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Buying property in New Zealand: scams and pitfalls

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Everything you need to know is included in our New Zealand Property Pack

New Zealand's natural beauty and stable economy are attracting more foreign investors to its real estate sector.

Navigating the property market in this area can be quite challenging, especially for non-local residents. There are various obstacles and unexpected problems that you might encounter if you're not cautious.

Our network of customers who bought properties and our on-site local advisors have highlighted several issues. We've listed them all in our New Zealand Property Pack.

We’re going to take a closer look at a few of these in this article.

Is it safe or risky to invest in real estate in New Zealand?

New Zealand boasts a relatively low level of property-related scams compared to some other countries.

However, one recurring issue is the misrepresentation of property boundaries, often referred to as 'fencing disputes.' These disputes arise when the actual property boundaries do not align with what was initially believed, leading to conflicts with neighbors.

To mitigate such risks, prospective buyers should engage in thorough boundary surveys and ensure that property boundaries are clearly defined in the sale agreement.

One of the glaring challenges in New Zealand's property market is the relentless surge in property prices, primarily in cities like Auckland and Wellington. This meteoric rise in prices can pose a significant affordability challenge for both local and foreign buyers.

For instance, in Auckland, the median house price has often exceeded 1 million New Zealand dollars, pushing the dream of homeownership further out of reach for many.

This issue calls for a nuanced approach to investment strategies, as buyers must carefully assess their financial capacity and long-term goals.

Foreign Buyer Issues: Foreign buyers in New Zealand grapple with the Overseas Investment Act, a regulatory framework aimed at protecting the country's interests.

This legislation requires overseas investors to seek approval from the Overseas Investment Office (OIO) when buying sensitive land or businesses. For example, a foreigner looking to purchase a significant piece of rural land for development must navigate the OIO's rigorous approval process.

While these regulations are intended to safeguard New Zealand's assets, they can present bureaucratic hurdles that foreign investors must be prepared to face.

New Zealand's legal system offers robust protections for property buyers, bolstering investor confidence. The country's transparent property registration process ensures that property titles are accurately recorded and easily accessible.

For example, the Land Information New Zealand (LINZ) database provides comprehensive property information, allowing buyers to conduct thorough due diligence.

This transparency not only fosters trust in the market but also makes it easier for buyers to verify property details.

The New Zealand legal system is generally efficient and impartial in resolving property disputes. Courts provide accessible avenues for dispute resolution, and property-related cases are typically handled promptly.

A notable example is the Tenancy Tribunal, which specializes in addressing rental property disputes. This specialized tribunal streamlines the resolution process for rental-related issues, offering an efficient mechanism for both landlords and tenants.

Due Diligence for Foreign Buyers: Foreign buyers should perform extensive due diligence before investing in New Zealand's property market. This includes physical inspections, boundary surveys, and comprehensive title searches. For instance, understanding local zoning regulations is crucial, as they may affect property development plans. Consulting local experts and engaging qualified legal counsel can provide valuable insights into the market's unique dynamics and complexities.

Government regulations, such as the Overseas Investment Act, play a pivotal role in shaping New Zealand's property market. These regulations, while at times burdensome, aim to prevent speculative buying and protect the nation's interests.

For instance, the OIO approval process ensures that significant land or business acquisitions by foreigners align with New Zealand's strategic objectives.

While these regulations may add complexity, they contribute to market stability and prevent excessive foreign influence.

Foreign buyers have reported various challenges, such as the high cost of living in major cities, fierce competition for desirable properties, and the complexities of the Overseas Investment Act.

For instance, the Act may require foreigners to meet specific criteria or demonstrate their contributions to New Zealand's economy when seeking approval for land acquisitions.

These challenges underscore the importance of comprehensive research and expert guidance for foreign investors.

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Potential real estate buying mistakes in New Zealand

The concept of "Māori freehold land"

One specific pitfall you might not be aware of when buying residential property in New Zealand, especially as a foreigner, involves the concept of "Māori freehold land."

This type of land is unique to New Zealand, governed by Māori customary law and the Te Ture Whenua Māori Act 1993. The key aspect here is that Māori freehold land often has multiple owners and is managed under complex legal and cultural frameworks that can differ significantly from standard freehold land transactions.

In the context of buying property, you should be particularly cautious if the land you're interested in is classified as Māori freehold land.

The ownership structure can be intricate, involving many individuals who have ancestral ties to the land. As a result, getting clear title or making changes to the land can be complicated and require consultation and agreement from all owners, which can be a lengthy and complex process.

While this situation may not be extremely common, you must check the title of any property you're interested in.

If it is Māori freehold land, you should be prepared for potentially more involved and time-consuming processes. It's advisable to seek guidance from legal professionals experienced in Māori land law to navigate these unique aspects appropriately.

This will help ensure that your property purchase complies with local laws and respects the cultural significance of the land.

"Unit Titles Act 2010" and the risks of "body corporate"

Another unique aspect to consider when buying residential property in New Zealand, particularly relevant to foreigners, is understanding the implications of the "Unit Titles Act 2010" and the concept of a "body corporate" in apartment or townhouse living situations.

