Personal finance writer Mary Holm answers your property and finance questions.
Question: I've found your column really helpful in getting my finances somewhat under control after finishing university.
I've recently moved home to the Coromandel, but the growth of tourism and Airbnb has made it next to impossible to find a decent year-round rental here. This has made buying the only real option, aside from moving four times a year or moving away.
Our parents have kindly offered to help us get into the market and go halves in a section.
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The land cost is about $450,000, and we are planning to keep the build cheap by going down the transportable track with a small house and a studio to rent out maybe.
This will still make the total cost way above the $450,000 cap on the HomeStart grant for new builds.
I realise that we are already in a fortunate situation with parents that are in a position to help us, but as we are going halves on the property (and our half may technically be under the price cap) is there any way around this?
It seems a bit unfair as I don't remember a house selling for less than $700,000 here in the past couple of years, yet we are counted under the price cap of "the rest of New Zealand".
Mary: Sorry, but the news is not good.
First, here are the rules when you buy land and build on it:
"When assessing an application for a HomeStart grant, for a new build, the combined cost of the land and build needs to fit below the appropriate house-price cap — which is $450,000 for a new build," says Mike Webber of Housing NZ.
"The fixed-price building contract will need to be provided at the time of application.
"There is no fixed period by which the house has to be built. But the cost of the build has to be factored into the HomeStart grant assessment, so the cost-to-build plan and contract has to be finalised prior to the HomeStart application."
Second, the rules on buying a home with others:
"When several people are jointly purchasing a house, applications are still assessed against the purchase price of the house — not an individual applicant's share of the price," says Webber.
"This policy is actually spelt out on the application form in Note 3: If purchasing a share in a property the equivalent total property purchase price (sum of all shares) will be assessed against the maximum purchase price caps outlined above, not the individual share being purchased."
He adds: "For HomeStart grants to fit the eligibility rules in Coromandel, the land and house will have to fit under the cap of $450,000. Although going 'halves' with parents would make the property more affordable, it does not follow that the sale price of the property is also halved."
And there's more bad news.
"The other thing to bear in mind with joint purchases is that all purchasers — whether each is applying for a HomeStart grant or not — have to fit below the $130,000 income cap.
"In this example, the combined income of all four purchasers needs to be below $130,000 gross. The parents themselves don't need to be eligible for the grant, but their incomes would be assessed, as they would also be purchasers."
There's a bit of good news, though. As Webber points out: "This couple may still be eligible to withdraw their KiwiSaver funds to assist with the property purchase.
"There is not a house price cap or income cap to fit with the KiwiSaver First Home Withdrawal. They do need to have been contributing KiwiSaver members for at least three years, not currently own any interest in estate and have a sales and purchase agreement identifying themselves as buyers.
"They can apply directly to their KiwiSaver provider, as the providers administer this process. They will need to leave at least $1000 in their respective accounts if they do withdraw their funds."
Could the house price caps change?
"The minister sets the house price caps for HomeStart grants, on advice from MBIE, on the basis of sales values across each particular territorial authority (district and city councils)," says Webber.
"Although each council territory will have higher and lower priced areas within them, house price caps are set according to sales across the whole council territory."
You could wait in the hope that your price cap will rise, but I wouldn't recommend it.
It's not usually wise to put your life on hold in the hope of a government change that might take a long time to happen — if ever.
I feel for you. It doesn't seem fair, especially the bit about not halving the price if your parents are going to be half owners.
I suppose that rule is there because otherwise people would find clever ways of structuring purchases so they qualified for the HomeStart grant. But still, it's tough for you, particularly given your difficulty in getting a good long-term rental agreement.
But, as you say, at least you can get help from your parents. Many others would envy that.
Future income
Question: I am 68, semi-retired with an income of $40,000 from part-time work plus my NZ Super and $500 a week from an apartment I own mortgage-free.
I have $250,000 in term deposits and would like to use this to bring in some sort of income for when my part-time job ends. Clearly, term deposits are not going to do that for me.
My options seem to be:
• Invest the money in some sort of fund that will give me a reasonable return to add to my pension and rent income.
• As I have a mortgage-free home in a popular beach village, I could spend $200,000-plus (architect and builder's estimate) and add a self-contained studio underneath my house, which I know I can rent out on Airbnb or similar.
That would potentially give me a capital gain over the next few years, as well as providing (in the worst case scenario) about $1000 a month income.
I have been looking at property to purchase, but anything I bought would require a mortgage, which I can't really service, and negate the fact that actually I need something to bring in some extra cash.
Mary: I'm glad you've eliminated that last idea. This is not the time of life for you to take on a mortgage when you don't need to.
Of your other two options, the second one is interesting, but riskier.
If you were planning to keep the studio through your retirement, I would be arguing against that. Rental property in retirement is fine if you have plenty of income, but if not, you're better to sell the property so you can spend your capital. And, by the way, that applies to your apartment, too.
But you're talking of a capital gain on the studio, which suggests you plan to sell it in the next few years anyway.
And in the meantime, if you can get $1000 a month, that looks like a return of 5 or 6 per cent on $200,000-plus. But don't forget expenses, which might include not just rates, insurance and maintenance, but also perhaps bed taxes or higher rates, which are starting to hit people on Airbnb and similar. So your ongoing return might be a fair bit lower.
As for a capital gain, who knows? Property prices in many places are slowing or even falling.
You could, of course, hold out until they rise again. But that might be quite a few years away. And in the meantime, you haven't got a lot of income in your early retirement years, when most people spend more than in their later years.
There's also the hassle factor. Do you want to deal with sometimes noisy, messy or unreliable short-term tenants? You might enjoy meeting new people, but there are sure to be some tricky times.
Your first option is less risky. You could go on the KiwiSaver Fund Finder and find two suitable funds for you, one lower-risk conservative or defensive fund for money you plan to spend in the next few years, and another balanced or growth fund, for longer-term money.
I know you're not in the KiwiSaver market, but once you've found the most suitable KiwiSaver funds, you can ask those providers if they have similar non-KiwiSaver funds. In most cases they do.
In the lower-risk fund, your balance will hardly ever fall much. In the balanced or growth fund, it will fall sometimes, but should grow more over the long term.
- Mary Holm is a freelance journalist, a director of the Financial Markets Authority and Financial Services Complaints Ltd (FSCL), a seminar presenter and a bestselling author on personal finance. Her website is www.maryholm.com. Her opinions are personal, and do not reflect the position of any organisation in which she holds office. Mary's advice is of a general nature, and she is not responsible for any loss that any reader may suffer from following it. Send questions to [email protected] or Money Column, Private Bag 92198 Victoria St West, Auckland 1142. Letters should not exceed 200 words. We won't publish your name. Please provide a (preferably daytime) phone number. Sorry, but Mary cannot answer all questions, correspond directly with readers, or give financial advice.
