More than 7000 new homes are to be built in the Wellington region over the next two years. Major housing developments are underway throughout suburbs across the region with many more planned for the future. Last year Lower Hutt was the leading district in the Wellington region for building consents, with more than a thousand consents processed.
Large residential land is in short supply in the incredibly competitive housing market, buying a new home off the plans is becoming increasingly common.
Buying “off the plans” means entering into an agreement for Sale and Purchase to purchase a new build property from a developer when it is either still in the process of being built, or before construction has begun. In these contracts, the purchaser signs the Sale and Purchase Agreement often after only viewing an architect’s impression.
There are many benefits to buying a home off the plans, but these agreements do come with risks and are different to purchasing an existing home. There are some key things to watch out for if you are thinking about buying a home off the plans.
Benefits Of Buying A Property Off The Plans
- Normally you will pay a 5-10% deposit of the purchase price at the time you sign the agreement. You then wait for construction to be completed and pay the balance of the purchase price once title and code compliance certificate have issued. Some buyers find this advantageous as it allows more time to build up their savings while construction is completed.
- If you are entering into a new build agreement and it is your first home purchase, you may be eligible to receive a First Home Grant of $10,000 from Kainga Ora. This is double what is available if you are buying an existing home.
- New builds can be appealing for buyers who want to avoid the rigmarole of carrying out due diligence on a property only for the agreement to fall through before it goes unconditional. Purchasers typically do not need to get LIM reports and builder’s inspections which can reduce expenditure during the purchase process.
- Purchasing a home off the plans also means you are getting a property built to the latest building standards. This comes with the benefits of obtaining a clean and modern home which is likely to require little to no maintenance or repair work for the first few years of ownership. Developers will often be responsible for any issues or defects to the property for the first 12 months of ownership too.
- If you enter into a fixed price agreement and housing prices increase during the build of your property, by the time you move in you may have obtained substantial capital gains.
Risks Of Buying A Property Off The Plans
- The settlement date for an off the plans purchase can be a few years after the agreement is signed. This timeframe presents a risk for obtaining finance as there are no guarantees that the bank will honour your original approval when you re-apply. If circumstances change from the time of signing to settling, you may not be able to finance the purchase and would be forced to default. Ensuring there is a sunset date in your favour that aligns with your finance pre-approval in the agreement can protect you against this situation.
- Some agreements allow for the purchase price to change over the course of the agreement due to increase in construction costs and unforeseen delays. If you enter into a contact that allows costs increases, you might be left with a home you can no longer afford. You should always make sure that you are entering into a true fixed price agreement to ensure you are not going to be caught out by increased costs.
- As we all know the housing market is subject to fluctuation and change. If you enter into a fixed price agreement and housing prices decrease during the build of your property, at settlement the property may be worth less than what are paying for it. This could be an issue if your bank requires a valuation upon completion for finance as it could affect how much they are willing to lend.
- Show homes and plans are not 100% accurate representations of the final build. Most agreements for new builds allow the final house and property area to be reduced by around 5-10%. They can also swap out building materials and chattels which can alter the appearance and quality of the property. Most of the time these changes are not reflected by a reduction in purchase price.
- The reputation of the developer is extremely important when entering into a new build agreement. Do your research into their previous projects to ensure no issues arose with previous developments, whether they have had any legal suits against them, or if they have every been into receivership or liquidation before.
If you are thinking about buying a property off the plans or have questions about this article, click here to talk to one of our friendly and experienced solicitors about your potential future home.
