Quarter Four 2020

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Quarter Four 2020

Coming out of Covid lockdown has changed the property market in ways that many people did not expect. With Kiwis all but banned from overseas travel, they are now spending their money within New Zealand – with a good deal of that cash flowing directly into property renovations and property buying. Adding to this buying frenzy are the droves of expats moving back home from cities overseas, and often buying into newly built apartment buildings.

In 2017, I wrote an article that seems just as relevant now as back then, as we continue to see growing numbers of new-build apartment projects advertised for sale. Discerning purchasers will be able to find some good investment opportunities, whether as owner-occupiers, or through rental returns. Below is the article I wrote back then:

While buying an apartment off the plans at a fair market price is important, having a clear understanding of expected future costs is equally important. Understanding the likely rates’ costs for an apartment and its anticipated body corporate fees will give you an idea of future outgoings. With body corporate fees, not all budgets are created equal, and the budget may be subject to change before titles are issued. A proactive enquiry by the interested purchaser can help clarify the underlying rationale behind a budget and what it does and does not include. Some standard costs are included in most budgets. These are likely to include insurance, gardening, the building’s warrant of fitness (e.g. fire alarm servicing, sprinkler testing), rubbish removal and administration.

As an incoming purchaser, how do you determine if such costs are realistic, or if you will get a shock when the real costs are known? Does insurance include just building reinstatement, or does it also cover loss of rents, cost of alternative accommodation, and liability protection as well? How is the cost of water usage/disposal dealt with – is it metered and recovered on a user pays basis, or in some other way? Does the budget allow for an evacuation scheme and a long-term maintenance plan – if not, how will those costs be met? Is there provision for long-term maintenance, and how has this been estimated?

Asking what information each of these costs has been based on, and what time allowance has been given for labour-related items, like gardening and cleaning, should reveal if the budget can be trusted. The reality is that costs generally increase over time, so the longer the development takes the more the initial budget may change to reflect final costs, as well as the final design and service requirements.
The greatest risk for any investor is being under-informed. Ask the hard questions while you can, and this will help you make a well-informed decision on your purchase.

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Steve Plummer