Buying and selling property in New Zealand
With few exceptions, any person may buy and sell property in NZ. In some cases overseas investment consent is required where the property concerned is regarded as a "sensitive New Zealand asset"
www.oio.linz.govt.nz/
Barriers to investment and ownership.
There are surprisingly few barriers to property investment and ownership in NZ.
* No capital gains tax:
* No stamp duty:
* No inheritance tax:
Purchasers must however, be careful of their intention before buying. If a property is purchased with the intention of making a profit, tax will be levied on resale.
Whether income tax is payable in a particular transaction is decided on a case by case basis after the intentions of the purchaser are examined. Property for tax purposes means land, buildings and rights and options to land. Whether it is owned by an individual, a family trust or a loss attributing qualifying company the rules are the same.
www.ird.govt.nz/forms-guides/keyword/individualincometax/ir313-guide-property-tax.html
newzealand.govt.nz/
Coming to live in New Zealand
site/excelsior/files/Immigration PDF.pdf
www.immigration.govt.nz/
Property Ownership in New Zealand
Land tenure.
Fee simple or freehold
The highest claim an owner of land has is as the holder of a freehold or, as it is technically refered to as a “Fee simple” interest in land. This gives the Owner a government guaranteed title and right to occupy, use or sell the land as they may see fit. The owner’s descendants may inherit the land. Land may be protected by legislation to preserve it from ecological abuse or if threatened by inappropriate development.
Registration of a the fee simple owner’s interest is made on a public register which is maintained by land Information New Zealand (LINZ) a New Zealand Government Department.
Leasehold
Created by the granting of a right to occupy land to another party by the holder of the freehold title. Generally granted for a fixed term (terminating lease) or for a certain period of time with rights of renewal (lease in perpetuity) According to the terms of the lease the ground rent may be reviewed when renewals occur.
Often the formula for these rental reviews will be contained within the lease i.e. a fixed, say 6% of the latest valuation of the land, but sometimes by negotiation after comparable properties have been used as a yardstick. Because tenure of leasehold land is less certain than freehold ownership it is generally less popular as an investment avenue. Banks, however, will lend against leasehold property.
Stratum Estate
Generally used to give title to multi level buildings such as apartments. Land is subdivided with unit title entitlements according to areas of units and their supplementary units (such as garaging) clearly set out . A Body Corporate representing the owners manages the property , levies expenses and sets rules for occupancy.
Cross lease
Formerly popular but increasingly superseded. Popular for subdividing city lots and allowing infill housing. Joint owners of freehold land grant each other a lease to occupy an undivided share for exclusive use for a term (usually 999 years) Lease terms set out rights and responsibilities of both parties, and usually prevent either occupier undertaking work without the permission of the other. Banks will lend against cross lease title.
Things to look for on the title
Before making an offer to purchase land it is usual to examine the “Title”
This is effectively the record of ownership to a particular property. It is a matter of public record and is available electronically from LINZ. Lawyers and other real estate professionals can conduct and deliver a search of these records for a fee.
The title will set out the location, dimensions and size of the land. Because the title is government guaranteed, the particulars contained in the title can be treated as correct and can be relied on. Land ‘limited as to parcels” does not have the area or dimensions guaranteed The owner of the freehold interest will also be set out. Any encumbrances will also be listed on the title. These might be rights that have been granted to other parties and may affect the value of the property. Examples may be drainage easements allowing neighbours to run drains through the property or rights of way allowing vehicle access. Leasehold rights granted to other parties may also be noted. Sometimes some quite specialised notations can be found and interpretations should be obtained from a lawyer before proceeding with an offer to purchase.
Contracts for sale and purchase of real estate have been developed by the Real Estate Institute and the New Zealand Law Society and are in almost universal use throughout the country. Their terms are well understood by both lawyers and real estate agents. There is provision in the form of agreement for “further terms of sale” and this permits parties to insert additional terms that may be necessary for agreement to be reached.
Agreement must be in writing at all times and consideration is also required (a deposit is payable) This may be refundable if the agreement is conditional and the conditions are not fulfilled, or forfeited to the vendor if the purchaser defaults. Verbal agreements are unenforceable.
