“Outrageous” rents for some leasehold properties on Rotorua’s coveted lakes are making what was once seen as an affordable way of owning a lake house in one of the best spots less of a bargain.
Lakeside properties on some of Rotorua’s most coveted lakes can be snapped up from $300,000 for a basic bach with the owner then leasing the land. In contrast, the same property on a freehold site could be three times as much.
Almost half the 22 properties listed for sale on OneRoof in one of Rotorua’s lakes are leasehold properties and most are on Māori land either in Lake Rotoiti or the slightly further afield Lake Rotomā.
Professionals Rotorua principal Steve Lovegrove said in the past leasehold properties had been an attractive proposition for people wanting to get a lake house on a budget, but some recent substantial ground rent rises due to the market increase in land value had made it a much less attractive option.
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Lovegrove blamed some of the advice being given to the landowners around the market value for “outrageous” hikes in leases.
As a result, some property owners were having to sell their homes for less than what they had paid for them just for someone else to justify taking it over, he said. Other properties were sitting on the market unable to sell because people didn’t want to pay the massive lease increases.
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“In recent times the price difference between a freehold property and a leasehold property has exponentially widened because the cost of the leaseholds which have in my view unreasonably been leveraged high,” he said.
“It’s not the leasehold that’s the issue, it’s the cost of those leases that have become detrimental to the values of those properties. If they were at a fair and equitable lease then people wouldn’t so much have a problem with them, but people are really scared that they might be leveraged and are vulnerable to those seven-year and 21-year increases and that they may have no defense if it increases to an unsustainable level.”
There was also a correlation between how long the lease had until it was reviewed and the price someone was prepared to pay.
His agency is selling a well-maintained two-bedroom home at 875 State Highway 30, in Tikitere, overlooking Lake Rotoiti for $400,000. The same property on a freehold site would easily fetch about $1.5 million, he said.
The property has been on the market for more than a year and the sticking point for anyone looking at it is the uncertainty around how much the ground rent would go up at the next rent review in about five years. During the last review in 2021, the annual ground rent rose from $7000 plus GST to $18,0000 and there were concerns it might rise to almost $30,000 next time.
The property at 875 State Highway 30, in Tikitere, would worth three times as much if it was on a freehold site. Photo / Supplied
Bayleys Rotorua branch manager Beth Millard said although the holding cost of the lease for land on Lake Rotoiti was a concern to some, people still bought them because they were so much cheaper than freehold properties.
“Leaseholds sell as they provide an opportunity to get into the lakes market and often to an absolutely mint position, and for in some cases hundreds of thousands or millions less than they would have to pay for freehold.”
Most people who bought leaseholds either paid cash or had the capacity to borrow against other freehold properties because the ability to borrow money for leaseholds was more limited.
Leasehold properties ranged from the humble Kiwi bach to some magnificent homes on small to large sites.
A lakefront bach at 323 Whangamoa Drive, in Lake Rotoiti, with its own private jetty has a price indication of $1m-plus due to being on leasehold land.
Millard said the same property on a freehold title would fetch about $3m and sell quickly. “... we have plenty of buyers with this type of money ready and waiting to purchase absolute waterfront on Lake Rotoiti.”
The leasehold bach at 323 Whangamoa Drive, in Lake Rotoiti, has its own private jetty. Photo / Supplied
Property lawyer Thomas Gibbons said people considering leasehold properties needed to make sure they had a good understanding of the lease, the restrictions around what could be built here and what improvements could be made.
“A big issue with a lot of leasehold properties in New Zealand has been rent reviews – that’s been a particular issue in Auckland with skyrocketing land prices. The rent review formula needs to be well understood – is it market and if so, how often does that happen.”
Gibbons said anyone considering a leasehold property should get legal advice and make sure they have a clear understanding of the lease terms, the current ground rental and how it could change.
“People need to understand it’s quite different to freehold in a valuation sense and then also in a lending sense.
“You’ve got to understand what you are getting for what you pay for.”
- Click here to find more properties for sale in Lake Rotoiti and Lake Rotomā
