In this blog, we will delve into the exciting world of newly built homes in New Zealand. By exploring the benefits and disadvantages they offer to first-time buyers and investors alike, we discuss why buyers have been so captivated.

So what is a new build? A new build is a newly constructed that received its CCC on or after 27th March 2020. For an existing property to meet this definition and investors to be able to claim their interest cost as a deductible expense, specific works must be undertaken and a new CCC issued.

New Build Homes are Easier to Finance.

It will be easier to get your loan approved if you buy a new-build. This is because they require a lower deposit and have less rigorous loan servicing criteria set by the banks and lenders.

• Buying a new build is beneficial if you do not have a large deposit. Don’t worry – you don’t need 20%! If you have 10 percent of the purchase price, this is okay. You may even qualify to buy with a deposit as little as 5% through Kāinga Ora*. And, investors can buy a new build with a deposit of only 20%. 
• If you are an investor, your next investment could be a new build. Alternatively, your first investment may come sooner than you think, as you only require a 20% deposit, which can be sourced from cash or useable equity in your home, or current portfolio. You can check your useable equity on our Mortgage Repayment Calculator by selecting the ‘Equity’ tab. For instance, if the result shows $150,000 of ‘useable equity,’ it means you have a 20 per cent deposit available for a property worth a purchase price of $750,000.
• All major banks have relaxed their serviceability stress tests, allowing for a smaller UMI surplus within your loan application when buying a new build. To put it simply, if we determine that you can afford a property worth $650,000, opting for a new build might enable you to secure approval for a $750,000 home instead. Banks and lenders have confidence that new builds are be more cost-effective to own, and don’t require significant repairs that could strain your finances anytime soon – whether you are an investor or owner-occupied borrower.

*We have outlined this in a recent blog;  “How to buy a home with a 5% deposit”.

The Government is Incentivising New Builds for Developers and Buyers.

The Government is incentivising developers and builders to construct new homes across the country while also encouraging buyers and investors to purchase these. Buyers have a significant advantage due to fewer restrictions on high-LVR residential mortgage lending imposed by the Reserve Bank of New Zealand (RBNZ) on lending banks. Purchasers can buy with a lower deposit, and the ‘speed limits’ on the amount of new low-deposit lending banks can provide (how much money the banks can lend) are more favourable. Essentially, it becomes less restrictive for banks to lend money to buyers of new builds. Moreover, buyers can access up to $10,000 for a new build, compared to a maximum of $5,000 available towards the deposit for an existing home through Kāinga Ora’s First Home Grant.

Changes to local government planning regulations in New Zealand’s main centres have favoured intensification within existing and new subdivisions. As a result, developers are now commonly constructing terrace-style homes, which is a prevalent practice overseas. This approach aims to counter urban sprawl, preserve productive farmland, and reduce commute times for residents in outlying suburbs. Moreover, it fosters a more compact, close-knit style of living, with easy access to transportation, schools, and recreation facilities in larger urban centres. We believe that more homes per square metre of land is a good thing, and will provide more options for people to buy.

Lower Purchase Price when Compared to an Existing Home.

More efficient use of land has been permitted by planning authorities to allow more houses to be built. The land is a very expensive part in a property transaction and a key component in the final price of a property.

• A new build will have a smaller section, or none at all, than comparable existing houses for sale nearby.
• New build homes will also be physically smaller in size, and not feature 5 bedrooms, 5 bathrooms, 2 living areas, an entranceway, parlour, powder room and double garage.

The savings in land and build cost flow through to you as the purchaser. This means if you were to compare a 3-bedroom new build in your chosen location, versus a 3-bedroom existing house – the new build is going to be less expensive as the section size (land area) and floor area (m²) will be smaller. Houses built 10 years ago, were still built on sections of 500-600m², and were over 200m² in size. Today standalone new build homes sit on section sizes around 300-450 m², and terraced homes will be 80-150m². 

What About Capital Growth if I Buy a New Build?

RBNZ housing data shows property in New Zealand has, on average, increased in value by about 6.1% per year, since the early 1990’s. In the table below, our calculations show capital growth for a new build purchase in New Zealand’s main centres using historical capital growth rates. We have used the average purchase price of a 3-bedroom new build in each main centre – as you may not be able to afford a Tauranga purchase, but you can buy in Wellington for example. Property investment is a long-term option to growth your wealth. These figures are average return calculations and there is no guarantee of future returns, certainly less so in the short-term.

