More apartment owners will be eligible for earthquake-prone loan scheme

Cabinet approved expanding eligibility criteria for the loan scheme to help apartment owners pay for earthquake strengthening.

Applications for the Earthquake-Prone Residential Building Financial Assistance Program opened in September 2020, offering deferred repayment loans with low interest rates of up to $250,000.

As of December last year, no one had applied for a single cent of the $23 million fund.

Ministers were considering a review of the scheme carried out by the Ministry of Business, Innovation and Employment (MBIE), which has now been announced.

The review found that there were some situations in which people who did not meet the criteria faced real hardship as a result of having to meet their treatment obligations.

“Some flexibility around eligibility in limited circumstances should be considered to accommodate these cases,” the review said.

But the review also said that any system settings changes alone would only cause a “small number” of supported unit owners to comply with their repair requirements.

“There are broader barriers that make it difficult for people to repair their buildings in general – the repair process is complex, time-consuming, expensive and requires joint decision-making among groups of owners.”

MBIE confirmed that yesterday the Cabinet approved some changes to expand access to the scheme. Construction Minister Poto Williams has been contacted for comment.

The changes include allowing some people who no longer live in their earthquake-prone units to take advantage of the loans, provided they either sell or return their property within two years of the building being removed from the earthquake-prone building register.

The scheme was previously only available to resident owners to limit the transfer of wealth from taxpayers to private property owners.

But the review found that some previous owners were classed as investors after having to leave their units due to a change in circumstances such as a job, divorce or mental stress from the earthquake strengthening process.

“They are not traditional investors because they do not own another property, and their earthquake-prone condominium cannot be sold with outstanding repair commitments.

“They are receiving rental returns from their apartments, as the rental market for earthquake-prone units has been less affected than the market for sale.”

The review also noted that while many wanted to sell their units, some real estate agents refused to register the listing or could only sell at a price that would lead to significant financial hardship.

Another change approved by the Cabinet is the expansion of the system eligibility deadline from July 1, 2017.

This is the date on which the new National Earthquake Prone Building Management System came into effect.

When the scheme was designed, it was assumed that owners purchasing units after this date would be fully aware of the repair requirements of buildings subject to potential earthquakes.

But the review found one respondent whose apartment building was initially rated as 83 percent of the New Building Standard (NBS) and some owners purchased their units after July 2017 in that building.

Anything less than 34 percent of NBS is considered earthquake prone.

Then, while processing deferred maintenance in 2021, an engineer re-evaluated the building, rated it as less than 15 percent of NBS.

The review stated that “the current settings exclude owners who purchased their apartments in this building and did not know at the time of purchase that it would be confirmed later that the building was earthquake-prone.”

Other changes have been approved to include requiring all loans to be fully insured where possible. When full coverage is not feasible, a loan may be granted in case the building has fire cover and where the reinforcement brings the building up to an insurable level.

Consumer credit reports will not be required to access the system.

The interest rate was revised to 50 percent of the Reserve Bank’s five-year fixed monthly average, and the low equity margin of 1.25 percent was eliminated.

The changes will take effect from May 18, 2022.

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