Your Local Property Digest
SPRING | Q4 2022 ISSUE NO. 01
Let'sTalk Property
Let'sTalk Property Your Local Property Digest SUBSCRIPTIONS Email: subs@letstalkproperty.co.nz letstalkproperty co nz
Contents Let's Talk LEGAL Pitfalls for Purchasers ..............................................................2 Let's Talk REAL ESTATE Local Property Report ..............................................................4 Let's Talk MORTGAGES First Home Buyers ..............................................................6 Let's Talk NEW BUILDS The Cost of Delays ..............................................................8 Let's Talk PLANNING Cross Lease Conversion .............................................................10 Let's Talk ARCHITECTURE Designing for Today's Market .............................................................12 ISSUE 01 | Page 1
Let'sTalk Legal
The vendor has accepted your conditional offer and the agreement is on foot. Check ✓
You get ready to commence your KiwiSaver withdrawal and your lawyer (whom you only engaged after your offer was accepted) discovers that the agreement enables an early release of the deposit to the vendor, prior to settlement. Problem.
You have saved and accumulated funds via your KiwiSaver scheme to be applied towards the payment of your deposit. Check ✓
ISSUE 01 | Page 2
In order for a purchaser to withdraw from their KiwiSaver scheme, the purchaser’s lawyer must undertake to the purchaser’s KiwiSaver provider, that the purchaser's KiwiSaver funds will be repaid to the provider if settlement does not occur (except where non completion of settlement is due to a default of the purchaser) Where the deposit is not retained until settlement, and instead released to the vendor prior (e.g, upon the issue of title and/or the issue of the Code of Compliance Certificate) the purchaser’s lawyer will be at risk of breaching their undertaking given to the purchaser’s KiwiSaver provider, if they are unable to recover and return the purchaser’s KiwiSaver funds to the provider if settlement does not occur (e g, if the vendor is placed into receivership in the period following the release of the deposit and completion of settlement). A breach of a lawyer’s undertaking is a serious matter and not one to be taken lightly. It is likely that the purchaser’s lawyer will not be prepared to take the risk and this could mean that the purchaser may not be able to proceed with their purchase. If the purchaser has other savings available (other than KiwiSaver), the payment of a reduced deposit (equivalent to the amount available to the purchaser) could be negotiated with the vendor
KiwiSaver & “Off Plan” Purchases
Pitfalls for Purchasers
You have finally found a property to become your new home, which is currently under construction or at concept stage Check ✓
It is not uncommon for off the plan agreements to provide for the release of deposit to the vendor upon the issue of title and/or practical completion and/or issue of the Code of Compliance Certificate When a first home buyer requires their KiwiSaver fund for payment of the deposit, this creates a further obstacle to overcome. The deposit would usually be payable upon fulfilment of their purchaser conditions. Depending on the stage of construction, settlement could potentially be months or even years away.
This will enable the purchaser to withdraw their KiwiSaver funds at a later stage (when the property is nearing completion) which can then be applied towards the payment of the balance of the purchase price on settlement.
be at risk if they proceed with the purchaser’s KiwiSaver withdrawal This may result in the purchaser missing out on the property if they are unable to withdraw their KiwiSaver funds towards payment of the deposit.
ISSUE 01 | Page 3
If the vendor’s lawyer is unwilling to provide the purchaser’s lawyer with the undertakings sought, the purchaser’s lawyer will again
This not only eliminates any issues with the stakeholder in respect of the retention and release of the purchaser’s KiwiSaver funds, but it will also be likely that the purchaser is able to withdraw a larger amount from their KiwiSaver scheme This would include further contributions made to their KiwiSaver scheme during the construction of the property.
No two property purchases or agreements are the same. It is therefore essential to always consult your lawyer before entering into any agreements so that the appropriate conditions and further terms specific to your circumstances may be discussed at the outset and incorporated into the agreement This would include appropriate provision in respect of the retention and release of funds when KiwiSaver is used towards the payment of a deposit for a property purchase.
No two property purchases or agreements are the same. It is therefore essential to always consult your lawyer...
