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Why buy off the plans?

Unlike most property transactions, buying off the plans generally ensures that you receive a brand new home along with any associated warranties and guarantees. Your property is required to be built to the current building codes and standards, which should ensure, among other things, that you get a warm and healthy home.

Within the first few years of owning the property you should expect minimal maintenance costs and some of the initial maintenance is generally covered by the developer.

Where you purchase in large developments, there is often a new suburb created bringing with it plenty of essentials for your new community such as shops and schooling.

When buying off the plans, you can expect a considerable time frame for settlement, giving you time to organise finances. In a housing boom, like that experienced recently, you may even anticipate a capital gain from the day you sign the agreement to the time you settle the purchase.

But what are the risks?

Like any development, a developer will have their own conditions to satisfy that are beyond your control and may result in lengthy delays. Along with unanticipated delays, the usual long-term settlement date can also bring with it a number of uncertainties. In what could be a couple of years, the property market may have shifted out of your favour. Similarly, the lending market may have changed – especially with regard to interest rates or bank lending requirements, which may mean that any pre-approval you get at the time of signing the agreement may expire by the time you come to settle your purchase.

If a developer is under financial pressure or go leaving your development half completed or not at all, you may be able to cancel if the sunset dates aren’t met – sunset dates being the days by which a developer must fulfil their obligations under the contract. But in that time you’ve likely lost out on other purchasing opportunities.

Off the plan agreements will almost always contain a “force majeure” clause intended to cover wholly uncontrollable events such as acts of God and acts of Government. Watch out for loosely worded force majeure clauses that open the scope to include things such as funding issues for the developer, or limited materials. These can effectively act beneficially to the developer, and can be used by developers to require more money from purchasers to purchase the same property.

There is also something to be said for buying an older home! You get the history and exciting renovation prospects, whereas new homes may be built to code but there is a risk of being built to shortcuts being taken that could create problems arising outside of your initial warranty periods. You should also be aware of who the development is attracting. Often these developments are saturated with investors instead of genuine home owners which can result in a flood of properties on the market for sale or lease on completion of the development. This could create difficulties for investors as well as lower the overall value of the development for all property owners.

So what should I do?

First and foremost, do you homework. Know the developer and understand the development before investing, and be sure to obtain legal advice before signing any agreement.

Be aware of the Resource Management Act – it can be your friend. When buying off the plans, under the Act you can generally cancel the agreement within 14 days of signing it, and you will usually be given an ability to cancel should a vendor fail to make reasonable progress in submitting the survey plans as they are required.

If you’re still scratching your head or are considering a move forward in purchasing off the plans, make sure to contact us – we are happy to help.