Ground lessee insights on ground leasehold issues

Abstract

Lived ownership heuristic experiences provide direct insight of property leaseholder concerns. Emerging of most prominence is an argument that due to heuristics, the propensity for ground rental review outcomes can be misestimated at the time of purchase. This exposes ground lessees to adverse wealth effects, and implies that ground leasehold values are prone to greater uncertainty. To explore this adverse wealth effect and value uncertainty, twenty-five semi-structured interviews were conducted with stakeholders involved in ground lessees of residential properties in New Zealand during 2016. Findings demonstrate that decisions as to capital values and ground lessees do not behave in accord with ‘normal’ expectations, but succumb to availability heuristics and affect heuristics. Furthermore, negative perceptions of rent reviews are exacerbated by arbitration processes, in that ground lessees are perceived as being expensive and adversarial. These findings add to a discussion that greater uncertainty of capital value is reflected in the opportunities for assets to exploit market mispricing.