Investing in the good life

INVESTING IN THE GOOD LIFE

Linda Donald goes through some of the pitfalls and checks needed in buying lifestyle property for investment

The desire to own and live on a lifestyle block can be all pervading for those who wish to emulate ‘the good life’.

For us it translated into eight glorious years, a decade ago, on several acres north-west of Auckland, as the children were growing up.

While it’s acknowledged that lifestyle aspects are the driving force for many small holding purchases, do they stack up as a good investment?

“Yes, in general terms,” says Mr. Michael Williams, of Barfoot and Thompson Auckland. “As the price of residential sections escalate, many buyers choose a lifestyle block for the same dollar value. This means they get more land for their dollars, more space, and maybe a chance to build their dream home for starters.”

“If you are looking to buy a lifestyle block as an investment, with an eye to capital gain, the ability to subdivide is a part of the equation and the closer to the city the property is, depending on local ordinances, the greater the opportunity to subdivide. Today, people are buying anything that can be subdivided, whether it be farmland, coastal, fringe city or rural township lifestyle blocks with an eye to investment,” Mr. Williams explained.

Of course, as with all property purchases, doing your homework thoroughly is essential. Check out claimed subdivision potential on Regional and District plans along with other activities permitted in a particular zone, such as change of use and whether the land can be built on as of right.

There are a few other points to consider.

Along with location, schools, building codes, improvements etc. depending on what you intend to do with the land, attention must also be paid to local council services, land contour and existing shelter, soil type, potential income from cash flow activity as well as capital gain. You can add, proximity to coast, views, urban growth and one of the most important – water rights. If you have to apply for a permit, these are not always easy to get today. Check with the regional council if water rights are available or existing ones can be transferred.

Another area to investigate is what the property was previously used for. There have been some horror stories about the dumping of toxic wastes. This information could be on the Lim report, if not and you are at all suspicious, find out by going to the Council and asking the question directly. You can also take soil samples and send them off to the laboratory for chemical residue tests or arrange for someone from an analytical laboratory to come out and take some samples for testing.

Properties can be vacant or improved, either a bare block where you can undertake one of a number of projects or you could purchase a going concern (vineyards, glass or shade houses, animal husbandry, olives, nuts, hospitality etc.) Generally agricultural and horticultural activities comply with zoning, but if you propose to set up a discretionary activity, you will need to make an application for a specified departure.

And while there is no stamp duty in New Zealand, there can be GST implications.

For instance, if you are a GST registered purchaser, a going concern is zero rated for GST. This means the property has an established business on it and you are buying the business and the free hold land as part of the business operation. The business must continue to operate and you take over, for example, a growing crop or Bed and Breakfast with bookings in place.

If you buy a dwelling that just happens to be on a lifestyle block, there are no GST implications.

On the other hand, if you buy a lifestyle block with a dwelling or propose to erect one and also intend to start operating a business on the property, regardless of what the business is going to be, from a welding workshop to a planting a flower crop, you are entitled to claim GST (register first) on the portion of the property that is reasonably being used for the business.

If you are not GST registered, you will be required to pay the purchase price plus GST.

When it comes to working out a fair purchase price, use a real estate agent with sound local knowledge who can give you some comparisons and then go and have a look at the properties yourself to get the full picture. Use the services of a qualified valuer who specialises in this sector of the market, to give you an unbiased market appraisal and also help with information about productivity.

I asked valuer, Mr. Warren Priest, from Seager & Partners, Botany Downs, Auckland, what information a valuer could provide to a perspective buyer. “Most important is sales analysis and market appraisal, offering a sales evaluation of what other people are prepared to pay.”

Mr. Williams also suggests looking at cash flow versus capital gain.

Along with other real estate, REINZ statistics show that lifestyle block sales have shown good growth in recent times, although indications are that they can take longer to sell. Mr. Williams says it depends on the vendor’s motivation to conclude a satisfactory result.

Land with subdivisionable potential would normally be tendered, while auction or tender has been the preferred method of sale in the last 18 months, Mr. Williams revealed, with vendors being reluctant to list a price.

If you like the idea, but prefer to enjoy it from afar, you could purchase a horticultural block and run it under management. This could be in kiwifruit, apple orchards, vineyards or exotic trees, to name a few. Likewise, there are listed companies you can invest in with interests for example in forestry, orchards, kiwifruit or stables – This may relate to several acres or link to a single tree in a macadamia nut farm or share in a horse.

While overseas investors can generally buy a property in NZ under five hectares, restrictions apply over this size and would need to be checked out.

©2004 Linda Donald
All rights reserved
Appeared in The New Zealand Property Magazine
Words 1017