If the vendor does not agree to a reduced deposit and the purchaser has no other option but to withdraw from their KiwiSaver scheme in order to pay the deposit (upon fulfilment of their purchaser conditions) a variation to the agreement will be required. The deposit should then instead be retained in the vendor’s lawyer’s trust account until completion of settlement (or valid cancellation of the agreement). The purchaser’s lawyer should further seek undertakings from the vendor’s lawyer in respect of the retention and return of the purchaser’s KiwiSaver funds, so that the purchaser’s KiwiSaver funds may be recovered immediately and repaid to the purchaser's KiwiSaver provider if settlement does not occur
Let'sTalk RealEstate
At the end of 2021, Core Logic wrote a property report stating “…thinking about 2022, we reckon it could potentially become the ‘year of the buyer’s market’" How right they were!
It's important to remember that even though it’s a tougher market, the value of property has still increased from pre pandemic levels.
Local Property Report
That brings us to where we are now. As we head into the last quarter of 2022. If we take a look at the recently released sales data from REINZ for July, this is what they show. On average in July it took 54 days to sell in Silverdale. This was 11 days longer than a year ago and interestingly 11 days less than average over the past five years With regard to the volume of sales activity, the number of sales in July was down 24% from the same period in 2021.
As we began the 2022 year, the market came to a halt seemingly overnight. One of the biggest influences was the impact on buyers following the introduction of the Credit Contracts and Consumer Finance Act (CCCFA) and Loan to Value Ratio (LVR) restrictions First home buyers hoping to withdraw their KiwiSaver funds were facing the reality that the value of their funds had decreased significantly.
Many buyers were unable to access the required pre approvals or bridging loans meaning fewer buyers turned up to bid at auctions, and those that did show up did so with significantly less enthusiasm This lead to properties being passed in indicating buyer uncertainty over price and future market conditions.
What has happened in our local market and how are things positioned as we head into the last quarter of the year? The current market in Silverdale is the result of many factors. The first, and possibly most obvious, is price. Last year, prices in Silverdale soared we’d never seen prices that high. And we were not alone right through the country the trend was the same It was the record shortage of listings late last year which contributed to the fear of missing out (FOMO) and the subsequent surge in house prices (July to November 2021), as well as an effort by buyers to beat rising interest rates and tightening credit availability. This frenzy pushed the area beyond the financial means of many purchasers.
Past, present & future ISSUE 01 | Page 4 If you’re thinking of selling, try to forget about what you could have sold for three, six or twelve months ago. Mike Pro Real Estate Ltd Licensed REAA (2008)
What lies ahead in 2023? Experts remain at odds about where the market will go from here and exactly how much interest rates will change or how this is likely to impact the market. While the property market is being tested, mortgage brokers and salespeople have reported an increase in enquiries from new migrants who have been granted permanent residency. This may see more activity but the flow through won’t happen overnight.
MarketSnapshot
*Disclaimer: Sales figures quoted in this report have been provided by a third partyandalthoughallcareistakentoensuretheinformationisaccuratesome figures could have been misinterpreted on compilation Furthermore these figuresarerecentsalesfromallagentsinthearea DataisgatheredfromProperty GuruandREINZforSilverdale
ISSUE 01 | Page 5
If you’re thinking of selling, try to forget about what you could have sold for three, six or twelve months ago. The market has moved on and for the most part, champagne and caviar prices are gone. Start thinking about a good Pinot Noir instead. Get very critical on your own property and look at it the way a buyer would. Look at other houses for sale, check out your market competition, talk to the building companies and see what the same money can buy new.
CoveringMillwater,Milldale,TotaraViews&AraHills
Pre pandemic, the median sale price in Silverdale was $1.105m (based on January 2020 REINZ data). Even with the recent correction, property values in Silverdale have still enjoyed an increase in value of $395,000! (median sale price in July 2022 of $1 5m) *
July2022
Change is based on data from January 2020 (Pre Pandemic)
National have said they will restore the ability of property investors to deduct interest expenses as well as reducing the bright line test back to two years These changes will likely see an increase in sales with some economists predicting that FOMO will rear it’s head again in 2023. If only we had a crystal ball!
