What is a managed apartment?
Generally a managed apartment is a unit that is part of a complex run by a hotel or management company which rents out the unit on a nightly (short-term) basis. You receive a return based on the income from rental of your property, less expenses and management fees. These types of properties are the perfect option if you like to come to Queenstown for holidays and have a little piece of the property market at the same time.
What am I purchasing?
Most of these types of apartments are Stratum in Freehold properties, otherwise known as unit title, so you own the apartment outright and shares in ownership of the land based upon your apartment’s size.
Can I take my apartment out of management?
That all depends on the management agreement in place. Some agreements are registered on title, and form part of the sales contract, and are therefore potentially locked into management agreements for several years. Others will specify in the management agreement that a period of notice can be served and then you can cease the management agreement. The minimum is normally three months, and it is not uncommon to see six or twelve month exit clauses.
Are managed apartments furnished?
Most of the managed apartments today are sold fully furnished, however if the apartment is new it is not uncommon to have the furniture as an optional extra cost.
What outgoings should I expect to pay?
Your main direct outgoing costs are council rates and Body Corporate fees, which vary from complex to complex. There is also sometimes contents insurance to pay, however Body Corporate fees normally cover all exterior and building insurance.
What does a management company do?
The management company looks after the marketing of the complex, letting of the units and operation of the complex. You receive a return based on the income from rental of your property, less expenses and management fees.
How often can I use my apartment personally? Will it cost anything?
In general, most of these types of apartments have 28 days of owner usage for holidays, although some only offer 14 days and others up to 180 days. Most will have some sort of restriction on peak periods, otherwise you just need to book in advance with reasonable notice.
Some complexes just charge cleaning fees at the end of your stay, and others charge a daily reduced owner’s rate to cover costs.
What are the GST implications of buying a managed apartment?
You will note that most of the prices for managed apartments are quoted ‘plus GST (if any)’. This means that as long as you register for New Zealand GST and keep the apartment in management, then the GST on the purchase price is zero-rated. There are new GST laws now in effect which mean that if you come and stay in your apartment then you will pay GST to the government based on the number of days you stay. If you want to live in the apartment then you will need to pay GST on the purchase price to the Government. We recommend seeking independent advice from an accountant, as this can be quite complicated and needs to be tailored to each individual buyer’s situation.
How do Body Corporates work?
A body corporate is a legal entity created when land is subdivided and registered to establish a unit titles scheme. Every owner of a flat or lot held under a unit title automatically belongs to it.
The purpose of a body corporate is to enable the owners of the units to be jointly responsible for the insurance for, and maintenance of, the common areas (e.g. the building and grounds). The body corporate also sets the rules about things like how common areas can be used and how much the annual fees are. (Source: cab.org.nz)
What returns can I expect?
Most of the managed apartments in Queenstown return about 3-4% net to owners; the main attraction is in long term capital gain and being able to utilise the lifestyle benefits of a property for holidays in Queenstown. Some apartments have been known to get over 7% net return, which is perhaps the maximum net return we would expect to see for a Queenstown managed apartment in the current market.
What sort of loan can I get on a managed apartment?
Banks had in recent years been lending up to 50% on a managed apartment for buyers, however this has changed now with up to 65% lending potentially available, always on a case-by-case basis. Your best option is to contact a local mortgage broker in Queenstown who can advise on further information on lending and financial matters.