In New Zealand, when you buy an apartment or a townhouse, you're likely buying a unit title, which means you own your individual unit and share ownership of common areas with other unit owners. This shared ownership is managed by a body corporate.

The body corporate is responsible for managing and maintaining the common property, and it can impose rules and levy fees (body corporate fees) for this maintenance.

As a foreigner, you should be aware that these body corporate fees can vary significantly and can increase depending on the maintenance requirements of the building.

In some cases, there might be substantial expenses for repairs or upgrades to the common property, leading to a significant increase in these fees. Additionally, the body corporate can set rules that might affect your use of the property, such as pet ownership policies or rental restrictions.

It's crucial for you to carefully review the body corporate's records, including minutes of meetings, financial statements, and the long-term maintenance plan.

This will give you an insight into the body corporate's financial health, any upcoming large expenses, and the general management of the property.

Underestimating the impact of body corporate decisions and fees is a common pitfall for buyers unfamiliar with this aspect of New Zealand property law.

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"Resource Management Act 1991" or RMA

A less commonly known but crucial aspect to consider when buying residential property in New Zealand is the potential impact of the "Resource Management Act 1991" (RMA) on property development and use.

This is particularly relevant if you're considering purchasing land with the intent to develop or significantly alter it.

The RMA is a key piece of New Zealand legislation that governs the use and development of land, air, and water resources.

It aims to ensure the sustainable management of these resources.

For you as a property buyer, especially one unfamiliar with New Zealand's specific regulations, it's important to understand how this act can affect your property rights and development plans.

Under the RMA, certain types of land use and development require a resource consent from the local council. This includes activities that might affect the environment, such as significant alterations to land, water usage, or discharges into air and water.

The process for obtaining this consent can be complex and time-consuming, involving public notifications, submissions, and potentially, hearings.

You should be aware that even if a property has existing use rights under the RMA, any significant changes you plan to make may require new consents.

This can be a pitfall for buyers who assume they can freely develop or change the use of their property without considering RMA requirements. Such assumptions can lead to delays, unexpected costs, and in some cases, legal action.

The risk associated with "leaky homes"

Another unique aspect to be aware of when buying residential property in New Zealand, especially as a foreigner, is the risk associated with "leaky homes."

This issue is specific to New Zealand and has been a significant problem in the real estate market.

Leaky homes are properties that have been poorly designed or constructed, leading to water ingress and subsequent damage like rot and mold.

This issue predominantly arose from homes built during the 1990s to early 2000s, where certain construction methods and materials failed to adequately protect against New Zealand's often wet and windy climate.

The problem is particularly prevalent in certain types of cladding systems used during this period.

If you're considering purchasing a home built in this time frame, you should be particularly cautious. The repair costs for leaky homes can be substantial, often running into hundreds of thousands of dollars, and the damage isn't always immediately apparent upon a casual inspection.

To avoid this pitfall, you are strongly advised to obtain a thorough building inspection from a qualified inspector who has experience identifying issues related to leaky homes.

This inspection should go beyond a standard pre-purchase inspection and specifically focus on signs of water damage, poor cladding, or construction issues typical of the leaky homes era.

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The risks related to the "Overseas Investment Act"

Another unique challenge you may face as a foreigner buying residential property in New Zealand relates to the "Overseas Investment Act."

This act places restrictions on non-residents and non-citizens purchasing certain types of property in New Zealand. It's particularly relevant in the context of the New Zealand government's efforts to control housing prices and ensure availability for local residents.

Under the Overseas Investment Act, as a foreigner, you may need to obtain consent from the Overseas Investment Office (OIO) before purchasing residential land.

The criteria for obtaining consent are stringent and usually require demonstrating that the purchase will bring a substantial benefit to New Zealand.

For example, you might need to show that you're contributing to housing supply by building new homes.

This restriction is especially pertinent if you're looking at buying property classified as "sensitive land," which can include residential property in certain areas, land near water bodies, or land of a certain size.

The definition of sensitive land is quite broad and can encompass many properties that foreigners might be interested in.

The process of obtaining consent can be complex and time-consuming, and there's no guarantee of approval. Therefore, you should factor in the potential need for OIO consent when considering your property purchase.

It's advisable to consult with legal professionals who specialize in New Zealand property law and understand the intricacies of the Overseas Investment Act.

"Earthquake Prone Building System" or EPB

An additional unique aspect to consider when buying residential property in New Zealand, particularly relevant to you as a foreigner, is understanding the implications of the “Earthquake Prone Building (EPB) System” under the Building Act 2004.

This is specific to New Zealand due to its location in a seismically active region known as the "Pacific Ring of Fire."

The EPB system identifies and manages buildings that are considered to be earthquake-prone. These are buildings that could pose a risk to life safety in the event of a moderate earthquake. The system requires building owners to carry out seismic assessments and, if necessary, strengthen or demolish buildings that don't meet certain earthquake resilience standards.

As a potential property buyer, especially one not familiar with New Zealand's geological context, it's important to be aware of this.

If you're considering purchasing an older building, particularly in areas with a higher seismic risk like Wellington or Christchurch, it's crucial to check if the building has been assessed under the EPB system.

