It's no secret that the housing market in New Zealand is incredibly competitive at the moment. Already on a trajectory pre-Covid, demand has shot up since New Zealand came out of lockdown. Many people are choosing to 'nest' rather than spend on overseas holidays and thousands of expats are returning home earlier than planned.
Open homes often have queues out the door, many vendors choose to sell at auction where they can expect to make top-dollar and the supply of existing homes for sale is starting to run low.
As a result of this tight market, many people are deciding to buy off the plans. Buying off the plans has become popular with increasing numbers of land developments both in central cities and the suburbs. It has become increasingly popular in Christchurch, for example,
where developers are playing a key role in regenerating the city post-earthquakes.
What is 'buying off the plans'?
Buying off the plans is when you sign an agreement to purchase a property sight unseen, typically from a developer, before construction has been completed or, in some cases, even before the build has begun. If you get in early enough, you may be able to modify the design to suit your taste and style.
Instead of going to an open home and getting the feel for a place when you walk in the door, you are deciding to buy based on your review of the plans and specifications prepared by the developer. While this prospect may be daunting to some (especially the visual learners out there), the result is you will end up with a brand new home constructed in accordance with the latest building standards. If you get in early enough, you may be able to modify the design to suit your taste and style.
How does it work?
With no open homes, no auctions and sometimes no real estate agents, the process of buying off the plans is different to purchasing an existing home. You still sign an Agreement for Sale and Purchase. However, unlike getting a building report to ascertain the condition of the dwelling, you need to consider whether the property will meet your needs by looking very carefully at the plans and specifications as well as considering the property's location and outlook. The developer may have already completed other similar homes that you can view to get an idea of their style and workmanship.
When you decide to proceed with the purchase, you pay a deposit to the developer. This is usually 5% to 10% of the purchase price. You then may need to wait some time for construction to be completed and a code compliance certificate to be issued before you pay the balance of the purchase price to the developer and move in. This longer timeframe may be attractive to some buyers as the construction period allows more time to save.
Sometimes, the agreement may have a deadline date by which you can withdraw from the purchase and have your deposit refunded if construction has not been completed. This is known as a sunset date.
Why buy off the plans?
Unlike buying an empty section and building your own home where construction prices may increase over time, buying off the plans usually means the purchase price is locked in when you sign the agreement. The upside may be that, depending on the market, the property may have increased in value even before you move in.
You will also have the benefit of owning a brand new home constructed to the latest building standards. This means there should be little to no maintenance or repair work required by you, at least for the first few years. A brand new home will also typically be warmer and drier than an existing one.
Another advantage of buying off the plans is that by purchasing a new home you may be eligible to use the Kainga Ora First Home Grant of up to $10,000 per person.
What to look out for
There are a few things to look out for when buying off the plans. If you need a roof over your head sooner rather than later, agreeing to buy a property off the plans could be problematic as the timeframes are usually quite long.
As there is no open home to 'try before you buy', you should get an understanding of the exact outlook and location of the dwelling - make sure there is sufficient sun, it won't be overshadowed by a large building next door and so on. You should also note the room dimensions and compare with your existing living or bedroom space to get a feel for how much room youwill have once the walls are up.
There might not be flexibility in layout and design so do check that the design of the dwelling is actually what you want.
Seeking out other dwellings completed by the same developer could help you get an idea on the look and feel of your new home.
Getting more technical, it is very important to check the fine print in the agreement and seek legal advice (talk with us!) as to whether the purchase price can be increased by the developer, and what happens if construction takes longer than expected. In addition, we can advise as to whether a sunset date is in place for you to withdraw from the purchase if construction has not been completed by a certain date. It is also important that only you can withdraw from the purchase in these circumstances, not the developer.
You should also ask around about the reputation of the developer and whether they are known for the quality of their buildings, sticking to their proposed timeframes and so on.
Buying off the plans can be a great way for prospective buyers to get on the property ladder and to own a brand new, warm and dry home.
We strongly recommend that if you are considering this way of buying a property, you talk with us early on so we can guide you through the process.
DISCLAIMER: All the information published in Fineprint is true and accurate to the best of the authors' knowledge. It should not be a substitute for legal advice. No liability is assumed by the authors or publisher for losses suffered by any person or organisation relying directly or indirectly on this article. Views expressed are those of individual authors, and do not necessarily reflect the view of this firm. Articles appearing in Fineprint may be reproduced with prior approval from the editor and credit given to the source. Copyright, NZ LAW Limited, 2019. Editor: Adrienne Olsen. E-mail: email@example.com. Ph: 029 286 3650 or 04 496 5513.