The ongoing lack of housing supply in New Zealand has tempted many prospective homeowners into buying off the plan as a means of accessing the property market. But with higher inflation, a sharp rise in building costs, and unscrupulous developers delaying – or even cancelling – construction contracts, home buyers are being warned to proceed with caution. In this article, we’ll highlight what to look out for when buying a new build.
Delays to construction are not unusual
The negative impact of COVID-19 can be seen quite clearly in the construction industry. Lockdown restrictions, labour shortages, and supply chain disruptions have all led to significant delays to construction contracts, pushing out build timelines and driving up costs. But even in normal times, it’s not unusual for delays to construction to hamper progress, and home buyers need to be prepared for delays by factoring in a longer completion time when buying off the plan.
Sunset clauses can be used by developers too
While sunset clauses are generally used by the purchaser to get out of an agreement if the build is not completed on time, some unscrupulous developers are exploiting this clause to back out of an agreement and on-sell a property for a much higher price when the market is moving upwards. As a purchaser, it’s advisable to seek to legal advice when it comes to sunset clauses, and to avoid signing the contract until absolutely clear on how these can be used and what impact they could have on the buyer.
Developers could ask for more money
Inflation in New Zealand has soared to its highest level in 30 years, leaving many developers carrying far greater costs than previously anticipated. While some developers may be forced into cancelling contracts, unable to bear the additional cost of construction, others are renegotiating the cost of the new build to claw back some of these costs, with off the plan home buyers being asked to pay a much higher price.
The rising costs of construction following the pandemic – including labour, building materials, and fuel costs – have meant pre-sold developments are no longer feasible at the original sale price. Home buyers unable to raise the increased finance lose out not only on the home of their dreams, but also the opportunity to enter the market at a lower price point.
Background checks are worth their weight in gold
A simple background check on the developers involved in the project could trigger a number of red flags, and buyers are urged to do their homework before signing a contract or handing over any payments. Along with a search on the Companies Office website, researching the names of individuals involved in the project could determine whether any have gone into liquidation or receivership in the past.
Finally, to help navigate the process and avoid any potential pitfalls of buying a new build off the plan, home buyers should enlist the services of an experienced lawyer and financial adviser. If you are considering buying off the plan, get in touch with a Mortgage Express branded adviser who can help you understand the process and highlight areas of concern to avoid.
