Property investment

Insights and commentary on property investing.

Sandy Richardson answers some common questions for New Zealand property investors. Read this week's column or see previous columns.

Sandy Richardson is a Sales Manager at BNZ and heads up a team of property managers who specialise in residential property investment. The views expressed are her own and do not necessarily represent those of BNZ or its related entities.

Latest column: Insurance is changing

This month, Sandy Richardson looks at how the insurance landscape will change this year.

Home insurance in New Zealand is going through its biggest change in 25 years, with many general insurers changing the way they provide cover for homes – moving from actual replacement to a specified sum insured.

The change has mainly been driven by international reinsurers, off the back of the increase in natural disasters in recent years. Reinsurers are companies that provide capital to meet claims in the event of large scale natural disasters. They are seeking greater certainty around their risk exposure (i.e. what insurers might have to pay out in the event of a natural disaster).

The change will see New Zealand's home insurance policies align with those in other countries such as United Kingdom and United States, and how cover for New Zealand homes used to be provided.

As a result many homeowners over the next year will be asked to select a specified sum insured (or fixed dollar amount) to insure their home for.

As a property investor you'll need to satisfy yourself not only with the sum insured of your own residential home, but any properties you own for investment purposes too. As the rebuild cost of a home is affected by many different factors, the cost to rebuild two seemingly similar homes (for example homes of a similar size) could vary significantly.

Some considerations that need to be factored in when considering the total cost to rebuild are:

• age
• size
• location
• quality of construction
• the slope of the land the home is built on
• costs of demolition and debris removal
• materials
• labour and professional fees

There are several ways to estimate what it would cost to rebuild your home (and your investment properties).

• Ask a licensed builder or quantity surveyor to provide an estimate of what it would cost to rebuild your home
• Ask a registered valuer to undertake a valuation of your home for Insurance Purposes
• Access a free online calculator provided by one of New Zealand's general insurers – not a replacement for professional valuation but provides an estimate

Some insurers may also offer a flat cost per square metre which can be used as a guide, but this doesn't take into account any of the factors specific to your home, so may not give you the correct amount of cover.

Most commercial and large body corporates will already be on a Sum Insured policy. Bodies corporate will need to take into consideration all the units when insuring the property as a whole. Owners of holiday homes and cross-leased properties should consider the impacts of when their properties may be vacant and/or shared assets such as driveways, fences, and retaining walls when determining their sum insured.

The onus is on the homeowner to choose a sum insured for their property, which reflects the likely cost to rebuild it in the event of a total loss. This is because if the home ever suffered extensive damage and needed to be rebuilt, the sum insured is the maximum the insurer would pay to rebuild it. Even if the actual cost to rebuild it turned out to be greater than that.

Talk to your insurer to find out the right cover for your property. As ensuring you have adequate cover for your investment properties is critical to protecting your cash flow.

Download the latest Property Investment column  PDF 264KB May 2013

 

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