The facts

Property Ventures Investments Limited v Regalwood Holdings Limited concerned the sale and purchase of a commercial property in Christchurch for $1.5m. The standard form ADLS/REINZ agreement was used. The vendor had warranted that the building would have a warrant of fitness on settlement. There were problems and the warrant of fitness was not issued.

After lots of debate, the vendor insisted on settlement in full. When the purchaser failed to settle, the vendor issued a settlement notice, cancelled the contract and kept the deposit.

The purchaser had offered to settle at a discounted price. It became apparent that the cost to remedy the situation was likely in the region of $500,000.00.

The decision

The Supreme Court decided the purchaser was in the right. The vendor could not insist on settlement in full when in material breach of warranty.

What’s the significance?

• Vendors need to make sure warranties given are correct. If there is any doubt when signing contracts, the relevant warranties should be changed. If contracts are on foot a commercial solution should be explored.
• If purchasers discover a material breach of warranty by the vendor, they need to assess whether to offer to settle for less than the purchase price or use any rights of cancellation.
• The REINZ/ADLS agreement for sale and purchase is currently being updated to deal with this case.

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Firstly, we are seeing a decline in property prices as winter sets in. Some property investors have reacted to the last budget by choosing to sell and this has had an impact at the lower end of the market.

Mortgage interest rates are expected to increase over the next few months and this will help keep property prices in check.

The second piece of good news for first home buyers is that from 1 July, 2010 you can you use some of your KiwiSaver funds for your house purchase providing you meet certain criteria.

You must have been a member of KiwiSaver for at least three years and the house you buy must be one that you plan to live in yourself for at least six months.

You will be able to withdraw the contributions you have made to KiwiSaver plus your employer contributions and investment returns. As well, you may be eligible for a subsidy of $1,000 for every year you have been a member of KiwiSaver up to a maximum of $5,000. To be eligible, your income and the value of the house you are buying must be within certain limits.

Thirdly, you may also be eligible for a low deposit loan through Housing New Zealand’s Welcome Home Loan scheme.

With this scheme, you can borrow up to $200,000 without a deposit and up to $280,000 ($350,000 in some areas) with a 15% deposit on the amount above $200,000. That means you can buy a $280,000 house with a deposit of $7,500 and your KiwiSaver money (contributions plus subsidy) will count towards your deposit.

Now is definitely a good time for first home buyers.

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To be a successful investor we need to be 3 things

1. Positive
2. Responsible
3. Proactive.

If you think of the opposites to all the above and if you fall into any of those categories then you may have to start asking yourself a very important question – “Do I have the right mindset and approach to be an investor? Having said that I remember when my wife and I were just getting started and at social events I would be like a rooster in the hen house who just found something wonderful to eat. Id be crowing about how wonderful property investing was and telling everyone that they should get into it but was amazed of the negativity of some people as they would tell you every reason in the world why you shouldn’t get into property. (How many of you have had that experience eh)?

To make matters worse when beginning investors start out they may go to a conference or event of some kind and get heaps of great information then come home and get advice from their family and friends who are of course experts in the field…..well offer you so much advice about why you shouldn’t get into investing you’d think they were.

So how do we get started then? The majority of people don’t take this path till later in life when they have built enough equity in their family home. So what happens if I don’t have a home with heaps of equity you ask and you just want to get started now? Well of course this will depend on your current financial position but to get started you of course have to make a deposit for your property and it doesn’t really matter what stage of our lives we are at, we could all use some extra cash and one of the ways my wife and I did that was to investigate some of the many hundreds of ways to make money that a guy called Jamie Macintyre speaks about. In fact after we ordered his free $99 DVD (click here for a copy) – (oh and ask them for the free e-book too) – and later attended a conference, we actually bought this internet business.

There are many, many different ways to make money once you start educating yourself about how to do it. So wether you make money from your job, supplement your income and speed up the process using some of the different strategies mentioned in the free DVD or e-book or you already have a heap of equity in your current home to start out, you are going to need a deposit. Before the global financial crisis money was very easy to get hold of but things may have been tightened up a little bit since then but don’t despair, you just need to keep looking until you find the right lender.