As always, if you want to discuss what is happening in the market today, please get in touch. We are always happy to give you a free and most importantly, honest appraisal of the current market and how your property might sit in it
2023 is an election year and it looks likely we will have a hotly contested election, maybe even a change in government.
August standard interest rates:
First Home Buyers
While inflation and interest rates are increasing, house prices are on the decline from the peak of late 2021 This has created a buyer’s market as there’s less competition and sellers needing to sell This is a great opportunity for first home buyers to enter the market, if they can afford it
Over the last 6 months there has been a huge shift in the mortgage market. With rising interest rates and CCCFA changes, many first home buyers are under the perception it’s now “impossible” to get mortgage approved this is not the case.
The OCR is now at 30% and is still expected to increase to around 40% over the next year The OCR and interest rates are rising as The Reserve Bank tries to control inflation which has hit a thirty year high at 73%, contributing to the increased cost of living
ISSUE 01 | Page 6
$750,000 at 6% $1,037 per week
Let'sTalk Mortgages
Can you afford a mortgage?
The simplest way to know what you can afford is ask yourself this question, “How much can you spend on a mortgage each week?” This is your budget It’s not about “how much can I qualify for?” as the mortgage repayments of a mortgage that size may be unrealistic for you
Fixed 2 year 5 40%
$1,000,000 at 6% $1,383 per week
*This is based on a P&I loan over a 30 year term; mortgage structure varies.
Fixed 3 year 5.70%
The current market is uncertain Inflation is on the rise and interest rates are continuing to fluctuate trending up how much and for how long is unknown. Economists vary in opinion, most predicting rates will increase to the 5-7% range and only start stabilising in one to two years It’s also important to note, we don’t know if interest rates will return to 2 4%.
Howmuchdoesamortgagecostinthis market?
Fixed 5 year 6.25%
*Figures according to average standard interest rates in late August 2022 Interest rates offered can vary based on your circumstances, lender and market.
$500,000 at 6% $691 per week
Fixed 1 year 5.00%
A major factor influencing interest rate changes is the Official Cash Rate (OCR).
So, what should First Home Buyers do? Reach out to your bank or mortgage advisor early. Start the conversation around what you can afford and get your pre approval submitted. Then, contact your solicitor and real estate agent and go shopping.
How much can you spend on a mortgage each week?
Reflect on how much your weekly rent is and how much additional funds can you afford per week. For instance, if your rent is $500 and you can put aside another $300 per week, your budget is $800 per week. It’s crucial you’re honest when deciding on your budget, especially as the cost of living is rising.
If the property you love is within your budget and you’re ready to buy, why wait? There’s no better time to buy than when you can afford it.
Buyers who are pre approved and know their budget have a major advantage at the negotiating table with vendors This includes developers who need cash flow and have stock they need to sell asap. Remember there are deals out there.
ISSUE 01 | Page 7
That’s your budget.
Finally, on a more general comment about building and it’s challenges
Let'sTalk NewBuilds
ISSUE 01 | Page 8
Don't let anyone ever tell you that building a new home is a walk in the park! It’s not easy It can be a challenge, but then so is getting through peakhour traffic in Auckland on a bicycle! Building your new home is just as much about the journey as it is the destination.
What’s under the ground: We do as much planning as we can to understand what’s going to be underneath the dirt, but it’s impossible to be sure Big rocks, mounds of rubbish or even things that need to be carefully excavated: all these things can add days or weeks to a build.
So, what can you do if you are navigating a newbuild or deciding to build? The best advice I can give in this current market is that the ease of building and your experience, is directly linked to how adaptable you can be Let’s be clear: I am not saying to sit back and have no part in the process, or simply agree with all suggestions in order to avoid delays. Building a new home is a partnership between you and your chosen builder It is an emotional process and oftentimes it is hard to keep sight of the end goal and a home which fits your budget, timeline, and dreams is a balancing act.
It’s not easy. It can be a challenge, but then so is getting through peak-hour traffic in Auckland on a bicycle.
The weather: As much as builders love to build things, it isn’t nearly as fun (or safe) in the rain. So, depending on what time of year you build will impact how long it takes to get going.
