Disclaimer:
This article provides general information only and does not constitute financial, legal, tax, or investment advice. Property investment involves risk. Always do your own research and seek personalised advice from qualified professionals before making investment decisions.
Key Takeaways
- A council determines whether a building or part is earthquake-prone under the Building Act test; a rating below 34%NBS is used in the current system, but it is not a prediction that collapse will occur in a particular earthquake.
- The applicable deadline is stated on the EPB notice and register. Many notice deadlines on or after 2 April 2024 received a four-year statutory extension, and announced system reforms may change future requirements.
- Assessment, strengthening, consent, relocation and related costs are building- and project-specific; use current engineering and contractor evidence rather than a generic rate.
- Insurance and finance availability, terms and cost depend on the building, policy, lender and proposed work; obtain written property-specific terms before committing.
- A lower purchase price does not establish value or cover assessment, strengthening, finance, insurance, vacancy, delay or resale risk.
Earthquake-prone status can create legal, safety, engineering, insurance, finance, vacancy and resale risks. Check the current notice and property-specific evidence before considering a transaction.
Since the Canterbury earthquakes, New Zealand has significantly strengthened its approach to earthquake-prone buildings. The Building (Earthquake-prone Buildings) Amendment Act 2016 created a national system for identifying and remediating these buildings, with significant implications for property owners and investors.
What is an Earthquake-Prone Building?
Under the current system, a council determines whether a building or part is earthquake-prone by applying the Building Act test. An earthquake rating below 34%NBS is used for that system; %NBS is a comparative life-safety assessment, not a forecast of performance in a particular earthquake.
NBS Rating Guide:
- Below 34%NBS: used in the current statutory earthquake-prone building assessment
- 34%NBS or above: does not by itself settle safety, work, insurance, finance or contractual requirements
- Any %NBS result: review the assessment scope, date, assumptions and identified weaknesses
- A rating does not certify absence of damage or guarantee Building Code, insurance or lender acceptance
%NBS compares expected seismic performance with the minimum life-safety standard for a new building at the same site. Avoid converting it into a simple strength, damage or collapse percentage.
How Buildings are Identified
Territorial authorities identify potentially earthquake-prone buildings, request engineering information where required, make the statutory determination and issue an EPB notice. Check the notice and register for the building or affected part and its recorded deadline.
Buildings most likely to be identified include unreinforced masonry buildings, older concrete buildings, buildings with irregular shapes or soft storeys, and buildings that have been altered in ways that affect structural performance.
Timeframes for Remediation
An EPB notice records the deadline for seismic work. Base periods depend on the statutory settings and priority status, but the actual notice must be checked because extensions and announced reforms can change the operative position:
Remediation Timeframes:
- High seismic risk areas: base periods have been 15 years, or half that for priority buildings
- Medium seismic risk areas: base periods have been 25 years, or half that for priority buildings
- Low seismic risk areas: base period has been 35 years; check current reforms and the notice
Priority status is defined by the legislation and council process and has affected the available period. Check the register and notice rather than inferring status from use or location.
Costs of Remediation
Seismic assessment and strengthening costs depend on the building, identified weaknesses, design, target, consent, access, heritage constraints, market pricing and work scope. Obtain current property-specific reports and quotes.
Cost Considerations:
- Engineering assessment scope and quoted cost
- Consenting and compliance costs
- Loss of rental income during works
- Temporary relocation costs for tenants
- Potential need for simultaneous upgrades (fire, access, asbestos)
Strengthening, partial demolition, demolition, sale or another response can have different legal, consent, heritage, tax, tenancy and financial effects. Compare property-specific options without assuming which is economic.
Insurance Implications
Insurers may treat seismic risk differently by building, location, assessment and policy. Availability, premium, excess, exclusions and insured amount require current written confirmation.
Lenders set their own security and insurance requirements. Confirm finance and insurance for the specific property and proposed work in writing; neither approval nor cover should be assumed from a rating alone.
Impact on Property Values
An EPB notice can affect a transaction, but there is no universal value discount. Valuation depends on the property, notice, deadline, work scope, income, insurance, finance, market and buyer assumptions.
Sale price and liquidity are uncertain. Compare independent valuation, engineering scope, current quotes, deadline, income, insurance and finance rather than assuming a discount or sale outcome.
Investment Opportunities
Past investor outcomes do not establish a profitable strategy. Model acquisition, assessment, design, consent, works, vacancy, finance, insurance, delay, tax and resale scenarios, including cost overruns and loss.
Potential Opportunities:
- Buildings where remediation is straightforward and well-understood
- Properties where land value supports the total acquisition and remediation cost
- Buildings whose current notice, extensions and transition settings have been verified
- Transactions assessed without relying on seller urgency or assumed bargaining outcomes
- Heritage buildings only where current assistance and its conditions are confirmed
Engineering and construction uncertainty can create material cost and delay risk. Independent property-specific advice and downside scenarios cannot guarantee a profitable outcome.
Due Diligence Requirements
The appropriate seismic assessment depends on the existing evidence, council process, building and purpose. Ask a suitably qualified structural engineer what assessment and investigations are needed; no assessment can make cost or work scope certain.
Check the EPB Register, current notice, council and property records, assessments and prior work; obtain written insurance, finance and cost information; and have a lawyer or conveyancer advise on any agreement conditions and deadlines.
The Bottom Line
Earthquake-prone buildings involve property-specific legal, safety, engineering, finance, insurance, income and resale risks. Suitability cannot be determined for investors as a group.
If considering a transaction, obtain independent engineering, legal, insurance, valuation, tax and finance input within the purchase timetable, and model delay, cost-overrun and loss scenarios. Advice and due diligence reduce uncertainty but do not guarantee an outcome.