Alanah Eriksen

Alanah Eriksen is the New Zealand Herald's property reporter, and assistant chief reporter.

'$1000 down' property deals back

Developers return to buy-off-the-plans scheme which caught some investors out during the property boom.

Developers are offering yet-to-be built blocks of apartments - Urba Residences at 5 Howe Street, Freemans Bay for $1000 down and then the remainder on deferred terms. Photo / Supplied
Developers are offering yet-to-be built blocks of apartments - Urba Residences at 5 Howe Street, Freemans Bay for $1000 down and then the remainder on deferred terms. Photo / Supplied

House-hunters are seeing a return of "buy-off-the-plans" developments which advertise low deposits and no repayments until completion.

The arrangements lured investors during the 2007 property boom with the expectation property prices would keep rising and they would be able to sell and make an immediate profit after the apartments were built.

But experts warn that although the deals may seem attractive now, interest rates may not always be as low and house price growth could slow.

The deals involve buying the property before it is built, based on the developer's plans. A small deposit is put down and a sale price agreed on. The balance is paid once the project is finished.

Developers use the pre-sale signatures to secure a bank loan before construction.

Such offers slowed when property prices decreased after 2008 but it appears the trend has re-emerged as property prices pick up again.

Marketing material for Urba Residences, an apartment development at 5 Howe Street in Freemans Bay, offers "just $1000 down and nothing else for 18 months" for those using existing equity in their current house, or a 10 per cent cash deposit.

Barfoot & Thompson agent Alistair Brown told the Herald that of the 140 apartments about 80 had been bought, with about half choosing the $1000 down-payment option.

About 90 per cent of the buyers were owner-occupiers and they were at all stages in life, he said. "You've got the first-home purchasers who can't afford the $1 million Ponsonby villa and they're seeing this as a stepping stone. And it's also got the people who are trading down from a house to an apartment."

The block is being built by Conrad Properties, which has built about 3500 apartments around Hobson and Nelson St. Prices start at $285,000 for a studio and go up to $800,000 for a three-bedroom unit.

The yet-to-be-built Tenor Apartments on Library Lane in Albany and M Central on Putney Way in Manukau are also being advertised with $1000 deposits.

And it's not just apartments - standalone homes around Auckland are also being advertised to buy off the plans for low deposits.

Real Estate Institute chief executive Helen O'Sullivan said she had seen a rise in developments being offered for sale before they were built.

"It's a sign of the building market starting to respond to increasing prices, and ultimately that is something we desperately need to happen in Auckland, in terms of the supply increase."

But she advised buyers to check out the developers' previous work, make sure their deposit was secure in a solicitor's trust rather than being held by the development company and, if they could, negotiate a "get-out" clause if the finished product was not what was promised.

"You certainly wouldn't want to put down 10 per cent, that would be a lot of money to have tied up. So you can see why they are pricing it that way, to seem attractive.

"What happened in 2007 is everyone piled into those things without thinking them through, thinking 'Yay the property market will keep rising and in 18 months I'll have a profit, because they're $250,000 today and they'll be $300,000 in 18 months time and I will have only put up $1000. Good for me'. It might not be that way."

When the development is built body corporate levies may be higher than thought and interest rates might be a lot higher than expected, Ms O'Sullivan said.

She advised against sales off plans for first-home buyers as they were complicated and there was a higher risk.

- NZ Herald

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