In my experience, the most successful projects, and the ones that make headway in these challenging times, share one common feature: the clients and builders are adaptable.
It is important to remember that avoiding delays is not the same as cutting corners to get the job done! Part of being adaptable is about being realistic about your wants & needs.
While adaptability is key to maintaining the timeline of a build, not all delays are within the control of either the client or the builder. Here are some common causes of delays which are outside of anyone’s control:
The Cost of Delays
Time is money!
Council: They’ll need to check in on the build throughout the process, and work will have to stop until we get the ok at each stage
Essentially, projects that are reliant on significant owner input will be deemed too difficult and/or incur additional costs that need to be passed onto the client. It’s difficult to miss the headlines about material shortages everything from plasterboard (Gib) to rebar steel for concrete slabs and driveways, are facing global shortages and delays. In addition, like many industries, construction is also battling specialist skill shortages at all levels from surveyors, to designers, to labourers.
ISSUE 01 | Page 9
If you'd like to discuss options for building over a coffee, at my place or yours, please do not hesitate to contact me on 022 512 5535 for a chat.
Since 2020, build projects have had to deal with the impact of the pandemic and the resulting shortages, and finding a single solution that addresses all scenarios is like searching for a needle in a haystack. The market leading into spring 2022 may see more builders and build companies struggle to get projects underway.
Conditions apply
In order to achieve success, the builder and client have to think of the home build journey as a partnership. Sometimes things don’t go exactly as planned (despite best efforts on both sides) because we are still navigating unprecedented times As the client, lean on the industry experts to fill in knowledge gaps your solicitor, your broker, and your real estate agent can offer invaluable support and advice.
If you are in the fortunate position of starting a new build, one of the few things you can control on your side of the partnership is your flexibility bringing me back to the importance of being able to ADAPT, ADAPT, ADAPT.
Why should I convert a cross lease?
So, a land owner does not own their section per se, they own a undivided half share of the underlying fee simple title as tenants in common. The exclusive use areas shown on the title plan are for the ‘exclusive and sole use’ by their own respective owner, this is a leased area rather than absolute ownership The other party also ‘leases’ it's dwelling on the land from all other owners. Any common areas on the plan are subject to joint use.
If changes are made without the written permission of all parties, they can force you to remove the new additions. Written approval must be sought each time there are any changes to the house or building within the cross lease.
Your neighbour can refuse and, without a lengthy legal battle, could unreasonably withhold their consent or say ‘no’ for no reason.
A cross lease property is where multiple parties own an undivided share in a piece of land. Typically, this is between two parties but can be far more in some cases This could involve a single site with two or more dwellings. Cross leased sites also often contain flats, units or townhouses.
The houses that are built on the land, are ‘leased’ from the other landowner. Historically cross lease tenures are for a term of 999 years.
What's involved?
ISSUE 01 | Page 10
What is a cross lease title?
Cross leases were originally developed in the 1960’s and 1970’s as a means to avoid subdivision rule requirements. Which were at the time, difficult and costly. Currently in New Zealand there are more than 200,000 cross leased properties, with roughly half of those in Auckland.
While for many owners, a cross lease title does not impact on their day to day living. However, due to the ownership structure, cross leases can lead to costly disputes, defective titles and less value when you come to sell your property.
Let'sTalk Planning
For instance, if any alterations or additions are made to any house on a cross lease title that changes the footprint or exterior in some cases, the flats plan (title diagram) will need to be resurveyed by a surveyor and lodged with Land Information New Zealand (LINZ), also a new lease agreement is to be drawn up by a lawyer. In some cases a resource consent will also be required by your local council. Without this your title is defective and could lead to lengthy delays during the sale of your property, invalidating your insurance or in worst cases having the work removed completely if written permissions has not been sought from other owners.
Cross Lease Conversion
A fee simple title can be more desirable to potential buyers due to the greater degree of freedom available for the use and development of the site The Property Institute of New Zealand advises that converting a cross lease title into a fee simple ownership significantly increases value and saleability of a property. Cross lease properties are estimated to be worth 7 18% less due to the ownership (when compared with fee simple).
