based on 5pc of the unimproved site value

[Beano]

I wonder how often the ground lease is re-set with the Cornwall properties?
Some around are something like 21yrs - look expensive now and cheap in 20yrs.

Will be interesting to see what the Supreme Court has to say.
Don't buy leasehold! The value is in the land and you don't own it!!!

Unless you have the right to buy the land or the location is where you want to be and there are no alternatives