For many New Zealanders, being able to purchase a home is a lifelong dream. Last month we discussed the pros and cons of purchasing leasehold for those looking for an affordable option to step onto the property ladder (link to blog). For most prospective buyers, purchasing freehold property is the preferred option. So to help inform your search for that slice of Kiwi heaven, we have outlined the pros and cons of this method of purchase.

What is freehold ownership?

Purchasing freehold gives sole legal ownership of the land and any property to the buyer. This will give the buyer exclusive rights to that land or as outlined in the Land Information Memorandum Report (LIM).

With land value at an exponential premium, purchasing freehold is the preferred method of purchase in the Auckland market as the owner will ultimately benefit from the increasing value.

What are the pros of freehold ownership ?

First and foremost, the major benefit of owning freehold land/property is once the purchase is finalised the buyer has exclusive legal rights (outlined in the LIM report).

Secondly, as the owner you are not required to pay ground rent as you own the land. This is particularly liberating in cities such as Auckland, where ground rates have experienced massive increases over the past 20 years as land value soars. There are many horror stories of leaseholders having their ground rent increased drastically as land values have skyrocketed. As the freehold land owner, you are not subjected to these increases at the landowners discretion. Instead you are able to benefit from the increasing land value.

Another positive of freehold ownership, is that banks or financial institutions are more willing to provide you with financial backing.

What are the cons of freehold ownership ?

The major negative of buying freehold land/property when compared to leasehold is that it will be more expensive in the short term. This is because when purchasing the property the land value is included in the price. However as mentioned above, as the freehold land owner you have sole ownership rights, this includes any increased value.

If you are a first time home buyer purchasing freehold land/property can be very tough, especially in cities like Auckland where the average house price is significantly higher than elsewhere.

Buying freehold land/property clearly gives the buyer the greatest freedom and fulfils the kiwi dream of owning your own home but you need to understand what method is best for your situation. Like any major purchase, make sure you do your research and get advice from a trusted lawyer and your mortgage adviser. If you need help we have the services to guide you through the process.

If you have any questions regarding buying freehold I would be more than happy to help.