Buying guide

What is a leasehold property in NZ? Everything you need to know

Owning a property via leasehold works a little differently than freehold. Here’s everything you need to know.

Last updated: 12 March 2024

It’s important to know when buying property that there are four main types of land ownership in New Zealand. The type of ownership can affect what you’re able to do with the property, and your responsibilities as the owner. 

Leasehold is one of the most unique types of ownership - here’s everything you need to know about it before you buy. 

What does leasehold mean?

When you buy a leasehold property, you don’t own the land, someone else does. What you’ve purchased is the exclusive right to use the property for a set period of time, which can be anywhere from 10 to 50 or even 500+ years. You will pay rent to the owner of the land - called ground rent - and you may also own the physical buildings on the land. When the term of the lease expires, the land will be returned to its owner and you’ll no longer be able to occupy it. 

As part of the purchase you’ll have a lease document which sets out the terms of the lease, including your responsibilities and rights as leaseholder. The majority of leasehold properties are apartments, with a much lower number of townhouses and houses. 

There is a high concentration of leasehold properties on the coast, around Māori land, and surrounding other significant landmarks, in areas like Auckland's Viaduct, Cornwall Park and CBD. 

Is it safe to buy leasehold property?

It may be safe to buy some leasehold property but only if you know what you’re doing, and fully understand the terms of your lease. Owning a leasehold property is very different from owning freehold, which is the most common and understood type of ownership in NZ.

The advantages of leasehold property

Because you don’t own the land, leasehold property is typically much cheaper than comparable freehold properties, which may mean a smaller mortgage and paying less mortgage interest. This can make leasehold properties seem very attractive.

 Let’s look at an example - right now there are two very different apartments listed in Auckland city:

  1. A leasehold three bedroom, two bathroom, 100sqm absolute waterfront luxury apartment. Asking $1.29 million. 

  2. A freehold one bedroom, one bathroom 50 sqm apartment much further from the water. Asking $999,000. 

If the first apartment was freehold it might sell for north of $3-4 million. But because you’re only buying the building and the right to occupy the land it’s much cheaper. On the other hand, the second property is priced higher (relative to its value) to reflect the fact that you own the apartment and a portion of the land it’s on via freehold.

Auckland's Viaduct has a high concentration of leasehold apartments.

The risks and downsides of leasehold property

Before you jump at a low price and buy a leasehold property it’s important to understand the risks involved (and there are a few!). Let’s take a closer look:

  • Ground rent increases: ground rent is regularly re-assessed according to the market and land values every 7-21 years, so there’s no way to know how much you’ll be charged in future. Several people have been caught out when buying a leasehold property because the ground rent seemed cheap, only for it to significantly increase down the track (sometimes to a level that the owner couldn't afford).

  • Minimal capital gains: because you don’t own the land, leasehold properties typically don’t see the same capital gains as freehold ones do (if any). If you’re buying your first home this can make it very difficult to upgrade later, as freehold properties may be appreciating in value faster than your leasehold home. This may also make leasehold properties less attractive as investments. 

  • Finance can be difficult: because of the uncertainty around ground rent and the lack of capital gains it’s typically harder to borrow to finance a leasehold property. Banks may minimum deposit of 50%. 

  • Hard to sell: there’s a stigma around leasehold properties because of the above points. Plus, because banks are more hesitant to lend on them, there’s typically a much smaller buyer pool for leasehold properties. As a result they can be very hard to sell, especially if there’s a ground rent review coming up. 

  • Less control: you may not be able to make any changes to leasehold land, depending on the terms on the lease. This can mean that building of extensions, minor dwellings or other renovations aren’t possible. 

Google stories about the risks of leasehold properties and you’ll find plenty. For example, real estate agent Martin Dunn, head of City Sales and founder of Real Estate Together, told he knew of a person who bought a mansion on Cornwall Park for $90,000, despite being advised against it. The ground rent then increased to $120,000 and the person was then stuck with an unsellable property that was financially crippling. 

Freehold VS leasehold: Which is better?

For most people freehold property is the way to go.

