Selling Land to Family Below Market Value

In property and finance, unique challenges often require innovative solutions. Today, we explore a case study that exemplifies our broad expertise in overcoming complex mortgage and property challenges.

This is a true case study of a New Zealand couple, with names changed or removed for privacy reasons. Here are the strategic steps our mortgage brokers employed to assist our clients in acquiring a piece of land from a family member, under unusual circumstances.

Our clients had the opportunity of a lifetime. Buying 3 acres of rural land off of Granddad and keeping the family home in the family name for just $1!

Naturally, the agreement was that Granddad would live in the property for the rest of his days free of charge, and that was fair enough! He struggled to pay the rates and utilities and didn’t want the home sold to ‘just some random.’

Therefore, they would use the land to subdivide a portion for themselves and build a family home for their Whanau while keeping Granddad undisturbed and looked after in his house up on the hill. 

They had good strong incomes and $110,000 in KiwiSaver…

This must have been easy right!? Nope.

They had gone nowhere in discussions with their bank over the last few months and were hesitant to spend thousands on lawyers’ fees for a ‘maybe’ or a ‘no.’

So, they came to OneStop Financial Solutions.

• Their deposit was tied up in KiwiSaver: The subdivision process would incur $35,000 in surveying and legal fees. Cash that no one had! Furthermore you can’t access KiwiSaver funds for a $1 land purchase.
• Mortgage limitations: Banks use the lower of the registered valuation or the purchase price at the time of sale. Therefore an 80% Mortgage of $1.00 would be the maximum allowable loan amount. That’s $0.80 cents!
• KiwiSaver First Home Withdrawal technicality: If they bought the land for $1 and then subdivided (which they couldn’t afford to pay for out of savings anyway), they would no longer be classed as ‘first home buyers’ (as their names would be on the title). This made the Kainga Ora First Home Grant inaccessible to them. This came as a shock. There are many documented stories similar to this of first home buyers who didn’t seek professional KiwiSaver advice.
• Granddad is well retired: He had no money to complete the subdivision himself.
• Short term debt: My clients also needed to consolidate about $35,000 of short-term loans into their mortgage. This was also holding them back from borrowing any substantial amount later on for the build.

• We identified that $35,000 was needed for the new land title issuance. And another $35,000 for debt consolidation.

   

• We advised their Lawyer to create a Sales and Purchase (S&P) agreement for the purchase price of $360,000 to purchase the new piece of land (once the subdivision was complete) and the title had been issued. This is referred to as ‘Buying off the Plans’ and is common practice.

   

• The agreement was to include a ‘20% deposit payable once the agreement had gone unconditional’. This allowed our clients’ solicitors to start the KiwiSaver first home withdrawal process from their ANZ and ASB KiwiSaver providers and getting their hands on the much needed cash of $72,000. 

   

• This allowed the clients to access their KiwiSaver funds and provided Granddad with a $72,000 deposit. Of this, he used $35,000 to complete the subdivision. 

   

• He then gave the balance to our clients to pay off their short term debts.

   

• We then sought a 2 stage mortgage application.

   

• Stage 1: A $288,000 loan approval to settle on the land once the new Title was issued.
• Stage 2: A $450,000 approval to build a new 3 bed, 2 bath property with a mainstream building company.