So let’s say you want to go out and buy your first investment property for about $300,000 so you will need between 10-20% deposit – 30k to 60k. The next question I get asked is “what about all that debt and how can you afford it”? Well to start with its good debt or an asset….not a liability. In other words you are buying something that you know will go up in value over time provided you buy wisely and do your research and of course educate yourself about property investing. Don’t just go and buy the first thing you see or buy it because its close you where you live and you can drive past and admire it every day. Also don’t think that you will be a millionaire overnight because you will need to be committed to buying and holding your properties for as long as you can. You must buy in the right location, with the right amount of land content and at the right time of the building cycle (more about this later).

The main thing to remember is that you will not be paying your investment loan off completely out of your own pocket. You have three sources of income when buying investment properties in Australia (and other countries) and they are;

1. Rent
2. Tax deductions
3. Depreciation

We will start to break these down into more detail in future posts but remember before you start, it’s important that you seek proper financial advice from those who specialise in this area as everyone will have different circumstances. I am not a financial advisor and certainly don’t profess to know everything about property investing but I would love to share my knowledge, my experiences, my mistakes and journey with anyone who wants to learn and take or continue this journey for themselves……to be continued.

All the very best Anthony Shaw

PS – feel free to join our Facebook group here and add me as a friend.

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A few helpful tips when you are looking to buy.

Start looking when you know what you can borrow and at what cost. Sounds simple but a lot of people make offers on property only to find they can’t get or afford the mortgage.

Check the property carefully. I recommend a full building inspection and a thermal imaging report. Yes they cost money, but look at it as insurance, too many people end up with huge bills for maintenance that they hadn’t bargained on.

We all ‘fall in love’ with property, it’s often an emotional purchase. Try to remember it’s probably the largest financial commitment you will ever make.If a report on construction or area comes back negative, walk away. If you don’t you may have issues selling in the future.

Finance approvals can be conditional. Always make sure your Bank account conduct is perfect. No unauthorised overdrafts or returned debits as this will affect your approval!

Look at low rates now as a bonus and try to over-pay. This will not only reduce your mortgage (and so the interest you pay) but also makes sure you are protected for when rates rise….which they will.

‘Do ups’ rarely make bargains. There is usually a reason behind the ‘do up’ and if professional house renovaters have not bought it, then perhaps you shouldn’t either!

Make sure you have enough money not only for the deposit, but for the extras that always come up. Legal fees, builders reports, maybe Registered Valuation. Up to $3,000 can be spent before you know it!

And finally. Real Estate people are Sales people! They act for the Vendor and not for you, so be aware and ask heaps of questions before signing on the dotted line. Always make your offer conditional on Finance, LIM and Building Inspection. Good luck!

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Many buyers approach the home buying process, probably the biggest financial transaction in their lives, unprepared. They then deal with real estate agents, bankers, mortgage brokers, lawyers and others who are accustomed to property deals and in may times end up confused and frustrated.

The solution?

First, create a strategy that’s right for YOU!

Ask yourself these questions:

1. What am I trying to achieve? For some it is being in the right school zones, for others it’s about living stumbling distance for the local bar.
2. How long will I live in this house? Long term solution or just a step onto the property ladder.
3. Is my lifestyle going to change? There is no joy in buying a house and committing to a mortgage if you can’t enjoy overseas holidays and going out to a restaurant like you were used to.
4. Do I still want to travel or work overseas? Than buy a house that would be easy to rent out and maintain.
5. What type of ownership would suit my requirements, straight ownership, Ltd company or a trust? Speak to lawyer or accountant on how to best protect your assets.
6. Do I want to buy an investment in 2,3,5 years? Than buy a property that would allow you to create or generate enough equity for future leverage.

Second, create your own team of experts, people who can advise you on the many aspects of home buying.

These experts may include a solicitor or legal executive, a building inspector, a finance / banking adviser, a buyer’s advocate an accountant and a town planner.
Talk to them about what you should look out for when buying, how to structure your purchase, how to structure your finance and what you can or can’t do with your future house or land.

Third, become your own expert. Choose a suburb, an area or a building style and immerse yourself into it.

Study its the history, recent sales, common titles, average prices, better streets etc.

Connect with the local agents – they are a source of valuable information.

Drive and walk the streets and talk to the residents.

They will be flattered and proud you have chosen to buy in their neighborhood and tell you everything you’d want to know including properties that may be coming on the market soon.

Once you know the area and a property opportunity presents itself, you will be well prepared to snap it up quickly for the right price.

Part 2 (understanding Auction, tenders and price by negotiation) and part 3 (working with real estate agents ) coming soon.

