Potential rent review shock ahead
Some inner-city Auckland apartment owners might be underestimating the potential impact of a ground rent review scheduled for next year, a local real estate firm has warned.
The lease on Ngāti Whātua Ōrākei’s downtown Auckland land at the former Railway Lands, Te Tōangaroa, will be reviewed in August.
Lease terms and market impact
The leasehold terms included a ground-rent-free period until 2011, followed by reviews every seven years.
The site includes many apartment buildings, such as the Scene buildings.
“Some sales will go for under $100,000, some over,” Scott Dunn of City Sales told RNZ. “We don’t have anything lined up for August that will go for over $200,000.”
Ground rent set to rise
The ground rent is based on a set percentage of the unimproved freehold land value, which has seen substantial increases.
Nick Goodall, head of research at CoreLogic, reported that Auckland‘s median land value for residential properties rose from $605,000 in 2017 to $800,000 in 2021.
Dunn highlighted concerns about the financial impact on owners, stating: “In seven years the ground rent could double, which has decimated some people.”
Financial strain on investors
Many apartments on the leasehold land have been profitable investment properties, but this could change with the upcoming review.
“I believe the next one will be the most interesting yet. A lot of these will be the time that the ground rent gets so high that income – rent from tenants – won’t cover it for a lot of properties,” Dunn told RNZ.
Transparency and valuation process
Ngāti Whātua Ōrākei Whai Rawa stressed that any ground rent adjustments are based on changes in the land’s value over the past seven years.
“The land valuation process is informed by independent valuation data and assessments from registered valuers appointed by both the lessor and the lessee,” it said.
Expert opinions and future outlook
AUT professor John Tookey suggested pragmatic approaches to address the sustainability of the ground rent, including pricing rent rises at or below inflation to minimise business failures. He also pointed out potential opportunities for property expansion during economic downturns, RNZ reported.
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