If you and your neighbour(s) decide that you both wish to convert your cross lease title, that is the first and most important step. Without all parties agreeing, the conversion cannot take place. The first step is always talking to the other owners. During this discussion it is best to determine whether they would be interested in undertaking a conversion, setting out a timeframe and agreeing to costs. Ultimately all parties are likely to benefit from the conversion of the title to fee simple and it may be appropriate to equally share costs
Advantages and disadvantages
However, those in cross lease tenures may appreciate the power they have in being able to prevent their neighbour from undertaking alterations that may impact on them. Also the other upside of cross lease properties, they are generally cheaper that similar fee simple titles
Some cross leases are not fit for purpose For instance, a cross lease may grant communal rights to all owners over an area of the property, say an outdoor grassed area by a block of units, where one owner (being the closest to that area) may assume this is their exclusive area, whereas it is likely to be a common area. I myself own a cross lease and my neighbour and I specifically have the right within the lease to decide on the exterior colour finish of the other house. If we think about this for moment, I decide the exterior paint of my neighbours property that I do not own. Cross lease titles are a complicated type of ownership that create ongoing issues, speaking from experience
What can I do about this?
ISSUE 01 | Page 11
Who can help me with this process?
A planner is best placed to negotiate with the Council on your behalf to achieve a cost effective and timely outcome As resource consent is required from your local council, a planner can prepare this application on your behalf. Most importantly they can ensure there are no resource consent conditions that require you or your neighbour to undertake costly service upgrades unless absolutely necessary, that you would otherwise need if you were subdividing a site.
With the introduction of the Resource Management Act 1991, this essentially rendered cross lease titles obsolete Many councils allow for the conversion of cross lease titles to fee simple. Fee simple is the highest form of land ownership in New Zealand, and the most common. The property market generally holds the highest value to fee simple ownership This essentially allows you to build anything on your land unless there are registered interests on the title and keeping within your local council’s planning controls If you do decide to convert the cross lease, there is a fairly simple process This requires resource consent from your local council. You and all other parties must be in agreement. Generally costs are shared as there is an overall value uplift for all parties
Currently in New Zealand there are more than 200,000 cross leased properties, with roughly half of those in Auckland.
To complete a cross lease conversion you will require a project team consisting of a planner, surveyor, engineer and lawyer. We generally advise clients that the cost for the total project will be roughly $20,000 When split with other owners, this can be a simple and effective way of increasing your property value quickly.
What is involved in converting a cross lease?
Once a conversion is complete, you will no longer require permission to alter your home. It also removes the worry of any disputes arising
Get in touch
Through completing a service review early, you will be aware of all possible costs, which should lead to an overall cheaper process. Through using an experienced project team that we as the planner can assemble on your behalf, this will keep costs down and achieve a timely result. Once services are reviewed, the planner will prepare a resource consent application.
2. 3 Insights
We would recommend using your own solicitor. The solicitor can represent both parties which can save on cost and time. Alternatively, each party may have their own solicitor I would recommend using either your own solicitor as you already have a relationship with them, and they can best represent you. However, the solicitor will need experience in land conveyance and cross lease conversion.
1.
As a planner we are experienced in the process and deal with councils on a daily basis. Planners will achieve the best result for clients through understanding the consent process. This is less likely through the use of third party companies. We advise clients to engage a CCTV company early with an engineer to understand the current state of services, such as stormwater, wastewater and vehicle access.
Avoid companies that will use an expensive project manager and send the work out separately to various other companies. These generally result in poor outcomes for clients Allow sufficient time for the cross lease conversion to be completed. Particularly if you are converting prior to a property sale. We generally advise clients that this can take six months
If you own a cross lease property and are interested in investigating the conversion to a fee simple title, you can contact us at Code Planning. We can assist with the process along he consent application
The Council will review the existing services to both properties. If these are in good working order, then there are no further physical works required. If the services are damaged then these may need to be repaired, for instance a cracked stormwater or wastewater pipe. That section of pipe will need to be repaired and signed off for the cross lease to be signed off by the Council. As all the services have CCTV taken by a technician, so an engineer can identify if there are any issues early in the process. Once consent is granted, it is on to the final steps in
Firstly, talk to your neighbour on the benefits of cross lease conversions, maintain a healthy relationship where possible.
