Monthly Archives

March 2017

Mortgage Interest Rates

Our friend and fellow-speaker, Janet Xuccoa of Gilligan Rowe & Associates, received this question and we thought it would be of interest to our readers:

 Q. Janet, my home mortgage interest rate is 6.5%.  Given interest rates have fallen, should I look at refinancing?

A. I feel for you. Hindsight’s a great thing isn’t it?  Many borrowers have fixed as it wasn’t widely anticipated interest rates would fall.  Consequently, they are now paying more than they might otherwise have done.

Assuming you satisfy a bank’s criteria and can refinance, you’ll need to know what penalties your bank will impose for breaking your existing loan and moving to a lower interest rate.  In order to attract new customers, banks sometimes offer cash which can soften this financial burden.

Interest rates are expected to fall further in the coming months.  Reserve Bank Governor, Graeme Wheeler, indicated further easing to the Official Cash Rate (OCR) is likely as he’ll attempt to stimulate our economy which is suffering from a slump in dairy prices and weak wage growth. Forecasts have said cuts could be made throughout this year and 2016, with the OCR falling as low as 2%.

Because OCR directly affects wholesale borrowing by banks, a cut in the rate may flow through to interest rates borrowers are charged.  Then again, flow-through effects aren’t guaranteed.  Banks have to source their funding from somewhere, often from depositors who demand certain interest rates.  This could cost a bank.  To mitigate against this effect a bank may not be keen to pass on savings as a consequence of a lower OCR.  Potentially banks are also going to grapple with additional capital requirements, and to attain profit objectives interest rate cuts may not be forthcoming.

So, what to do?  Your answer will depend on your personal financial circumstances, including your risk profile.  Floating could be a sensible option because you could then fix your loans if interest rates decrease without incurring penalty fees.  Caveat: floating rates tend to be more expensive than fixed rates because banks subsidise fixed rates at the expense of higher floating rates.  Alternatively, fixing now at a lower rate might appeal. If I were doing this, I’d fix for a short period of time given I’d want to take advantage of lower interest rates in the future. Using special fixed versus floating calculators can assist with decision making.   I’d also ensure I practiced interest rate tranching – borrowing different amounts of money, for varying fixed periods of time, at differing interest rates.  Best of British making your decision.

Auckland Council and Unitary Plans

Q. Recently I’ve been hearing friends say you can make money through the Auckland Unitary Plan.  Can you explain how this works?  Pete B.

A. Recently we spoke at an event alongside Janet Xuccoa, Partner at Gilligan Rowe & Associates, who spoke on this topic so we asked her your question.  Here’s her answer…

It’s no secret; Auckland is experiencing a shortage of housing.  Demand is outstripping supply and consequently as a result of this imbalance, prices are moving skywards.  And this problem won’t abate in the short run.  In fact, population has been forecasted to grow another 700,000 to 1,000,000 in the next 30 years through natural increases (births minus deaths) and positive net migration.  To address the issue of managing population growth and housing people, the Auckland Council has formulated a Plan called the Auckland Unitary Plan.  In a nutshell, the Plan will determine what housing can be built and where.

In loose terms, under the Plan more housing will be permitted to be built in existing suburbs and in green and brown fields.  For example, on some sites where you were able to build only 2 dwellings, you may be able to construct 3 and where you could build only up to 2 stories, you might able to build 4 stories.  This is referred to as ‘intensification’.

Many prospective purchasers are actively researching the proposed Plan and the zoning of a property to ascertain if additional dwellings and levels could be built.  If that’s possible, they are purchasing the property on the premise that the potential to construct additional accommodation, increases their potential to build wealth.

A big caveat here:  The Plan is not wholly approved and so zoning and rules may well change.  For this reason, caution is required.  Full due diligence, including obtaining advice from the likes of lawyers, accountants (for structuring and tax advice), surveyors and Council itself is definitely advised.  Fail to do this and you could lose your shirt, tie and pants on a property transaction.  With that in mind, happy property hunting.

