If you’re saving to buy your first home, you may have thought about purchasing a house straight from a developer's plans – and there are several benefits in doing so. However, as you don’t get to see the finished product before you buy, there are risks and complications too, which we’ll explain in this article.
Why buy a house off plans?
Purchasing off the plans can be a good option for first-home buyers. Due to New Zealand’s well-documented housing shortage, there are incentives through KiwiSaver to encourage more people to build new, rather than buy or renovate existing houses.
KiwiSaver HomeStart grant
If you have belonged to KiwiSaver for at least three years, you should be eligible to withdraw your savings for a deposit or settlement amount on your first home. If you have previously owned a home, you may still qualify as long as you no longer own a house or land.
A big benefit to buying a new home from the plans is that you will be eligible for the maximum KiwiSaver HomeStart grant.
To qualify, you need to have contributed to KiwiSaver, a complying fund, or an exempt employer scheme for a minimum of three years.
Because you’ll be building a new home, you’ll be eligible for a $2,000 grant for every year you’ve contributed to KiwiSaver (or the other schemes mentioned) up to a maximum of five years. In comparison, buyers of existing homes are eligible for just $1,000 per year up to five years.
Do your due diligence
When you buy off the plans, you’re trusting the developer to complete your house to the standard promised. So, do your research. Ask to see other projects that the developer has completed. Also, go online and check Companies Office to find out who the company’s directors and shareholders are and whether any have been bankrupt.
Get good independent legal advice, and find out if there’s a solicitor’s approval clause in your contract. If there isn’t, ask for one to be included.
Also, be aware that your deposit can’t be used to help fund the development, so ensure it goes to a third party’s (like a lawyer) trust account, and you earn interest on the money.
You can usually request modifications to the house you choose, such as a different style kitchen bench or sink. Keep in mind that most contracts also allow the developer to make changes without your permission. These can include the house’s layout, materials, and finishes — even as much as 5% of its size.
Things can change before you move in
One of the benefits of buying off a plan is that the long settlement period gives you time to organise your finances. Also, by the time you settle, there’s a chance that your house will have increased in value. If however, the property market sinks during construction, you may struggle to sell your home, and you might lose money. Also, interest rates can increase, which could make it difficult to meet mortgage payments.
Some important things to look out for:
- Location: Think about how close you will be to public transport, amenities, shops, and cafes.
- How is your house different? Make sure you buy something that tenants or buyers will like should you rent out or sell in the future, and choose a property that has some unique features.
- Layout and size: Do you understand just how big your house will be? Find out the square meterage, but be aware that it will include areas like wardrobes and hallways.
- Details: Ensure the developer isn’t cutting corners to reduce costs, and carefully check all fittings, fixtures, finishes, and communal spaces.
- Is there a body corporate? Like apartment buildings, many housing developments are run by a body corporate. If this is the case, find out how much you will pay in body corporate fees. Also, ask what the rules are. For example, there may be limitations for alterations you can make to your house or land.
- How are you protected? With property developments, delays are common. Find out if your contract has a sunset clause. This will allow you to cancel your contract and get back your deposit if the developer fails to make enough progress within a specific timeframe. Also, be aware that you are entitled to a 14-day cooling-off period. During this time, you can cancel your contract if you have second thoughts.
- Soundproofing: No one likes being disturbed by noisy neighbours, so check that the house will have adequate soundproofing. In New Zealand, the minimum standard is 55 STC (sound transmission class) and IIC (impact insulation class). To be safe, aim for 65 STC/IIC.
- Outlook: Are views important to you? If so, ask whether future developments will affect what you see out your windows. Also, will your house get plenty of natural light?
- Security: Finally, find out about safety features like fire extinguishers, sprinklers, and fencing.