An earthquake-prone building may require significant investment to bring it up to the required standard. These strengthening works can be very costly and time-consuming.

There's also the potential impact on the property's value and insurance premiums to consider.

Before purchasing, you should obtain information from the local council about the building's EPB status and any requirements for strengthening. It's also advisable to have a seismic assessment conducted by a qualified engineer.

This will give you a clear understanding of any potential risks and costs associated with the property.

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Awareness of the "Healthy Homes Standards"

A further unique consideration for buying residential property in New Zealand, particularly relevant for foreigners, is the potential impact of the "Healthy Homes Standards."

These standards were introduced to improve the quality of rental housing in New Zealand. While they are primarily aimed at rental properties, they can also indirectly affect you as a property buyer, especially if you're considering purchasing a property to rent out or if you're buying a recently rented property.

The Healthy Homes Standards set specific requirements for heating, insulation, ventilation, moisture ingress and drainage, and draught stopping in rental properties.

As a buyer, you should be aware that any property you purchase with the intention of renting out will need to comply with these standards.

This could mean additional investment to upgrade the property to meet these requirements.

If you're purchasing a property that was recently a rental, it's wise to check its compliance with the Healthy Homes Standards. Non-compliance can indicate potential underlying issues with the property, such as poor insulation or ventilation, which could lead to bigger problems like mold or dampness.

To avoid this pitfall, you should obtain a detailed property inspection that includes an assessment of the property's compliance with the Healthy Homes Standards.

You might also want to review any existing Healthy Homes reports or compliance statements if the property was previously rented out.

"Coastal Policy Statement" and its risks

Another important factor for you to consider when buying residential property in New Zealand is the country's unique approach to coastal and waterfront properties, particularly in relation to the "Coastal Policy Statement" under the Resource Management Act (RMA).

This aspect is especially significant given New Zealand's extensive coastline and the popular desire to own coastal properties.

The New Zealand Coastal Policy Statement (NZCPS) guides local council decisions on managing the coastal environment. It emphasizes the protection of natural character, landscape, biodiversity, and public access to the coast.

For you as a potential buyer, this means that any development or alteration you might plan for a coastal property could be subject to stringent regulations and consent processes.

If you're considering purchasing coastal or waterfront property, especially with plans for development or significant alteration, you should be aware that obtaining the necessary consents can be more complex than for non-coastal properties.

The NZCPS aims to balance development with environmental protection, so proposals that could impact the coastal environment might face greater scrutiny.

Before committing to such a purchase, you should conduct thorough due diligence.

This includes consulting with the local council to understand the specific implications of the NZCPS for the property, as well as engaging with environmental planning experts who can advise on potential challenges and consent requirements.

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"LIM Report" or Land Information Memorandum

An additional and somewhat unique consideration when buying residential property in New Zealand is the potential impact of the "LIM Report" (Land Information Memorandum).

A LIM report is a document provided by the local council that contains important information about a property and the land it's on. This report can reveal details that are not immediately apparent and are crucial for making an informed property purchase decision.

The LIM report includes information on zoning, any building consents issued, rates information (local government taxes on the property), any known natural hazards (like flood zones or land instability), and other crucial data that could affect your use and enjoyment of the property.

For example, if the property is in an area prone to flooding, this would be noted in the LIM report.

As a foreigner, it's important for you to understand that obtaining and thoroughly reviewing a LIM report is a critical step in the property buying process in New Zealand.

Failure to do so can lead to unpleasant surprises after purchase. For instance, you might discover that there are restrictions on what you can build or modify, or there might be future council plans for the area that could affect the property's value or usability.

Before finalizing any property purchase, you are advised to request a LIM report from the local council. While there's a cost associated with obtaining this report, it's a worthwhile investment for the valuable insights it provides.

It's also a good idea to have your lawyer or property advisor review the LIM report with you, to ensure you fully understand its implications for your prospective property purchase.

The concept of "cross-lease" titles

Another specific aspect to consider when purchasing residential property in New Zealand, especially as a foreigner, is the significance of "cross-lease" titles.

This type of property ownership is quite common in New Zealand, but it can be unfamiliar and potentially confusing for those from other countries.

In a cross-lease arrangement, you don't own the land outright. Instead, you have a leasehold interest in the land and a shared ownership of the land with the owners of other dwellings on the same parcel. Your ownership is of the building (or part of the building) and you have a lease (often 999 years) on the land.

The lease is cross-tied with the other properties on the land, meaning all owners must agree to any significant changes.

This arrangement can lead to complications, particularly if you want to make alterations to your property.

Any significant changes typically require the consent of the other leaseholders, which can be a complex and time-consuming process. There's also the potential for disputes over shared areas, maintenance responsibilities, and changes to the property.

Before purchasing a cross-lease property, you should thoroughly understand the terms of the lease, including any restrictions on use and alterations. It's crucial to review the flat plan attached to the cross-lease title, as it specifies the areas you exclusively own and the common areas.

You are advised to seek legal advice from a property lawyer familiar with New Zealand's property law to navigate the complexities of a cross-lease title.

They can help clarify your rights and obligations under the lease, as well as any potential issues you might face.

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