Conditions apply
This article was prepared by George McMahon of Code Planning Code Planning is a planning and resource management consultancy based on Auckland’s North Shore Code Planning specialise in cross lease conversion, resource consent applications, subdivision and land development
Pre Consent Consent Stage Post Consent
Once the conversion is complete, enjoy your home and that deck extension or new bedroom addition without worry.
From this point, the surveyor and lawyer will prepare the documentation to be submitted to Land Information New Zealand (LINZ). This may also require updating your current mortgage on your title and home insurance. LINZ will then issue the new fee simple titles and the conversion process is completed There are three steps that we will need to complete as part of the process:
Contact a planner, the planner manages the resource consent process for you and can identify potential issues and risks In some case they can act for both parties and can advise both accordingly.
ISSUE 01 | Page 13
Designing for Today's Market
Flexible Spaces: Consider how your family will use the home now and in the coming years; A great example is parents with young children often want the kids bedrooms close to their own Given a few years, the kids bedrooms at the other end of the house could be a must have on many peoples list. If the budget doesn’t allow for a guest bedroom and a second living space, create a space that has flexibility in how it can be used. Consider furniture such as a sofa bed to transform the “family” room to a bedroom for overnight guests.
Design Brief: Work out a list of what you want and prioritise these in order.
With the rising cost of construction and the shortage of materials, now may be the most important time to be savvy and creative in the approach to a great design
Budget: Talk to the right people and set a realistic construction budget
Let'sTalk Architecture
If you have been contemplating an extension to your family home, starting from scratch with a brand new build, or even considering a multi unit development, the best decision you can make is using the right team of professionals who are experienced and passionate about what they do. This will help deliver a successful project we can all be proud of
ISSUE 01 | Page 14
Site contour and Orientation: Working with the natural slope of the site. This can reduce the amount of foundation or retaining wall costs. Position the house and outdoor areas towards the sun and / or specific views to maximize the benefits these offer.
When it comes to architecture, not all designers are created equal.
“Must haves” and “Nice to haves”: This step needs to be set realistically based on budget. Do the kids really need their own walk in wardrobes and ensuites?
When it comes to architecture, not all designers are created equal. Having the right team who will produce an intelligent and considered design can overcome many of the obstacles the industry is currently facing.
The current climate within the construction sector could cause hesitation for some, but for many it creates opportunities to think outside of the square and take advantage while others “wait and see”
There are many ways to achieve a clever design, it can start with simple ideas and assessing each project on its own merits
Efficient Design: There are many ways to save costs in construction without taking shortcuts
Done well, these ideas can add significant value to your project, especially in a competitive market where potential buyers have options
You don’t need to overly complicate the house shape and cladding junctions. Often, simple forms are more attractive and can also result in significant money being saved with construction and labour costs.
Article by Steve Loza, Special Projects/Partner
ISSUE 01 | Page 15
Be specific where you apply feature claddings. Spend your money in the areas where you get maximum benefit.
Add the features to the front entry and the outdoor living areas.
SPRING | Q4 2022 ISSUE NO L01 ET'S TALK PROPERTY | YOUR LOCAL PROPERTY DIGEST Contributors LEGAL Lizette Heathcote Heathcote Legal 09 475 5916 practice@heathcotelegal.co.nz REAL ESTATE Vanessa Jardim Mike Pero Real Estate 09 426 6122 vanessa.jardim@mikepero.com MORTGAGES Keagan & Neville Modlin The Lending Team 020 44 88 009 admin@thelendingteam.co.nz NEW BUILDS Ben Castelo Sentinel Homes North & NorthWest 022 512 5535 ben.castelo@sentinelhomes.co.nz PLANNING Haden Mills Code Planning 0211106525 mills@codeplanning.co.nz & George McMahon Code Planning 0210711480 george@codeplanning co nz ARCHITECTURE Steve Loza Special Projects/Partner 09 838 0104
LET'S TALK PROPERTY | YOUR LOCAL PROPERTY DIGEST