Dollar wise Buying an ownership flat as an investment and a home

Press, 23 June 1981, Page 12

Dollar wise Buying an ownership flat as an investment and a home

So you think you might put your money into an ownership flat somewhere? Why? Do you want a place to live; or a monetary return? Unless retiring to one’s last home, probably you are thinking- of both these aspects.

You want an acceptable housing arrangement in an ownership flat that will hold its value, and will also be easy to sell if you want to liquidate your funds - at a later date. These considerations are inter-related. The more tenuous, or complicated and inflexible the ownership arrangement — all other things being equal — the less likely is the value to hold or improve over time; and the more difficult the property will be to sell — especially on a slower housing market. These gloomy possibilities arc already being weighed up by. people in lending institutions — and .so the unit would be more of a risk in their eyes — and less acceptable security. If it is -less acceptable security, it is harder to find ' financing for, and — round the circle we go — harder to resell. The different types of ownership 1 ' schemes (discussed •in my previous column) have evolved or been instituted to make it easier for people to invest in units or ownership flats. For not only must the property be desirable and the rights and obligations of ownership acceptable, but the legal scheme of ownership must reassure investors and their financiers. The old system of strata title proved impossible for many. The companies' system is still in use. more so in Auckland than in Christchurch I believe. However, there is a problem in that the registration of the licence does no more than- guarantee that the licence holder is the owner of the interest registered. The actual title to the interest itself may not be guaranteed. What is more, lending institutions will not readily lend on that security, and most will mot lend at all. If you can pay cash this may not concern you immediately. but if you later wish to raise money fbr some other purpose and find you cannot do so, this may cause you inconvenience or embarrassment. It will also restrict your range of prospective buyers when eventually you wish to sell.

Nof perfect With the United Titles Act, 1972, when the unit plan is deposited, the state guarantees the title of the registered as the proprietor or owner of the stratum estate. Separate certificates of title, will then be issued to- the individual owners. This, alas, is still not the perfect answer, sought by investors. Unit or stratum title requires involvement in corporate management and responsibilities. Some -people regard this as an unwelcome imposition in the role they feel they should be able to assume on owning their, own home.

When and how you paint your own flat, with whom you insure, and who you rent or sell to, are decisions some individuals think should be left to them. Rather than the corporate body dictating how the internal organisation and management of the block he carried out, such people would rather make their own arrangements in their own time.

In recent years the commonest form of ownership flat title has been the composite title system. This gives a legal interest in the land, i.e. if there are three flats this ordinarily means a one third share ownership of these freehold. You also have a 999 . year lease of your flat. But rights and duties in relation to one’s fellows is kept to be defined in the lease.

In practice this can prove a more flexible arrangement. Only when a lessee fails to keep to the lease and neighbours get up in arms about it, would action be taken to enforce obligations and responsibilities. It does also depend on the terms of the lease. Some can be as dictatorial as any Body Corporate and if your neigh-bours-insist on it, you could be keeping no pets, and painting your flat when you wouldn’t have chosen.

I' n.d e r s t a n d i n g needed It does appear many people are taking unit title without really understanding what they are signing up for. This may not be causing great problems at the moment. However, when blocks developed under this scheme start reaching a certain age and needing increasing maintenance and repair, difficulties could arise.

My friend might not be the only one aghast at being told by the Body Corporate (hitherto almost invisible) "the outside of your flat will be painted today, we will collect your share of the costs tomorrow."

Not that this is necessarily a bad thing. In a multi-block, or even a small, prestige block, your investment has greater protection in that there is legal machinery. This gives you the means of forcing another owner in the block to put matters right if he z she has neglected external maintenance and thereby adversely affected the value of yoqr investment. According to the convenor of the Canterbury District Conveyancing Committee of the Law Society, the vast majority of ownership flats in Christchurch are held under the composite title system.

He believes it is the most convenient and most easily understodd scheme for the majority, of flat owners. It is probably the most appropriate means of ownership where flats are all on the one level or perhaps two levels, and the total number in the block does not exceed eight. However, if the block is multi-storey, or shared facilities require administration. casements (access and services like plumbing pipes) have to be "created” — while unit title confers this as a matter of course. One last caution as regards investment in the unit as a place to live. Flat ownership differs from house ownership most markedly in the matter of proximity to neighbours and common obligations to them. You have to be prepared to sacrifice privacy and certain independence of action. The older you get the more this can annoy you. Investment ; What about investment for monetary return? Most lending institutions will lend on both unit and composite title. Ownership by company share or licence are not regarded as good security by

many. This means higher interest rates to match the complications associated with this type of ownership scheme. Unit title is an authorised trustee security, but at least one trust organisation told me that no trust funds would be lent out on mortgages on composite title unless it was backed by Housing Corporation guarantee. One insurance company has a policy of refusing mortgages when more than three units are in the associated block. Units are generally considered riskier than houses. . Effects Home does all this affect you as an investor? If you arc looking for a unit as a home then obviously you must think about which ownership scheme you would find acceptable. Both Body Corporate and leases can lay down quite imposing conditions and requirements. So do get a copy of the legislation' and read what you are committing yourself to. Get a property plan from the Lands and Deeds Registry in the State Insurance Building. and examine the area and access, common property and boundaries. Consider convenience, internal design arid external appearance, amenities, proximity to neighbours and services, positioning in relation to sun and wind, location and neighbourhood. If you are looking for monetary return consider; will it be easy to rent; is it likely to resell for the same or greater value? Now these factors are doubly important because they affect not just you if you are going to live irr the unit for a time, but any future buyer. At the moment the housing market is reasonably buoyant. But how will you fare if you want to (or suddenly have to) resell in a depressed market? Will prospective. buyers see it as an" attractive home or investment? Will they see the" conditions of ownership as burdensome? Will they have difficulty financing it? Your reasons for investing must be very clear in your mind. Then think through how each type of investment measures up.