Buying off the plans: Why it's a smart move

BUYING OFF THE PLANS: WHY IT’S A SMART MOVE

A new build at a set price, no pre-auction jitters, and you can dodge LVR restrictions - there are some incredible benefits to buying “off the plans”.

Buying “off the plans” is when a buyer agrees to purchase a property based on the building plans and designs before it’s built. Rory O’Conner from Pink Beluga is the developer behind two developments in Auckland which can be bought off the plans, including a luxury boutique apartment block The Garnet at 1 Garnet Road in Westmere, as well as the cutting-edge contemporary apartment building Edition in the heart of Parnell (you can read more about that here). The Garnet is a unique offering as it will boast only six two-bedroom apartments, which will be designed by the award-winning Matz Architects. There will be a maximum of two apartments per floor, so owners will not need to sacrifice their privacy.

Situated on the border of two of Auckland's most desirable suburbs, O’Connor says the location is “amazing”.

“There have been a lot of apartments built in other parts of Grey Lynn in the more commercial areas along Great North Rd, however very few around this location. From this development, you have the Westmere and Grey Lynn shops in very close proximity – residents will be spoilt for choice in terms of dining options.”

“The property is also positioned on a ridge which gives it unique viewpoints, to the west you look out over the harbour, while from the east you look straight

back towards the city which looks amazing at night,” O’Connor says.

Dylan Thomas, Sixtus Director and Financial Adviser, says there are several perks for buyers who buy off the plans, including the fact they could receive an “early bird discount”. “Buying off-plans may allow a comparatively lower price rather than purchasing a finished product. Therefore, this could allow for further capital gain.” O’Conner agrees that the price is one of the major advantages.

1 Garnet Road, Westmere

“As developments progress the price of the apartments often go up, for example, our remaining apartments at Edition are up 20% from their original price.

“As developments progress the

price of the apartments often go up, for example, our remaining apartments at Edition are up 20% from their original price. This is because at the start the developer wants to get some sales away so they can start construction, as the build progresses they are happy to wait to achieve the price they want.”

Another compelling benefit to buying off the plan is that new builds are exempt from the high deposits required - 20% for owner-occupiers and 40% for investors - by current LVR (Loan-to-Value Ratio) restrictions. New builds only require a 10% deposit, regardless of if you are an owner-occupier or an investor.

Thomas says buying off the plans also gives banks “confidence”.

“Generally speaking banks prefer to secure a level of presales before they are prepared to fund the developments. This provides some confidence that these developments are being funded to deliver a finished product.”

There’s also the 10-year building

guarantee to consider.

“Under the NZ Building Act, there is a 10-year implied warranty period. All residential building work in New Zealand, no matter how big or small is covered by the implied warranties set out in the Building Act,” Thomas says. O’Connor says another major advantage is that when you get in early, you can work with the developer and get what you want. “This might be reconfiguring the layout of an apartment, or something smaller such as adding in power points or lights. Once construction has begun developers are much less likely to make changes for buyers as the cost and loss of time makes it difficult.” O’Connor says the biggest risk when buying a development is it not getting built.

“This will tie up their deposit for a long period of time and in the end the development doesn’t even get built, that’s why it is important to ensure the development has resource consent and will be funded. The other is quality assurance, renders and show suites do not always reflect the quality of the building that will be handed over to the buyer.”

Thomas says cons include income and interest volatility. He says higher

interest rates or changes to your income could affect how much you can borrow and most banks can only provide approvals for up to one year.

If the build isn’t completed on time, Thomas says there may be increased costs or inconveniences, for instance, extending current rental arrangements. He says some developers may look to include cost escalation clauses in their agreements so they can pass on construction cost increases should they arise.

O’Connor says there’s a lot of opportunity for undecided buyers in this space at the moment “as the market is a lot slower”.

“As a result, they have more choice, however, they need to be careful when choosing the developments they want to invest in. Funding is getting more difficult to attain and this will likely continue for the next year or so. When choosing developments buyers want to be sure that the developer has funding in place, a good track record, and the ability to deliver the product they are selling.”

Make sure you get in touch with Ross Hawkins today if you have interest in this fantastic opportunity.

+64 27 472 0577 ross.hawkins@raywhite.com

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