Jenny and Nicholas Ingram-Tung bought a home at the Sun Haven development in Sunnyvale. Photo / Jason Dorday
It's taken a while for the change to be well understood but Auckland mortgage broker John Bolton of Squirrel Mortgages said buying off the plans was a growing trend for first-home buyers, many of whom had given up hope of getting a house any other way.
"There's quite a few of these going on in Auckland. Prices in these developments range from between $510,000 and $560,000, which is not cheap, but for two-bedroom to three-bedroom townhouses, that's an entry-level price point now for Auckland," Mr Bolton said.
First-home buyers have managed to get new homes with as little as 5 per cent deposit, though 10 per cent is standard, while others have been able to secure a bigger home in a more-desirable area than they previously thought possible.
McConnell Property's Addison housing development in Takanini, South Auckland, is one that has attracted a number of first-home buyers from all over the city. Three-bedroom homes there are available from $519,000. Bayleys Counties manager Ray Mountford said there had been a big rise in people buying off the plans at the development because of tight supply elsewhere at a price within their financial reach.
NZ Mortgage Finance broker Sheryl Moyle said many first-home buyers simply stopped saving when the LVR restrictions first came in, and are now having to make up for lost time. She said some were asking for parental help to meet the deposit required on new builds and looking further out from the central city to get cheaper options.
Nick and Maria Linton (with baby Ayla) have bought a home at the Sun Haven development in Sunnyvale. Photo / Jason Dorday
Real Estate Institute NZ chief executive Helen O'Sullivan said that while new builds could be a good option for first-home buyers, there were fish-hooks to be wary of. She advised such buyers to get good technical and legal advice before signing any documents.
The Reserve Bank brought in the construction lending exemption in December 2013, after admitting the LVR limit had a more significant impact than previously thought on building activity. While high LVR construction lending is only around 1 per cent of total residential borrowing, it finances around 12 per cent of residential building activity, or up to 200 new builds a month.
The latest Statistics New Zealand figures show building consents for new dwellings were up 16 per cent in 2014 over the previous year to 24,680, the highest level since 2007. Auckland was up 20 per cent for the year to 7595.
The supply of affordable new-build houses is getting a boost with seven councils having joined the Government's fast-track Housing Accord. This cuts red tape holding up new housing developments.
In the 80 special housing areas designated in Auckland to date, developers building 15 or more homes have to make 10 per cent of the total build affordable housing, and sell each at no more than 75 per cent of Auckland's median house price.
In April, the Government's new $218 million HomeStart package kicks in, doubling the grant first-home buyers can receive and increasing the amount they can withdraw from KiwiSaver to buy a house. The house price limits for both HomeStart and KiwiSaver will be lifted in Auckland from $485,000 to $550,000, which is more in line with new-build prices.
New build option gets couples on property ladder
Auckland fireman Nick Linton and his fiancee Maria Fraser have just bought a three-bedroom townhouse off the plans for $520,000 at the Sun Haven development in Sunnyvale, paying just a 10 per cent deposit.
The pair who have a 10-month-old daughter, Isla, had given up hope of being able to buy an affordable home after trying unsuccessfully for several months and "other people offering $150,000 over what we could pay", Mr Linton said.
"We basically were resigned to buying a first-home, two-bedroom, absolute dump in Mangere or Otara," he said, but the 20 per cent deposit required under the LVR restrictions was still an issue.
Although the couple are paying reasonable rent of $320 a week in Meadowbank, Mr Linton said it was in the national psyche to want to own your own home even if it meant borrowing $468,000.
"I've never been so excited about getting so far into debt. It's bizarre when you think about that much debt."
Spark employee Jenny Ingram-Tung and her husband, Nicholas, have also bought into the same development, borrowing $459,000 to buy a $520,000 three-bedroom townhouse. The couple, who have two young daughters, struggled to afford to buy in the rising Auckland market, particularly because so many were being sold by auction. Even with the new build they didn't have the required 10 per cent deposit but the developer agreed to take 5 per cent now, along with a signed document that the couple had the other 5 per cent in their KiwiSaver accounts which can't be taken out until the house is built and settlement occurs.
Ms Ingram-Tung said they had heard stories about developers going bust and home-buyers losing their deposits but felt less concerned once they had a look at other homes this developer had built without problems in the past.
She's confident of making a capital gain before they even move in.
Five things to watch buying off plans
1 The timeframe for completion so buyers don't get stuck with an open-ended deal that could drag on.
2 That the deposit money is held in a solicitor's trust account with interest going to the house buyer not the developer.
3 Banks may approve a loan for a new build but the actual interest rate paid won't be set until at least 60 days before drawdown which makes future repayments uncertain.
4 Ensure that the contract's fine print doesn't include that the developer can cancel the contract once the houses are built and on-sell for an increased price.
5 KiwiSaver funds won't be released until settlement so they can't be used to meet the required deposit.
Loan-to-value restrictions:
What are they?
A loan-to-value ratio is a measure of how much a bank lends against a residential property compared to its value. Banks were required to restrict LVRs of over 80 per cent (deposit of less than 20 per cent) to no more than 10 per cent of their new residential mortgage lending.
Why were they brought in?
They were introduced by the Reserve Bank in October 2013 due to concern over the housing market.
What change was made?
The Reserve Bank brought in the construction lending exemption to the LVR limits after feedback that first-home buyers were being adversely affected.
What does the exemption cover?
The construction exemption doesn't apply to new houses already built on spec. The exemption applies to early stage of the construction, including having consent, essential services in place such as driveways, and substructure and framing already up.