Care must be taken in examining sale and purchase agreements as the contract binds both parties to the transaction. Once an agreement has been signed no other party can “Gazump” in the NZ system. Vendors signing conditional agreements can insert a “cash out" clause recording that if another contract is received within the conditional period , the firstly contracted purchaser must declare the contract unconditional or allow the vendor to sell the property to the second purchaser.
Common conditional terms require :
* Finance offers to be approved.
* Satisfactory building reports to be supplied.
* Land Information Memoranda (LIM) reports from local Councils to be produced and approved. A LIM will set out all information held by the Council that may affect the property. This will include : details of permits for building work sought and granted, confirmation that code compliance certificates have been issued .advice of susceptibility to such things as flooding. or if ground stability or contamination may be issues.
* Leases and other instruments (documents) that affect the property to be produced and approved.
Conditions listed above together with any other requirements particular to a sale and purchase agreement are often described as being part of a "due diligence' process.
Other conditional terms to be developed are only limited by the ingenuity of the parties negotiating, and their limits of tolerance.
Goods and Services Tax
The sale and purchase agreement will set out whether or not GST is to be levied on the transaction. Residential property is not usually liable. Fully tenanted investment properties will be “zero rated” and no GST will be payable. Vacant commercial and industrial properties and rural properties will attract GST. With GST currently at 12.5% care must be taken to examine the GST implications of a purchase before an offer is made.
Once a sale and purchase agreement has been negotiated and a deposit paid ,and all requisitions satisfied, the contract proceeds to settlement. Penalties for late or non settlement are set out in the sale and purchase agreement. On the settlement date, possession is given and taken after the agreed purchase price has been paid.
Deposit monies are usually placed in the Trust Account of the vendor’s appointed real estate agent where they must remain for at least 10 days before being disbursed. Sometimes deposits can be directed to be placed in the Trust Account of a lawyer according to the terms of the sale and purchase agreement.
There are many subtleties to the drawing up of sale and purchase agreements and advice should be taken by those unfamiliar with the process. The transfer of title process is usually straightforward however, and land registration is completed electronically.
Registration occurs when Land Information New Zealand (LINZ) records the transaction (e.g. sale of private land, mortgage, etc) onto the property title.
Changes to titles
Lawyers and registered conveyancers can lodge legal documents (transfers, records of sale, discharge mortgages, new mortgages). LINZ registers the changes to the title.
www.landonline.govt.nz/
www.linz.govt.nz/home/index.html
Property search
With the advent of the internet, a revolution has taken place in marketing property for sale. Traditional shop front real estate agencies with window displays backed up by print advertising have now morphed into agencies offering online information. The traditional role of vendor’s agents showing property and negotiating between buyer and seller remains unchanged. A huge range of property in all categories is available at a click of a mouse. Free print brochures offering property now have online editions.
www.propertypress.co.nz/
Real estate agencies display properties for sale online using.
http://www.AllRealEstate.co.nz
Private sellers and real estate agencies use
www.trademe.co.nz/Trade-me-property/index.htm
These promotional avenues are all focused upon promoting the interests of vendors.
Sales methods
When you have a look at online advertisements you will probably be puzzled by some of the expressions used to indicate price.
You will find:
Sale by negotiation:
Buyer enquiry over:
Price on Application:
Auction:
Tender:
Open tender:
Deadline private treaty:
CV $..................
These are in the main, “sale without a price “ techniques. They may indicate a market so volatile that even experienced agents may be unable to accurately set a price.
If a market slows, and prices become more static, more accurate pricing can be expected and vendors may be more encouraged to set a price.
It is quite usual for buyers to make offers on an asking price. No set ratio of offer to asking price applies. There may be a certain dependence on whether a market favours a buyer or a seller as to the level of an offer. The skill of an agent working for either buyer or seller will go a long way towards producing a satisfactory outcome.
Price guidance for buyers
Council valuation (CV)
Should not be relied on. The rating authority adopts a valuation from Quotable Valuation, a government agency, usually at 3 to 5 yearly intervals as a guide to setting rates (local taxes). Under this method it is not usual for properties to be physically inspected. Instead, reliance is placed on computer generated records to set valuations. Puzzlingly, it remains a valid measure to many people and is still often cited as a determining factor in assessing value
Registered Valuers report
This may have been commissioned by the seller to support an asking price. It will hardly be made available to a buyer if it fails to do so. Registered Valuers in New Zealand are responsible professionals, but the practice of valuation embodies elements of both art and science. Properties will be physically inspected and titles and leases (if any) examined. Supporting evidence is cited historically. In a volatile market a valuer can hardly be expected to guarantee accuracy in predicting future prices. Valuations commissioned by a buyer will contain lists of comparable properties recently sold. Information drawn from these lists form the basis of proposed value. Lenders will rely on advice from a registered valuer to set the level of a mortgage advance.