Q: What can you tell us about the unitary plan?

The Auckland Super City was established and began operating on the 1 November 2010.   The Super City took over the functions of one Regional Council and seven City and District Councils.  Since its establishment the, Auckland Council has been administering one regional and seven city and district plans.  The New Proposed Unitary Plan is the first comprehensive plan which covers the entire Auckland City region.   The first draft was released in 2013 and was open to submissions from 30 September 2013 until the 28th of February 2014.  The opportunity to support or oppose submitters request was closed on 22 July 2014.  Since this time there have been extensive pre-hearing and hearing meetings which are estimated to end in April 2016. 

Q: When is it going to take effect? 

The Unitary Plan is due to be ratified in September 2016.

Q: Will it really mean we’re going to have blocks of apartments all over the city?

The Auckland Council is under pressure to increase land supply to overcome an acute short of available developable land.  In an endeavour to stop urban sprawl, the Council is intensifying development in existing urban areas.   In selected commercial centre’s, the council are allowing apartment developments (to include a commercial lower floor use) to be developed up to eighteen stories high.  In strategic locations, close to public transport routes, Council have zoned land as Terrace Housing and Apartment Buildings (where apartments can be built up to five to seven stories high).   The next tier of development is zoned Mixed Use Urban where buildings have a three story or 11 metre height limit and development is confined to a 40% site coverage.  A less intensive zone is Mixed Use suburban (which is the most widespread residential zone in Auckland).  Here one dwelling can be constructed per 200 m2 of net site area but restricted to 35% site coverage and generally two storied construction.  Other less intensive zones include Large Lot, Rural Coastal Settlements and the Single House Zone. 

So yes, we will a see lot more Terrace and Apartment development throughout the Auckland City central urban area.

Q: How do we find out which areas will be affected?

You can find out your proposed zoning by referring to maps shown on the Auckland City Unitary Plan website.  Enter your residential address and the appropriate map will be downloaded.

Q: There’s been a lot of talk in the media lately about how many people are against the new unitary plan. What are the chances of the latest round of amendments actually going through, especially given the apparent turn-around by a number of councillors?

I would sincerely hope that the Unitary Plan is ratified and includes the proposed intensification changes. We have an Auckland housing crisis and we need action.  A lot of work and cost has been incurred to get the plan up to the current stage.  Apparently 11 Auckland City Councillors are getting cold feet and are considering not supporting the ratification of the Auckland City Unitary Plan in September this year.  I agree with Phil Eaton, President of The Property Council, who said “scaremongering by local politicians has residents believing their suburbs will be covered in high-rise apartments. But, realistically, less than 6% of suburbs will have apartments with more than three storeys – which is up just 1% from the previous version of the Unitary Plan. Local politicians must ditch their ‘Not in My Election Year’ mentality and do what is right by all Aucklanders, not just some.”

Q: Once the unitary plan is accepted and put into place what do you think it will do to land and house prices in the affected areas? If we own a property that can now have apartments built on it, will it go up in value – given that there will be lots of other properties re-zoned the same way at the same time?

Greater on site development potential should result in increased property values for existing owners.  When the Unitary Plan is ratified, I doubt that there will be a glut of development properties coming on to the open market.  Certainly not all property owners will want to sell at once.  Also larger more comprehensive developments will require the amalgamation of several adjoining sites, which could take several years to acquire.  The Auckland City Council intensified redevelopment projections will take many years to complete.  After all, we are dealing with the Auckland City Council (high resource consent costs and significant time delays).

CrossLeases & Freehold Titles


Q: I am new to NZ and have been told I should be wary of cross-lease titles. What is a cross-lease exactly? Raymond W.