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“It might not be the house that you want to live in long-term, but you could buy a $350,000 house in Te Atatu, Glenfield, Panmure or Pukekohe,” he said. “People should spend less money on coffee and brand new cars and overseas trips.

“It’s up to them to save more. This is a culture of ‘I want it now, I want everything and I deserve it’.”

Yesterday, the Government floated the idea of property developers being forced to build low-cost homes in new estates to ease Auckland’s housing shortage. Housing Minister Chris Carter after two new reports revealed that New Zealand’s most populous region faces a severe housing shortage and must accommodate growing numbers of people who may rent all their lives.

A study on rental housing by Wellington consultants DTZ predicts falling home ownership, a big increase in the number of people renting – particularly young families and the elderly – and a growing demand for rental accommodation.

Even households making $70,000 a year are being locked out of home ownership, the report says. The city will need almost 55,000 new houses and flats in the next 10 years. But high development costs are strangling new-house building – a topic the second report examines.

The housing supply report by consultants Motu proposes speeding up resource consent approvals by financially punishing councils for delays. It also suggests abolishing the artificial city limit boundary, freeing new tracts of land for development.

Mr Carter said he had two solutions – a new law that is yet to win support from other politicians, and funding for shared-equity schemes, which he expects to be in next year’s Budget. The minister wants to force developers to build a proportion of cheap houses in large new Auckland estates. He said the move had succeeded in Australia.

“We would consider a home affordability bill to direct developers to build a certain portion of affordable housing,” he said.
“I’m enthusiastic about this but I need to convince my colleagues.”

He also favoured shared-equity schemes, in which the Government takes a stake in a house to reduce the cost for first-home buyers. The scheme had been introduced in Britain. Money for a pilot scheme should be made available in next year’s Budget, Mr Carter said, but numbers were yet to be decided. He promised to issue a report within six weeks outlining options, and said a new law could be passed next year. The reports sparked strong reactions from developers and landlord and tenant groups.

Patrick Fontein, an Auckland developer building a $400 million 500-house and apartment project at Orewa, was concerned about Mr Carter’s cheap housing proposals. Forcing developers to build low-cost houses in new estates was no solution to the affordability crisis, Mr Fontein said.

The move could lower the tone of new estates and force buyers of higher-priced houses to subsidise the cheaper housing. Mr Fontein said Mr Carter should work out ways to help people into existing homes rather than new housing, which was often out of reach for many first-home buyers.

Angela Maynard, co-ordinator for the Tenants Protection Association in Auckland, called for more quality rental accommodation and better security of tenure. Landlords should have to get warrants of fitness for their houses or flats before finding tenants, she said, to ensure minimum standards were set.

Landlords should also have to give reasons for eviction, which could be achieved by amending the Residential Tenancies Act. “At the moment, you can give a tenant 90 days’ notice without a reason,” she said. “We want landlords to give just cause for eviction.”

She said she was not surprised to find that people making up to $70,000 a year were faced with a lifetime of renting, but said the city’s property market was based purely on greed.

“Everyone in the equation is greedy and trying to get more and more,” Ms Maynard said.

The Salvation Army’s director of social policy, Major Campbell Roberts, called for swift Government action, saying very little had been done to alleviate Auckland’s crisis. The region’s state housing supply was under considerable stress, forcing many people into the private rental market where rents had risen in the last year, Major Roberts said.

He urged a wide-sweeping range of solutions, including more state housing and more care and professionalism from private landlords. “Mom and pop investors are not in the rental market primarily to provide accommodation,” he said. “They are there for investment and superannuation purposes, so if another type of investment comes along, they shift their money. They don’t care about the tenant.”

Hugh Pavletich, a Christchurch developer and investor and co-author of the Demographic housing affordability report, welcomed the Motu report in particular, saying its recommendations had stunned him because they were so radical.

The recommendations went much further than he had expected, he said, advocating freeing of Auckland land for housing – necessary to start solving the city’s housing crisis – and punishing councils for lengthy resource consent delays.

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The Location

• What is the zoning? Is it residential?
• Does the area have the amenities you need – shops, schools, transport, etc?
• Is the electricity, sewer connected?
• Are there any major developments going on in the area in the future – proposed motorway, shops, electricity corridor etc?

Land

• Is it free from filling, excess seepage of water, steep grading, dense trees, loose boulders, etc? If you are considering extensions, an engineer’s report may be necessary to access the land.
• Is it free from landslips or is it within a geothermal zoning area? Check with your local council and if necessary obtain a geo-technical engineer’s report.
• Check the lawns for puddles as these can indicate poor drainage.

