Do you dream of purchasing a brand-new home? One with all modern fittings, low maintenance, energy efficient, with an indoor/outdoor flow to die for? A new build allows you all this and often enables you to tailor your new home to suit your own personal needs and taste right from the beginning. New Builds are a popular choice at the moment, so we thought we would put together a few things to think about before signing up.
Brand new homes are great – you’re the first person to live in a property and you know there are no skeletons in the closet from poor DIY. The government is also keen to produce more homes and so they’ve also come to the party with a couple of incentives to help out.
Less deposit required - New Builds are exempt from the Reserve Banks Loan to Value restrictions. This means that lenders are able to accept a 10% deposit for a New Build property. This is particularly helpful for first home buyers trying to save to get onto the property ladder.
Interest Deductibility - In an effort to encourage investment into New Build properties, the government has allowed property investors to deduct the interest expense from their income so that they pay less tax. The exemption is valid for 20 years and applies to the property, and not just to the original property owner.
Very attractive pricing - the ANZ and ASB are currently offering some phenomenal floating rate discounts for New Build homes. The interest rates are tied to the Official Cash Rate so they may go up but they are clearly the lowest floating rates on the market.
Buying a New Build is slightly different to buying an existing home. Your new home should be great but it does pay to do your homework.
Low Equity Fees - If you are purchasing a property and want to put in a 10% deposit, you will be liable to pay either a Low Equity Fee, or a Low Equity Premium on your interest rate (depending on the bank). This can add significantly to the amount that you need to borrow, or the amount of interest you pay. Note that if you are paying a Low Equity Premium, this can be removed once you can prove you have sufficient equity in the property.
Finance approval limits - if you are purchasing a home off the plans, it is crucial to know when the project is likely to complete. There are no Registered Banks in NZ who offer an approval for longer than 12 months, with some lenders only offering an approval for 6 months. With construction timeframes often stretching out to 2 years this can pose quite a problem.
The devil is in the detail - It is important that you and your lawyer read over your contract to purchase any property thoroughly before signing. There are many things to look out for including the expected settlement date, late settlement penalties, and settlement procedures. Most New Builds need to wait for titles to issue and the completion certificate before settlement can occur which can make logistics challenging.
Sunset clauses are particularly relevant at the moment. Sunset clauses would ideally be inserted for the benefit of the purchaser and are there to provide a worst-case scenario of when the new home will be completed. One of our Apex advisers recently had the developer invoke the sunset clause as they knew they could resell the property at a higher price which left our client high and dry.
Price escalation clauses also warrant a special mention. These clauses were not common until the construction sector hit supply chain issues due to Covid 19. All lenders are particularly wary of these clauses as it is hard to determine the amount that is to be borrowed.
Do your Due Diligence – Your lawyer can help with the Sale and Purchase contract however there are many basics you can cover off yourself. Feel free to ask the developer to show you other properties they have built, and also if they have their funding arrangements in place.
Before you take possession of a New Build, complete a thorough pre-purchase inspection and make sure the property has been built to the standards agreed to in your contract.
While it does look like there is a longer list of ‘cons,’ this certainly doesn’t mean that purchasing a New Build isn’t a great option. It simply means that you need to work with your advisers to make sure you know what you are signing up for. At Apex, we’ve helped 100’s of clients into new homes and we’re more than happy to help you or members of your family into a New Build too.
If you want to have a chat, please feel free to contact us.