Diana Clement: Benefits of buying new

Buying a brand new home has always been the ultimate dream for some Kiwis.

The Reserve Bank of New Zealand's loan to value ratio (LVR) restrictions and the KiwiSaver HomeStart grant make buying new increasingly attractive.

New homes are exempted from the 20 per cent LVR restrictions on existing dwellings.
New home buyers including first timers can buy with a 10 per cent deposit providing they meet the bank's other requirements.

In the 2016/2017 tax year more than 15,000 buyers received $73 million in grants.

These grants are up to $5000/$10,000 for a single person/couple for buying an existing home or double that for a new home.

In the 2015/2016 tax year, 17 per cent of grants were for new homes. That grew to 22 per cent in 2016/2017.

Buying a new home is a different process to an existing property and there are various factors to be aware of.

The first is that in most cases you can't just buy it and move in. Often buyers sign up for an "off-the-plan" contract.

That literally means you're buying a home or apartment when it's simply a plan on paper and still has to be built.

Off-the-plan homes are sometimes bought direct from the developer. But most off-plan properties are also marketed via real estate agents, which gives buyers additional legal protections.

Real estate agents are governed by a Code of Professional Conduct and Client Care.

The more first home buyers that choose new, the better says Geoff Barnett, national manager at real estate firm Century 21 New Zealand.

It reduces the demand pressure on existing houses and encourages building.

What's more, adds Barnett, buying off the plans gives you flexibility. If you want changes made you can often do this.

"The fact you can pick your own wallpaper and carpets is a bonus."

On the other hand you do need to be a bit flexible, says Barnett to allow for any time changes along the way especially if you want modifications.

If it's a second or subsequent home and not your first home that you're buying off the plans you may need bridging finance to tide you over if you can't align the settlement dates for both properties.

The delay between signing an off-the-plan contract and settlement can be a bonus for first-time home buyers who are still saving.

It can also create uncertainty, says property lawyer Nick Kearney, of Schnauer and Co.

"People's circumstances can change a lot in the two or three years that a property can be built and finished," says Kearney.

"Finance approved or believed to be available this year, might not be available when settlement arrives."

Construction costs can also increase during the period, says Kearney.

"As far as possible, buyers should sign agreements that only allow changes in price to be agreed by both parties, and not unilaterally."

This is one of several reasons that it is essential to get a lawyer to read over the contract before you sign.

There should be what's known as a "sunset date" in the contract so that if the title or code compliance certificate hasn't come through by a certain date, you can pull out.

That might be a couple of years after you sign the original agreement.

Critically, if possible the deposit should be held in a trust account and not able to be released until settlement, says Kearney.

"Some developments require [the deposit] to be released immediately," he says. "The Universal Homes contracts in Hobsonville require this, but with such a strong company it is not such a major concern."

With less well-known developers releasing the deposit could be a risk.

If you do have buyer's remorse after signing the contract, Section 225 of the Resource Management Act allows buyers of off-the-plan contracts to cancel the agreement within 14 days for no reason, and after two years if the developer hasn't made "reasonable progress" toward depositing the plan.

It is also important to find out who the developer is, and what other projects they have done, if any, says Kearney.

"If the developer is of 'substance' and is experienced, then they are likely to do a much better job than a fly-by-nighter just trying to make a quick buck. Beware of the unknown."

The Building Act also protects you with warranties relating to the quality of the work. The developers can't override these warranties in their contracts.

"But be wary of contracts that seek to limit loss under these provisions," he says.

Finally, watch out for developers who want to have voting rights in apartment or other Unit Title complexes.

Always seek professional legal advice before signing any contract.