Building

• Is the paintwork in good condition?
• Are the internal and external walls free from cracks & level?
• Are the roofing, guttering and down pipes in good condition?
• Is the building free from damp? Signs of damp, especially rising damp, are usually found around window sills, chimney-breasts, in ceilings and under floor coverings. Heavy condensation on windows can sometimes be a sign.
• Is the floor level and in sound condition? Using a marble is a good test for level floors. (An unlevel floor can indicate the need for foundation repair)
• Is the plaster in good condition?
• What sort of insulation do the walls and ceilings have?
• Does the house have good ventilation and natural lighting? Overgrown trees can cause dark and damp living areas.
• Turn on all the taps and check for water pressure, and that water drains away quickly.
• Turn on the lights to see if they are working. If they are not working, it may be just replacing the bulb or a more serious electrical problem.
• Check electrical wiring for condition. Many older properties were built with wiring which since install may show signs of degradation. Often power meter boards will be moved at time of repair. Always check with an electrician.
• Check number of power points and if they are suitably located.
• Establish exactly what is included in the price of the house – carpets, drapes, appliances, light fittings, etc.?
• Check that any appliances included are working: stove, air conditioning, heaters, and bathroom fans. If it has a fireplace, ask when it last had the chimney swept? If made of concrete does it show signs of cracking or does it have an internal chimney?
• Does the house have good storage?
• Will the house be expensive to maintain?
• Are doorways and passageways wide enough to move furniture through?
• EQC. Earthquake commission. Many types of council have requirements with regards to earthquake compliance. Factors to consider with earthquake compliance can be things such as multi level, age of building and construction type. Always check with your local council.
• What are the internal and exterior walls made of? Internal walls covered with scrim can be difficult to insure and be a hazard. Whilst exterior walls made of poorly constructed materials can leak or degrade quickly.
• Does the property require a warrant of fitness, fire sprinklers or council compliance certificates? Multi unit dwellings and boarding houses often require these types of regular safety checks and certification.

Bedrooms

• Will the bedrooms be affected by light and noise – are they close to a street, to street lamps, stadiums, airports, etc.?
• Are the bedrooms located so they are reasonably free from living area noise? This is often important in flatting situations.
• Is there sufficient ventilation?
• Is there a wardrobe or storage space? Will bedroom furniture fit? Does the passageway and stair cases allow ample room to move furniture into and out of rooms.?

Bathroom and toilet

• Is there sufficient ventilation?
• Is there an extractor fan to remove steam?
• Is the shower recess or bathtub free from leaks and sealed soundly?
• Is there a power point?
• Are there towel rails, cupboards, mirror?
• Is the toilet in good condition and does it flush properly?
• Is the floor and lower levels of vanity units in good condition?

Kitchen

• Are there sufficient cupboards for storage, and adequate bench space for preparing and serving food?
• Do the cupboards open and shut properly and is there room to add more?
• What is the condition of the stove? Is there an exhaust fan? Try the elements to see if they work.
• Will a regular-size refrigerator, dishwasher and/or microwave fit?
• Is there sufficient lighting and ventilation?

Dining and Living Rooms

• Will the furniture fit?
• Is there room for an extended dining room table?
• Are there sufficient power points & internet outlets?
• Is there heating? What type – gas, electric – and is it expensive to run?
• Does it have a TV aerial & satellite antenna?

Laundry

• Does it have a laundry tub?
• Is the hot water connected?
• Could a standard washing machine be installed without any problems?
• Is there room for a dryer?
• Does it have any cupboards or storage?
• Is there a floor waste (drain) or is the floor sufficiently graded so any overflow of waste can escape without causing damage?

Outside area

• Are the paths and fences in good condition?
• Is there a garage or carport? If not, can one be put on?
• How much maintenance does the garden require? Tenants don’t tend to be good gardeners.
• Are the lawns easy to mow?
• Is there a place to store lawn mowers, bikes etc?
• Can the grounds be improved? Landscaping can be a cost effective way to add value. E.g. creating an outdoor entertaining area or deck.
• Is there a pool? If so, does it comply with safety standard regulations?
• Is there plenty of off street parking? Is there space to lay pavers to park on?
• Have you checked the boundaries and fences are located on the legal boundary?

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