The Worst Investment You Can Make. Avoiding Leasehold Properties

Leasehold properties are the centre of many poor investment decisions; avoid them at all costs.

"Buy Land – They're Not Making It Anymore"

Old Twain might’ve been a humorist, but this quote is deadly serious for property investors.

The key driver of long-term capital growth? Land. And here’s the reality check: not all property is created equal.

Let’s get one thing straight, there are two kinds of assets:

• Appreciating assets, which go up in value over time
  

• Depreciating assets, which bleed value the second you own them
  

Take a car. Drive it off the lot, and just like that, you've lost 10% of its value before you’ve even hit traffic.

From a lifestyle perspective? Great.

From an investment perspective? It’s a financial sinkhole.

Now look at real estate. It generally appreciates, roughly 5-6% per year on average in New Zealand. And within real estate, there are two components:

• The building, which depreciates unless maintained
  

• The land, which appreciates and is the true wealth engine
  

So, if you’re investing in property, the rule is simple: own the land, or you don’t really own the asset.

Understand The Ownership Structure

In New Zealand, there are four main ownership types:

• Freehold (Fee Simple) – You own the land and the building

  
  

• Unit Title (Strata) – You own your unit + a share of the common property
  

• Cross Lease – You and others share ownership of the land
  

• Leasehold – You own the building, but not the land
  

That last one is where red flags start waving.

With leasehold properties, you pay ground rent to the landowner. That’s right, you’re investing in an asset that sits on land someone else owns. And guess what? That rent increases. Often dramatically.

Let’s unpack a real example.

Real Leasehold Case Study: Auckland CBD

Property: 2 Bed | 1 Bath | 0 Car Parks | 69sqm | Asking $90,000

Rented for $520/week – sounds like a dream, right?

On the surface, yes. A 30% yield is incredibly high, and one that will trump any other investment when you're considering cashflow.

But here's the breakdown of hidden costs:

• Ground lease: $11,600/year

  
  

• Body corporate (OPEX): $5,300/year
  

• Rates: $1,300/year
  

• Total yearly holding costs: $18,200
  

That rental income suddenly doesn’t look so hot when $350 per week disappears into costs.

Worse still? The capital growth outlook is grim.

This apartment last sold in 2020 for over $150,000. Today, it’s listed at $90,000. That’s a 40%+ loss in just five years.

Why? Because the building depreciates. And there’s no land to lift its value.

The Leasehold Time Bomb

Now for the fine print most people ignore: Lease agreements often include rent review clauses.

That means your ground lease can spike, sometimes double or triple, when reviewed every 7 or 21 years (depending on the lease terms).

The closer the lease gets to expiry, the less desirable the property becomes because buyers don’t want to be left holding a ticking time bomb.

And neither do the banks.

Most banks won’t touch leasehold apartments unless you’ve got a 50% deposit, and even then, they might decline based on the lease structure.

The Better Path: Fee Simple & Unit Titles

Most modern developments, especially new builds, are structured as either:

• Fee simple (you own it all), or
  

• Unit titles (you own your unit + shared spaces)
  

These ownership types allow you to actually benefit from land appreciation and enjoy real capital gains. Not to mention: they're bank-friendly.

Final Thought

If you’re serious about building wealth through property, don’t just chase yield. Chase ownership. Land is where the growth is; everything else is just overhead.

And if a leasehold deal looks too good to be true? It probably is.

Always get legal advice before signing anything involving leasehold or unusual title structures. Then get a second opinion from a qualified property investment advisor to make sure you're aware of all the implications.

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