Leaky buildings, seismic strengthening and leasehold rent reviews are just some of the issues Auckland apartment buyers need to watch out for

Photo: Francisco Anzola

For the uninitiated, buying an apartment can be a bit like navigating through a minefield, with issues such as leaky buildings, seismic strengthening and leasehold titles all posing potential pitfalls for the novice investor or owner-occupier.

The range of issues potential buyers need to consider was evident at one of the main apartment auctions in Auckland over the last week, where just one of the five properties on offer was sold and the other four all had issues which potential buyers would have needed to pay particular attention to when undertaking their due diligence.

Of the four apartments that were passed in, one attracted multiple bids, another attracted just a single bid and there were no bids on the last two.

A quick glance at the auction documents for all four properties highlighted some of the issues buyers need to get their heads around before committing to a purchase.

First up was a 33 square metre studio in The Whitaker building on Whitaker Place.

Located on the leafy, city side of Grafton Gully, the apartment had reasonable views down the gully and out across the Hauraki Gulf to Rangitoto.

There were two bidders for the property but both were cautious and it was passed in with a top bid of $202,000.

The were a couple of items in the Pre-Contract Disclosure Statement that could have caused potential purchasers to pause for thought.

"One of the lifts in the complex (the goods lift) is currently out of order. As the service contract for the remaining lift is now expired, the [Body Corporate] Committee is considering quotes for the repair or replacement of either lift, along with ongoing maintenance,"  it said.

The Disclosure Statement went on to say:

"In 2016 a roof condition report was obtained from Castlebridge Surveys. This was distributed to all owners.

"Currently the Committee is considering a project manager with a view to either full remediation of the roof or repairs, based on the outcome of expected future tenders."

Next up was an apartment in the Scene Three complex on Beach Rd, just along from the historic former Central Railway Station building.

This was a spacious 62 square metre, one bedroom apartment with an undercover car park, a large balcony and good views of the cityscape.

Normally an apartment like this might sell for more than $500,000, but the units in the Scene Three complex are on leasehold titles.

The effect that leasehold titles have on a property's value was not well understood when many projects such as Scene Three were developed.

Consequently many of the original buyers in such buildings paid too much for their apartments and have since suffered a substantial fall in value as ground rent payments started to kick in.

The ground rent on the apartment being auctioned was $6187 a year, but could increase significantly in the next couple of years.

The ground rents on the Scene Three are reviewed every seven years and the next review is due in 2018.

While it's not yet known how much the rent will go up by, the increase is likely to have a close relationship with the movement in Auckland CBD land value over the last seven years.

So potential buyers for this unit should have been asking themselves what has happened to land values in the area over the last seven years, and factoring that into their estimates of how much the ground rent could increase by.

It's not likely to be pretty, and its something that Scene Three's Body Corporate Committee is already preparing for.

The Body Corporate's minutes show that it is already looking to raise $300,000 from apartment owners in the building to fight the next increase in ground rent, as in the process of engaging lawyers, even though the next review is still some time off.

There was a single bid of $100,000 for the apartment before it was passed in.

Next up was a 40 square metre studio in The Lofts building in Lorne St, right in the heart of the city between Queen St and Albert Park.

The Lofts is a character building built in the late 1800s and converted to apartments in 1996.

Apartments in The Lofts have been popular but a note in the sale documents disclosed that the building's Body Corporate would be raising funds from Body Corporate levies for the next 10 years to put into a Seismic Retrofit Fund.

There were no bids on the unit and it was passed in.

The final unit on offer was in the Bianco building on White St, just off the top end of Queen St and two to three minutes walk to either Myers Park, Karangahape Rd or Symonds St.

This was a spacious 81 square metre unit with two bedrooms, two balconies and a car park, in a modern building.

But a warning note was sounded in the sale documents: "The property may not be weather tight or structurally sound."

Body Corporate minutes for the building show an Extraordinary General Meeting was held on 21 June this year to consider issues relating to weathertightness in the complex's roofs, balconies and car parks and also issues relating to its structure, fire protection and hydraulic services.

The meeting was told the only way to recover money relating to the issues was through litigation, which could take two years.

It was not known at the time of the meeting if residents would need to vacate their apartments while remediation work was carried out.

It was resolved at the meeting to strike special levies totaling $500,000 to cover further detailed investigations of the issues and legal costs.

At the auction there were no bids for the unit and it was passed in.

While the issues highlighted in the above examples are not insurmountable and do not mean that a unit passed in at auction would not subsequently be sold by negotiation, they do indicate the care that potential buyers need to take when considering purchasing apartments and deciding on an appropriate price.

In some cases that may not be a process for the faint hearted.

You can can check out the results of recent apartment and other residential property auctions on our Residential Auction Results page.

If you are interested in commercial property, check out our Commercial Property Sales page.

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26 Comments

So asking your solicitor to check the potential risks before buying an apartment may result in a lot more legal checking work than for a freehold standalone townhouse?
If the body corporate and other costs are added up, then these annual payments could have been used to service a larger mortgage on a stand alone property.
Yet there must be a good target market of older professionals who may have moved to Auckland, Melbourne etc in the last segment of their working lives who would like an apartment, near walking tracks, cafes, after a life mowing lawns & trimming hedges!