A: Fee Simple cross-lease is not a leasehold title in the normal sense of the word. It is a freehold title that consists of an undivided share of the whole piece of land that the dwelling or ‘flats’ are built on, and a registered lease (Memorandum of Lease) for a fixed year period (usually 999 years) for each flat owner. Each owner has exclusive possession of their own flat for residential purposes and they are referred to as lessees and lessors. You will have exclusive use of your flat/house and any land allocated to that building. The terms of the lease include agreeing not to enter into each other’s exclusive area. Any land that is not shown on the lease as ‘exclusive’ (e.g. the driveway) can be used by any of the flat owners as a common area. There are some downsides to cross lease ownership, e.g. you may not cause annoyance, grievance or disturbance to each other and you also need the consent of the other owners to make alterations to the exterior of your property if it affects the flats plan as shown on the title – this is to protect all owners from losing ground coverage for the whole section. Things like internal modifications (still subject to council approval of course), repairing a fence or painting your home a different colour can all be undertaken without your fellow lessees consent. There are around 216,000 cross lease titles in New Zealand with almost 50% of those in Auckland – so they are certainly not unusual! When looking at buying a cross lease property be sure to ask the agent for a copy of the Memorandum of Lease and then, as with anything to do with buying a property always have your lawyer check all the documentation before you make an offer or bid at auction.

Easements against a title

Q: I am looking at buying a property that is at the end of a Right of Way. The Agent says that I should “check out the easements”. What are these and why are they important? Susan H.

This is a question for our lawyer Nick Birdsey, of Birdsey & Associates and here is Nick’s answer.
A: That is good advice from your agent because yes, the easements are important. A landowner can grant to another landowner number of rights. These things include important items like a right of way, so that the owner of the “dominant” piece of land taking the benefit can use a piece of the “servient” piece of land, for access to the road, or a right to convey power, water, gas or drainage and communications. All these things typically need access to a road, rather like a landlocked nation needs a corridor to the sea. Important facts to note then, are firstly that easements are registered against the Title, secondly they bind present and later owners, and thirdly you need to be sure what rights or burdens, are involved. Easements are different to licences, which do not “run with the land” or bind later owners.
Because it is registered against the Title, the document that creates the easement can be obtained and studied by your lawyer. This is absolutely essential if you are to know “what you are buying”.

  1. We are looking at a cross-lease property and the agent keeps referring to the “flats plan” but hasn’t really explained what that is. Can you help?  John M.

A: We sure can John. A flats plan is simply the plan attached to the cross lease title which shows the outline of the buildings on the land, allocates the building a “flat” or “area” number (e.g. Flat 1 or Area 1), and identifies the “exclusive use” area(s) related to that flat or area.  The exclusive use area is for the use of that particular flat owner to the exclusion of all other flat owners and is marked with a letter. The flats plan also shows any “common area” which is an area shared by all or some of the owners of the fee simple land and is usually a driveway or accessway. Always be sure to check that the building’s outline is the same as shown on the flats plan. If not check with your lawyer as the tile may be “defective”.

Q: Can you explain what the difference is between a Fee Simple and a Freehold title please? Olivia S.

A: Fee simple is often referred to as “an estate in fee simple” and is the same as “freehold”. (Freehold: not to be confused with having no mortgage!)  A fee simple title is the most straightforward and generally most preferred type of title. An example of a legal description of a fee simple title is, 1234 square metres more or less being Lot 1 on Deposited Plan 12345

The advantages of freehold/fee simple is that you own the whole of the land and are able to make any additions or alterations to your property (subject of course to Council bylaws and consent requirements) without having to get the consent of neighbouring property owner(s) unlike a cross lease title and unit title.

Just be aware that there may be covenants registered against the title to the property that impose restrictions so you should make sure you are aware of these by having your legal advisor search and review the title for you.

Getting Ready for Sale

Q: My wife and I have several investment properties and we are thinking of selling one. It has been rented for many years and needs a makeover before we sell. Any advice? Thanks Jerry C.

