How do I protect against ground rent increases?

Question from Darcy updated on 22nd February 2011:

I bought an apartment at The Docks in Quay St in Auckland. I'm led to believe the ground rent is going to go through the roof at the behest of Ngati Whatua in August 2011. How afraid should I be regarding the potential cost increase? Is it likely to drive the value of my property down considerably?

Our expert Ben Turner responded:

Yes, the cost of the ground rent/lease will go up when the land is revalued, as per your lease, in August this year and then every seven years after that. The ground rent at the Dockside apartments is 6% per annum on unimproved land value. (Unimproved being a hell of lot better than improved land value as some leaseholds are.)

Take a look at the rateable value of the land apportionment on your apartment to try and get some idea of what your new ground rent might be. The value of the land will dictate the ground rent, that is, if the land apportionment on your apartment comes in at say $100,000m, then your annual ground rent would be $6,000 P/A and this would be set for the next seven years.

Dockside prices have been heading south – they’re leasehold and were sold at inflated prices even at the peak of the market – and I think they’ll go down further before rebounding.  With no rent reviews since 1996, there will be a big jump in the ground rent; I think this will help the apartments to find their value though it will be lower than off-the-plan prices.  

If when you bought this apartment your lawyer didn’t fully inform you of the risks, you may have a claim against that lawyer for your loss.  

Auckland Apartments Advice Bureau provides independent advice on apartment investing in New Zealand. Call today for free advice before you sign the dotted line.

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