Prices set by Sellers
May or may not accurately reflect a realistic asking price. Sellers will have canvassed the opinions of real estate agents in setting an asking price. Skilled vendor’s agents will propose a realistic asking price knowing that too high an asking will deter buyers. A price may also have been set by a seller eager to quit the property and so may reflect a sellers needs and expectations, rather than a realistic price.
These comments can be applied across the entire spectrum of property types. Residential. Commercial. Rural.
How do you then arrive at a realistic purchase price?
* Gather as much information as possible. Even in a volatile market there will be price indicators. Has the property been taken to auction and failed to sell? How long has it been available for sale?
What are the seller’s circumstances? Judicious enquiry directed to neighbours can also shed light.
* Commission a valuation from a registered valuer. If possible, discuss market conditions with him.
* Place an offer on the property. If you do this, even a reluctant seller may reveal his hand.
* Retain the services of a buyer’s agent.
Buying property at auction
Vendor’s bids are not illegal at auctions in New Zealand. A buyer may still get ‘bid up’ without any competing real opposition. Auctioneers now frown on this technique. It is still usual for the auctioneer to take vendor bids but the source of these is revealed to other bidders. Other auctioneers insist on not taking vendor bids at all and having advertised the fact, encourage bidders to participate in a genuine contest.
Buying property by Tender.
A tender can be open or closed. If a buyer has to have the property at all costs, he has to submit a sufficiently high preemptive price to assure him of success. If no offer reaches the reserve price, the person conducting the process may canvass those who have submitted prices to arrive at a sale.
Considerable care and skill must be taken when participating in auction or tender processes. They are not for the uninitiated.
Seeking aid from property professionals
Lawyers (also known as Solicitors)
* Will examine title to property and offer advice when an offer is being written. * Will liase with the lawyer acting for the other party in the transaction.
* Ensure all legal formalities are observed and guard the interests of their client. * See to registration of the owner’s interest. Very valuable and necessary advisers.
Mortgage Brokers
If finance is required, a Mortgage Broker will canvass various sources to secure the best terms and interest for the borrower. Generally the lender pays charges, but fees may be charged for sourcing monies for commercial or development finance.
Building inspectors
An inspection can be made before an offer is made on a property but is more usually done after a conditional offer is in place. The property is physically inspected and a written report produced.
The buyer pays fees. Depending on the sale and purchase agreement terms the buyer can withdraw from the contract if the inspector’s report is adverse.
Registered Valuers
Generally commissioned by the buyer at their expense.The property is physically inspected and all documentation examined. A report with recommendation as to value is submitted. Lenders may require a valuation before advancing monies by way of mortgage on a property.
Town Planning consultants
Local body requirements in New Zealand have become increasingly stringent. The legislative requirements for land use and building are complex. Town planning consultants will advise if proposals are intended to be made to local or territorial government authorities are likely to be successful. They will frame proposals and present them to authorities and conduct subsequent negotiations.
Architects
If building work is required, or if a structure is to be erected on the land the service of an architect will be required. Work should include:
* Developing a concept,
* Developing detailed plans and submitting them to council.
* Calling prices from builders.
* Supervising work.
The concept will remain the intellectual property of the architect.
Property Managers
If a property is purchased a manager will:
* Put tenants in place.
* Generate documentation.
* Attend to rent reviews and renewals.
* Maintain the property.
* Collect rents and pay accounts.
* Send statements and reports to owners.
Conclusion
Although the process of buying and selling real estate in New Zealand is relatively straightforward, care is required in determining the price and setting the terms in each case. Advice received should be informed and documentation complete. Negotiations should be conducted with due regard to tactics and timing to assure the best outcome.
A purchase made using Excelsior Trust NZ Ltd as your agent optimizes your buying opportunity. We have relationships with trusted property professionals to assist in your purchase. We are confident that after you purchase, you will be able to congratulate yourself that the process has been completed professionally and successfully .
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