Thinking About Buying An Apartment?
Thinking of buying an apartment? Here are some key things to consider.
For first home buyers or an experienced investor, there are several important factors to consider before deciding. Apartments come with their own set of considerations, and in this blog post, we'll break them down for you in a casual and easy-to-understand manner. So, grab a cuppa and let's dive in!
Ownership Structure
When looking at apartments, it's crucial to understand whether the property is leasehold or freehold. Freehold (also known as Fee simple) ownership is the most common kind of ownership in New Zealand which basically means you own the land and (generally) anything built on the land. The other property type is leasehold ownership which is where somebody else owns the land and you pay rent to them. You are essentially buying the rights to possession of the land and buildings for an amount of time set out in the ground lease.
Key things to check on a leasehold property:
The amount of rent you must pay to the freehold owner - this is usually called ground rent;
How often the ground rent is reviewed by the freehold owner;
Rates and other expenses relating to your property.
Affordability
Apartments are generally more affordable than standalone houses, but that doesn't mean you can't overpay. Consider the price range for apartments in your desired area and compare them to standalone homes in the same area.
Size
Apartments come in various sizes, from cozy studios to spacious three-bedroom units. Consider your lifestyle, the number of bedrooms you need, and your space requirements before deciding.
Banks’ policies vary when it comes to buying an apartment and the internal floor size (measured in square metres) is one of their main criteria which will dictate the required deposit. Make sure you ask the real estate agent or developer for a copy of the floor plan so you can work out what the internal floor area is – balcony or exterior floor area is not included in their assessment.
Some banks willrequire a minimum 20% deposit (or more, depending on the size – and generally an apartment with an internal floor size less than 38 square metres will require a larger deposit) so it pays to get in touch with us here to ascertain which banks will best suit your needs based on the property you have your sights set on.
It’s important to be aware that some banks won’t lend on studio apartments, so, if the property you are interested in does not have fixed wall around the bedroom space, then make sure you speak to us before signing any Sale and Purchase Agreements.
Amenities
Apartment amenities can vary significantly. Some may offer basic facilities, while others boast features such as swimming pools, gyms, shared cars, bike racks, storage facilities or cinema rooms. Consider what amenities are important to you and how they may impact the value of the apartment.
Car Parking
It’s becoming more common for some of the newer developments in Auckland, for example, to come without dedicated car parking. Make sure that you find out if the apartment you are looking to buy provides the option to purchase a car park in the building or not. If it doesn't, then do your research on the area and the public transport links to understand how practical this will be for you if you do own a car in terms of available street parking and public transport infrastructure.
If you can buy a car park, then the price gets included in the total amount for lending. For example, if the apartment you are looking to buy is worth $500,000 and you can buy a car park for $50,000, then the bank will base their total deposit requirement on $550,000.
Security
Security is an essential consideration when buying an apartment. Look for features like locked stairways, security cameras, lighting at night and controlled access to ensure your safety.
Body Corporate
As an apartment owner, you become a member of the Body Corporate, which manages the administration and maintenance of the building. Understand the associated costs, such as annual fees, maintenance funds, and shared services, before committing to a purchase. The good thing is, that as a purchaser, you won’t need to pay for building insurance and the building maintenance for all exterior and communal areas is taken care of for you.
Banks treat your Body Corporate fee as an ongoing monthly cost - so make sure you factor this into your monthly budgets when running your numbers. We will always make sure this is considered when assessing your ability to purchase an apartment.
Age of the Building
Consider the age of the apartment building and the potential maintenance costs associated with it. Older buildings may require more repairs and upkeep. The bank will ask for copies of the Body Corporate minutes and maintenance schedule to check that the building has been looked after and factor in any anticipated increases in the Body Corporate fees for any future works required.
Buying Off the Plan
If you’re buying off the architectural plans – the first thing we recommend is to speak to an advisor so that you can get a real grasp on your borrowing capacity. Often the time between paying your deposit to secure your property and settlement date (the day you take ownership of the property) can be more than 12 months, so it pays to understand your borrowing capacity and any future implications for securing lending closer to the settlement date.
It’s very important that you understand where the deposit is being held until settlement, and under what contractual terms you can get your deposit back if the development doesn’t proceed.
An advisor should be able to assess your borrowing capacity and factor in a buffer to allow for increases in interest rates or any possible future changes of circumstances so you can make an informed decision before signing on the dotted line. Often you won’t be able to finalise your finance until 30 to 60 days out from settlement and the banks will likely require registered valuations to be completed.
The Developer
Make sure you do your research on the apartment developer to understand their track record so you can be confident in the construction and the value of the property over time.
Getting Your Deposit Ready
Last, but not least, make sure that you read up on all the various assistance with regards to getting your deposit ready as you may be eligible for the Kainga Ora First Home Grant, if you have been contributing to your KiwiSaver for more than 3 years. Alternatively, you may be eligible for the First Home Loan scheme which may allow you to get onto the property ladder with a lower deposit. In addition, if you have been contributing to KiwiSaver, then make sure you have your ducks in a row and know the balance that you are able to withdraw. Remember, that you will need to keep a minimum of $1,000 in your KiwiSaver fund if you use your KiwiSaver for your first deposit. Below are some helpful links:
https://kaingaora.govt.nz/home-ownership/first-home-grant/
https://kaingaora.govt.nz/home-ownership/first-home-loan/
https://kaingaora.govt.nz/home-ownership/kiwisaver-first-home-withdrawal/
Buying an apartment is becoming much more common in NZ as it is now more affordable for lots of people, is often closer to city centres, which means less commuting, there is less maintenance and in general as our population increases it makes sense to build up. However, understanding the key considerations is vital to making an informed decision. Take your time, do your research, and weigh the pros and cons before taking the plunge. We are always happy to field your call if you have any questions.
Always seek legal advice from a solicitor before signing contracts and if you’re unsure about how the banks are going to assess your application – reach out to us, as we have loads of experience with successfully helping Kiwis into apartments that are right for them!
Happy hunting!