Freehold, otherwise known as fee simple, is the most common type of property ownership in New Zealand. It’s also the most straightforward.

When you buy a freehold property you’ll own the land, plus any buildings on it (in most cases). There may be some restrictions around how you can use or alter the property, if there’s easements, covenants or restrictions under the RMA (Resource Management Act), but you won’t be subject to the land owner’s whims or ground rent increases. Freehold properties are also easier to sell and finance, and will increase in value more. 

They are a much better option than leasehold properties for must buyers, especially first home buyers

In some rare cases leasehold homes may be ideal

In some rare cases, leasehold homes can work for lifestyle reasons or for downsizers, retirees and investors, Martin explains:

  • Lifestyle: buying a leasehold property in Auckland’s Viaduct for $1 million, instead of a comparable property elsewhere for $3+ million can be tempting. In this example, the buyer may pay more mortgage interest on the larger loan than ground rent.

  • Downsizers and retirees: for retirees who’ve sold their family home sometimes leasehold properties can make sense. For example, if the retirees have a large amount of cash it may make more sense to buy a cheaper leasehold and get higher returns on the rest of the money in other investments. Older retirees typically own property for a shorter time, so they may also be less affected by ground rent increases. 

  • Investors: small, low-priced leasehold apartments in Auckland’s CBD are popular with some investors. They may not experience capital gains, but they may have very high rental returns - as high as 10% net, according to Martin. 

Apartments in Auckland's CBD are often leasehold.

Everything you need to know before buying leasehold property

Due diligence is important no matter what type of property you’re buying, but it’s especially crucial when purchasing leasehold land. To protect yourself, it’s a great idea to do detailed due diligence before you make an offer. 

Here are a few things you need to know according to MoneyHub and other experts:

  • Dates of rent reviews: when are rent reviews and how frequent are they? If there’s one coming up soon, beware. 

  • Bare land or developed land: bare land generally has lower ground rent than developed land (i.e. an apartment block). 

  • The reputation of the landowner: MoneyHub recommends Googling the landowner and asking your lawyer to find out if they have a reputation for increasing ground rents and legal action. If they do, steer clear of their properties. 

  • Restrictions on your use of the property: are you able to renovate the property, add additional buildings, or change it in any other way ? It’s always better not to assume you can with leasehold properties. 

  • Your responsibilities as the leaseholder: for example, if you need to pay insurance or maintain the buildings on the land. 

  • Body corporate costs: because leasehold properties are often apartments, they may have body corporates and the leaseholder may be responsible for covering some or all of their costs. Make sure you understand this before buying. 

You should also carry out all the due diligence you usually would for a non-leasehold property, which may include building reports, assessing the body corporate and more. Most importantly, you should find out when the land lease expires because when it does there’s no guarantee you’ll be able to stay in the property. 

What happens when leasehold expires?

When the lease expires,the landowner can choose to reoccupy the property, which means you’ll lose the amount you paid to purchase it and have to move out. The owner may also choose to renegotiate the terms of the lease, which could affect the ground rent you pay or the way you’re able to use the property. 

To protect yourself against this you should make sure that the lease includes the option to renew once it expires. 

ALWAYS get expert advice from an experienced property lawyer before buying leasehold property

Buying leasehold property can be very risky. To avoid making an expensive mistake, always get detailed advice from a property lawyer, with specific experience around purchasing leasehold property before making an offer. Your lawyer should review the terms of the lease agreement and make sure you understand your responsibilities, the potential risks and what happens when the leasehold expires. 

*We hope this article has provided some helpful information. It's based on our experience and is not intended as a complete guide. Of course, it doesn’t consider your individual needs or situation. If you're thinking about buying or selling a property, you should always get specific advice, especially if it’s leasehold. 


Ben Tutty
Ben Tutty

Ben Tutty is a regular contributor for Trade Me and he's also contributed to Stuff and the Informed Investor. He's got 10+ years experience as both a journalist and website copywriter, specialising in real estate, finance and tourism. Ben lives in Wānaka with his partner and his best mate (Finnegan the whippet).