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  1. #1

    Default Urgent help on buying a house on leased land.

    My firend is going through a nasty divorce.....he has found a house he likes and has made on offer on it which has been accepted, there's a catch though. Apparently the LAND the house is on is owned by someone else and it has a 99 year lease (of which rougly 20 years has passed already).

    Are there any things he needs to know about with regards to buying the house?? what are any "issues" he might have with this kind of setup??

    He has till 5pm on monday to decide what to do!!

    Cheers
    KiwiMR2

  2. #2
    Join Date
    Jan 2005
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    Auckland
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    Default

    The banks usually look on freehold land more favourably than leasehold, and might require a higher deposit, shorter loan period, P&I payments etc.

    The value of the lease diminishes with time - in 99 years it is worth nothing, unless there is an automatic right to renew. The building is the only fixed asset you are buying, and the rest of the payment is for the right to occupy for the remainder of the lease - subject to adhering to the conditions of the lease.

    The most important considerations are: the amount left of the lease; the frequency of the rent reviews; and the way in which the rents are assessed.

    Often rent is assessed at around 7% of the value of the unimproved land. In places where the land values are likely to rise very fast this can have a significant detrimental effect on the ground rent. For example, if the current rent is based on a land value of $100,000 rent is likely to be around $7,000pa or $140 per week. If the land value at the next review is $300,000 then ground rent could climb to $21,000pa or around $400 per week.

    This can put an owner in the unenviable position of having to sell a lease with an expensive ground rent - which might have a significant negative impact on the price he is likely to achieve.

    Some people have done very well with leasehold land, but it is not for the faint of heart.

    Julian.
    Gimme $20k. You will receive some well packaged generic advice that will put you on the road to riches beyond your wildest dreams ...yeah right!

  3. #3
    Join Date
    Jan 2005
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    Auckland
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    I forgot to mention that it is imperitive that your friend has a lawyer look over the lease and explain the obligations and risks in plain English.

    I also forgot to say welcome to the forum. Welcome.

    Julian
    Gimme $20k. You will receive some well packaged generic advice that will put you on the road to riches beyond your wildest dreams ...yeah right!

  4. #4
    Join Date
    Jan 2005
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    Auckland
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    One other thing (and I apologise for replying to my own posts - but I'm not really replying just adding more) your friend can ask the vendor for an extension. He might not get it but then again the vendor might agree to giving him, say, a 5 working day extension (ask for 10) which will give him a little more time to do his due diligence.

    A valuation could be worth its weight in gold, and a builders report is wise, as is a LIM (Land Information Memorandum - from the local council).

    Julian.
    Gimme $20k. You will receive some well packaged generic advice that will put you on the road to riches beyond your wildest dreams ...yeah right!

  5. #5
    Join Date
    May 2004
    Location
    Auckland
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    two crucial factors

    1. Is it a terminating lease - ie reverts to the freeholder at the end of the 99 years or renewable

    2. When are the ground lease reviews done. you can as a rule expect the lease to be 7-7.5% of the bare land value.

  6. #6
    Join Date
    Jun 2004
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    Auckland
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    Quote Originally Posted by murray-spi-investments
    1. Is it a terminating lease - ie reverts to the freeholder at the end of the 99 years or renewable
    How does it affect the value of a property?

  7. #7
    Join Date
    May 2004
    Location
    Auckland
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    1 terminating lease loses all value as it approaches termination (think of all those suckers paying near freehold prices for terminating leases on the auckland wharf)

    2 renewable lease has a value even at the end of the lease as your renewal rights are saleable

    I am not a valurer and do not know the relative values they represent


 

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