Buying a new-build home sight unseen can be an uncertain prospect for new house hunters, but a wave of development is set to satiate our supply and demand dilemmas, and it’s a process that Kiwi purchasers could be well-advised to get used to.

Surprising many with unprecedented changes to housing policy in March this year, the Government made their intention to support first home buyers clear.

The swathe of changes included a $3.8 billion infrastructure fund to support the creation of new housing supply, and for first home buyers price caps were increased for First Home Grant and First Home Loan assistance, offering greater encouragement to purchase new.

For property investors, there’s been added incentive to develop or purchase new with confirmation from the Government that new-build homes will be exempt from the recent 40-percent deposit requirement rise under loan-to-value ratio (LVR) rules.

Similarly, new-build properties are also exempt from recent planned tax changes, meaning investors will still be able to deduct interest expenses against the rental income generated from a new-build home.

While some of the specifics here are still to be ironed out, for example, how long does a new-build remain a new-build and therefore a tax-deductible expense? The Government’s consultation documents suggest it could offer a small win for property investors, allowing interest to be deducted in perpetuity for the owner of a newly constructed property.

WHAT IS A NEW-BUILD HOME?

Cabinet consultation on what defines a ‘new-build’ property has now concluded with discussions confirming the interpretation is fairly wide-ranging.

New-build properties include homes that replace an existing previously uninhabitable house, renovations to existing homes that create new dwellings, new homes added to a site (standalone or attached), and commercial properties which are converted for residential use.

With news the property industry is now New Zealand’s largest sector contributing $41.2 billion or about 15 percent of the country’s gross domestic product (GDP), the goal here is to funnel property investment toward creating new housing supply, rather than pitting investors against first home buyers.

WHY BUY NEW?

In recent months, several of the four big banks including ANZ and ASB have introduced special mortgage rates for those building new properties, which given the slow and steady upward creep of interest rates, offers a more cost-effective option for those looking to trade up for less, or get a foot on the ladder.

For mortgaged investors, these favourable floating mortgage rates remain an attractive prospect against a landscape of punitive tax measures for existing homes.

KIWIS GETTING COMFORTABLE

Since 2014 there has been a surge in the number of residential developments going to market across New Zealand with local councillors moving to allow greater intensification in urban areas facilitating an upswing in construction for apartment and townhouse-style residences.

Kiwis are becoming more attracted to the apartment lifestyle, with townhouses also gaining in popularity thanks to the ability to retain a greenspace of sorts.

Property developers across the country are investing in projects that range from affordable housing and first home buyer units in burgeoning suburbs and centrally-located, high-end apartments targeted at busy professionals, modern families and downsizers seeking an attractive solution to the maintenance of the family home.

However, those in the market say New Zealand remains critically undersupplied in terms of residential housing, with record building consent numbers of late hampered by global supply chain disruption brought about by the pandemic which is coupled with a shortage of materials and available labour.

NEW-BUILD CHECKLIST

While new-build communities and multi-unit developments are an efficient solution to New Zealand’s issues with housing supply, some Kiwis still find the idea of purchasing their biggest asset sight-unseen somewhat intimidating.

Bayleys has provided a brief checklist of five things you should consider before purchasing a new-build property.

1) Do your research

Bayleys’ experts say that the residential market is moving at such a fast pace, with many a moving part and it is vital to understand exactly what you undertake when purchasing a new-build property. Thoroughly research the developer, construction company and other major stakeholders paying close attention to their past projects, delivery timeframe and whether there were any issues along the way.

2) Think BIG picture

Properties in new subdivisions are subject to change as they are constantly evolving and expanding to meet new demand for housing and infrastructure. Our advice to buyers here is to understand the master plan for your new community. Speak to as many stakeholders as possible about the direction and projected growth for the neighbourhood, some points of contact could include the developer, local builders, salespeople and council representatives.

3) Aspect is in the eye of the beholder

Not only is envisaging your new home on a bare land site a fun family activity, it’s also a necessary step to ensuring you make the most of your position. Designing the home to maximise natural attributes such as its aspect can support energy efficiency by harnessing warmth from sunshine. Similarly, buying a concept means you have the flexibility to make changes should you need them. Don’t be afraid to create more storage, move a power outlet or light fittings to better accommodate your needs.

4) Location, location, location

A thorough understanding of the neighbourhood and local amenities can underpin your enjoyment in a new community. Look at school zones, transport links, infrastructure – both planned works and existing, for a key indicator of how your home and the neighbourhood can support your lifestyle.

5) It’s contractual

Seeking the advice of a legal professional is imperative when purchasing off-the-plans as there can be several items in a development contract the average buyer wouldn’t see in a standard sale and purchase agreement. These might include clauses relating to additional costs, liabilities and provisions in the event of changes and delays. Given recent high-profile supply shortages and capacity constraints facing the building and construction industry, your solicitor may look to include a ‘sunset clause’ offering you as the buyer an opportunity to renegotiate or renege on the agreement should the development run past the agreed date of delivery.