A: Renovating as an investor demands your personal wants and needs are put aside, with a focus on the bigger picture instead. Where your own home may allow you to indulge your every design whim, renovating an investment property demands a considered approach that appeals to the broadest possible target market.

Make sure you meet the market, and your competition, in regard to expectations for the property. If it’s situated in a blue-chip area, it pays to renovate with a more high-end spec as the market demands and expects it. Likewise, if your project is in a cheaper or more affordable locale, be sure not to over-capitalise.

Mass appeal

You can never go wrong with white, and timeless finishes can easily be made appealing to the individual market with clever styling. Cupboard fronts, bench tops and floors are very expensive to replace – keep them neutral to appeal to the largest subset of buyers. You want people to imagine themselves in the home and a neutral palette allows them to project their own ideas onto the space.

Key areas

When it comes to deciding which rooms to renovate, bathrooms and kitchens are key, as are outdoor living spaces if applicable to the property. And with these spaces, it is not all about expensive finishes – functionality is just as important. With the popularity of home renovation shows, buyers are a very savvy bunch now and many will immediately notice if a bathroom layout is dysfunctional or inefficient.

With our enviable climate, the outdoors is such an integral part of the modern Kiwi lifestyle. If there is a way to blend your outdoor space seamlessly with the inside, do it. Think large areas of glazing that take in the outdoors, or bi-fold doors that open onto a deck.

Also, don’t forget your property’s façade. Most buyers usually make up their mind about a property upon arrival. As such, addressing its street appeal is very important in reeling potential buyers in.

It sounds obvious but you must always look at ways of adding the most value when renovating as an investor. If you add value to the property, you are more than likely increasing its sale price too.

Q: I am thinking of selling my 1970’s-built home in Glen Innes. There are a number of new houses being built close by and I’m wondering whether I should wait for them to be finished or just get on with it now? Pauline J

A: Interesting question. The market is good at the moment, and I think it will stay that way in the medium term, albeit with maybe a few little ups and downs. The great thing about having new-builds in your neighbourhood is that it will increase the median value of homes around you, including yours, even while they are in the process of being built. So it’s probably not a bad time to be selling right now. Of course once they go on the market it is a great time for you to be selling – new homes will attract more buyers to the area, and of course to your property if you are on the market at the same time. A smart real estate agent will time your open homes so that you get the overflow from the other open homes – most open home visitors will look at another open home across the road if it’s open at the same time. In general terms more people through the open homes equals more bidders at auction equals a higher price! Good Luck!

Q: We are looking at selling our home of 12 years on the North Shore, and are talking to a couple of estate agents re how to sell. We are originally from the United Kingdom and have only bought the one home here and have no experience of selling here. Both agents have said we should hold open homes, but we are really not sure.  Catherine G.

A:  There are pros and cons to open homes Catherine, but in our opinion the pros win, and not just for sellers, but for buyers too. Firstly, open homes, like auctions, are an accepted, and often expected, way of marketing your home. Most buyers these days like to schedule their weekend afternoons going through a list of prospective homes, and what better way than to go from open home to open home? If they don’t like it they can turn around and walk out without feeling under obligation to the agent. If they do like it they can arrange to view again at whatever time suits you. And of course potential buyers can ask to view outside of open homes if they can’t make the time on the weekend.

The real benefit to you as a seller is that you have scheduled viewings on a Saturday and a Sunday, rather than ad hoc viewings every day of the week. You can go out shopping or for a coffee and know that 30 or 45 minutes later your home will be free for the rest of the day. Of course there will always be those buyers who want to come back on their own, or with other family members, and serious buyers may well want to organise a building inspection outside of the open home.

Open homes also gives you and the agent to show that your home is popular: A busy open home sends a message to all the buyers that the property is popular, which in turn makes it more desirable to viewers.

As long as you select a good agent, who has produced a good marketing plan, you will get plenty of people through your open homes, which in turn will ensure you get the most number of people at the auction and the best possible price.

Good luck with your sale!