Caveat emptor. That gets brushed aside during a frenetic run up in asset prices, and those left 'holding the bag', when the boom stops, realize the penalties of that mania.

Buyer beware. You are so right. I became an accidental apartment owner a decade ago when I thought two of my kids would be studying in the CBD, They never moved in and it has been with a property manager ever since and it has been a great investment - unlikely I could have found any other investment as profitable. However I have kept a close eye on the apartment market ever since and there are so many pitfalls. I suspect there may still be some reasonable apartments worth buying in the city but like any investment there is a risk and an owner needs access to finance just in case the custard hits the fan.
BTW - my lawyer was strongly against buying apartments; he may have changed his mind since a bought a 2nd apartment and sold it 4 years later for a large profit.

Or maybe, just maybe, New Zealand could build good quality apartments and build them properly without cutting corners and maybe the council should actually be responsible for what they sign off as compliant. Apartments should be a good option for a first home but there seem to be endless issues with ones in Auckland to say nothing of a lack of oversight and governance around body corporates.

Thank goodness we limit the consequences to developers of these in a free market via limited liability eh. Put all the consequences of bad decisions onto the buyers instead.

absolutely, caveat emptor should not be a get-out-of-jail-free card

When I was a very little boy, as we drove through St Johns and Kohi etc my dear old dad would say to me. " Never ever buy a leasehold property". He's still right.

Cross leased is not much better in my view.

Paying a dollar for 999 years is not much better than 60K a year???

If you have an obstructive party in the other house the stress will be worse than $60 grand a year.

How much is this to do with building costs in Auckland being so high , short cuts, not doing the job to a high standard, all I do know is I could fly to the Gold Coast tomorrow and have a 2 bed, 2 bath , 2 garage spaces with great decks for under $400k , in fact I am soon, Aucklands appartments are over priced big time , small and look bad and don't last long before having problems

Indeed - there are problems with apartments in Auckland.

Stand-alone houses on fee simple title take a lot of beating. North-facing and drive-on is ideal. But you'll pay heaps for that in Auckland.....

Not for long to the point down 10% and falling!

Hi Tui,

10% decline is nothing.

They went up by 90% in the last 5 years!

$20,000 maybe nothing to you but to most of us it's quite a lot

Good article.

I got out of an apartment a couple of years ago because the building was about 20 years old and lots of expensive maintenance was coming up like lifts, painting, roof, air con units etc.

I think it's tricky to know which buildings are OK these days.

I like those appartment building that are low and wide, normally looks nice, but as city's grow we need more , although I don't know why city's need to build from the centre out and allowing the centre to get so big making so many people driving to the centre each day, there should be mini main centres everywhere with no larger one , of course that never happens, Taurangas got little centres scattered over large areas and a few years ago the main st died right off, but it off again and it'll only get worse with traffic in years to come

We are now in the property phase "tide goes out...... swimming naked".
Watch for increased reference to plaster buildings.

What exactly do you 'own' when you buy an apartment?
The physical materials within your unit? Or just the right to occupy?
No land part-ownership?
How do you know what the socio-economics of your many co-occupiers/neighbours are? And over the next 30 years.

Yes appartments are a bad idea in a lot of ways, the safety parts good for me if no ones there and don't need to worry about things outside, if prices are where they should be helping fhb etc , overheads need to be reasonable and doing there bit for the masses, yes it should work , I'm only thinking of getting one in the Gold Coast for my family for holidays but I look over there then Auckland but Auckland just can't get it right, and they better soon

Investing in CBD freehold you simply have to do your homework. Things to look for:
- around 15 year or less (seismic issues)
- older than 10 years with no water ingress issues
- proximity to the new CRL
- proximity to Commercial Bay or the new Sky City International Convention Centre
- solid long term maintenance funds
- check body corporate meeting notes

Buy for Yield and take the LTCG as a bonus. Right now you can achieve big ticks for 7-8k per m2! New builds are 13-15k per m2 so when you rent new landlords in new buildings will ask way more or have to settle for a much lower Yield plus without history they will be taking a punt on the weather tightness etc.

No I don't work for a real estate company. Why do I know? Because if you are spending millions you do your homework.

Take a look at the last 6 months on Trademe property summary where they compare asking prices YoY and Auckland CBD apartments have been spectacular from January to June so far...

If you think weather tightness is an issue, wait until you see "concrete cancer". It will hit NZ shortly and at certain stage it's not fixable!

There are quite a lot of buildings that have this, and it is called sprawling. It is when the reinforcing doesn't have enough concrete cover and the steel rusts and expands and blows off the concrete outer layer. It can be sometimes be repaired though depending on location and if it has been detected quickly. But it is a problem that has been known for many years

"Spalling" is the correct term. It is not uncommon in New Zealand and overseas, particularly in older (1920s - 1960s) buildings constructed with steel reinforced masonry or concrete. As Rob says it is due to corrosion of the reinforcing steel and is noticeable firstly as an aesthetic issue (surface cracks). My understanding is that proper maintenance (and if necessary) repairs are undertaken as part of the owners' long term maintenance plan there is no reason older buildings can't provide another hundred years of reliable service and help retain city heritage.

Yeap I had the wrong spelling, I was thinking about Aucklands 'Urban Sprawl' at the time!