The downsides of purchasing a leasehold apartment

Summary:

The negatives of purchasing a Leasehold apartment are the extra costs involved. They don’t have the same amount of capital gain opportunities as freehold properties.

They are more about lifestyle which means you won’t generate income from them, and if you are tenanting it out, the added amount of ground rent means your income won’t be as high.

TRANSCRIPTION:

The negatives of purchasing a leasehold apartment in the Auckland CBD. Now, a leasehold apartment has it's negatives because it has an extra cost - and this affects it's value. That's why they're so much cheaper. When you look at leasehold apartments, generally, they don't have the same amounts of capital gain opportunities as possible, so generally freehold apartments will have more capital gain in the future than a leasehold apartment.

This is because that ground root will increase over the years. Having said that, leasehold has had such a bad stigma in New Zealand that my feeling is with a lot of buildings - not all - but in a lot of buildings in the CBD they're undervalued and some yes, there is capital gain there.

And then the other side is if you're buying something so cheap, on a percentage term it goes up - say you buy it for $200,000 and it goes up to $220,000 then that's a 10% increase. But if you pay $600,000 for the freehold equivelant and it went up 10%, well then it would have to go up $60,000.

It is a tough one, but basically speaking leasehold apartments are more about living lifestyle, being able to free up your money to use in other ways. Because an investment is an investment, unless if it's giving you income - and if you're living in it, that means technically it's not an investment.

Yes, the big one is - leasehold doesn't have the same capital gain future that apartments have in my opinion. That doesn't mean that's set in stone, but that's how I see it.

Anyway, hope that helps. Cheers.