Be cautious when buying any property in Canterbury. We’d like to share a story, and give you some tips and advice. Always get a comprehensive builders/property report and undertake a detailed investigation of its repair history.
‘As is where is’ investors creating an insurance nightmare
We have heard many stories where investors purchase ‘as is where is’ for around $250k, and spend less than 50k on cosmetic repairs. This is usually plaster and paint to cover up any visible evidence of structural damage. Then, they engage with a pasty builder to write a builder’s report, and seek replacement insurance.
The property is then re-evaluated at $550k, and sold to unsuspecting buyers. Thereafter, the investor borrows against another house with 40-50% equity. This sort of activity has been going on at epidemic proportions.
We have heard of one investor, who in the last 18 months has purchased 25 ‘as is where is’ properties, generally in Burwood, Parklands and Avondale. All have been written off as uneconomic to repair, with significant structural damage. Mainly, relating to the foundations. The properties have not been sold yet, however, at some stage an unsuspecting buyer will purchase one of these properties.
For the unsuspecting buyer, everything will be ok until the they make an insurance claim. The story goes, the buyer will make a claim for a minor earthquake, fire or some damage to the property. The insurer will investigate prior to paying out on the claim, and they will discover the property was never structurally repaired post-quake. At that point things get really messy for the owner.
Tips and advice when purchasing a property post-quake – simple, yet crucial steps
- Always check the LIM report. Review any building permits, consents, weather tightness and drainage issues. You can find some information on what to look out for here, and get your lawyer to check over it.
- Check the sales history for any price fluctuations, any major jumps should be a red light. You can check a property’s recent sales history here: homes.co.nz.
- Get an independent property builders report. Make sure the builder is a Licenced Building Practitioner and has personal indemnity insurance. You can find builders on the Institute of Building Inspectors website.
- If the property had repairs and alterations carried out, make sure they have the correct building consent and follow compliance procedures. Ask for the scope of works, including the following producer statements:
- PS1 and PS2 is completed by an engineer, and related to the design and specifications of the building repairs or alterations
- PS3 is for construction completed by a contractor and/or supplier
- PS4 is a construction review carried out by the engineer who has observed the construction.