*Inflation rate of 2.2%.

Want to Pay Less Tax? Make a New Build Your Next Investment.

Tax is essential for operating a democratic society. How the Government use our tax dollars and what they collect tax on, is of continued debate in New Zealand. The IRD have allowed the purchase of new builds to be exempt from two tax rules which make them a more attractive option for investors.

1. Firstly, deductibility of interest on the loan to purchase a new build is allowable for 20 years. This significantly improves your cashflow position come ‘tax time’, where your accountant will be able to include this interest as an operating expense for purchasing this asset.
2. Secondly, if you have to sell a new build investment after 5 years, the sale should be exempt from the bright-line rule where any profits are taxed. For properties that do not meet this criteria, you will have to wait 10-years before you sell without attracting tax on any profits made.

We encourage clients to look at purchasing a new build as part of a long-term plan to growth their wealth, at least 15-20 years, rather than speculating on gains over a shorter time horizon.  

New Build Homes are Low Maintenance, Warmer, Dryer, More Secure, and Cheaper to Own.

New build homes are warmer, dryer, more energy efficient and secure than homes built previously in New Zealand. The regulations, or Building Code, that sets out the requirements for construction of new homes is being continually advanced in accordance with improvements in building materials and design practice.

With minimum requirements now in place for building material usage and design, heating, ventilation, insulation, and double-glazed windows and doors (the glass has two panes of glass with an air gap between), a new build will be a warmer and more healthy home to live in – or rent out. These benefits flow through to reduced noise pollution, increased security, and lower energy bills due to them retaining heat more effectively, as well as deflecting the hot summer sun. Security benefits arise from improved design requiring views to the street, and technology including keyless entry systems and double-glazed windows, to reduce the likelihood of a break-in. It is very expensive to renovate an older home to be as healthy and comfortable to live in as a new build.

Smaller section sizes, and modern building materials mean you won’t be spending every weekend on outdoor maintenance either. Less maintenance equals more family time, or a better return for an investor. Most new build homes are constructed of materials that will be maintenance free for around 10-years. So apart from an annual house wash, you shouldn’t need to worry about re-painting for a while – or not at all if the exterior is clad with bricks.

How Do I Calculate my Useable Equity for a New Build Deposit?

If you are an existing homeowner, you can check your useable equity on our Mortgage Repayment Calculator and select the ‘Equity’ tab. This will tell you if you have enough equity in your home, or portfolio, to purchase a new build. Here’s a step-by-step example showing how to calculate your equity and useable equity:

1. Click ‘My Equity’ calculator & select the ‘Equity’ tab.
2. Enter the value of your from homes.co.nz
3. Enter your total loan balance.
4. Enter any additional savings you may have.

In this example shown below, the client has $360,000 of equity. Think of this as how much they would receive if they sold their home for the price entered and repaid their home loan (not including selling fees).

Their useable equity is $210,000. This is how much they can increase their home loan by, subject to loan serviceability.

$210,000, is a 20% deposit for a new build with a purchase price of $1,050,000!

Important Considerations Before Purchasing a New Build Property.

Amid the trend towards intensified, urban living, some trade-offs may come into play, requiring a careful evaluation of your priorities. The allure of a spacious double garage or ample parking for a boat or caravan might yield to the benefits of modern design and nearby amenities. Likewise, the prospect of future home extensions may be tempered by the appeal of modern conveniences and maintenance-free weekends.

Consider the following points as you weigh your options, and don’t hesitate to reach out for further discussion on any questions you might have:

1. Not being able to personalise your home to match your preferences or accommodate your expanding family is a significant disadvantage to a new build. In the case of attached homes, it’s crucial not to compromise the integrity of the IT wall, as this could jeopardize the building’s fire rating. Moreover, the option to add an extra bedroom will not be available if your family outgrows the current space.
2. Large developers tend to build ‘cookie cutter’ homes. Instead, seek out a developer who customizes their designs to ensure your home stands distinct from the ‘thousands’ of replicas which may impact future resale value.
3. Less outdoor area to smaller section sizes. New subdivisions have more outdoor recreation space and playgrounds than ever before. If having a trampoline is a priority for you, it’s advisable to verify the yard’s dimensions with the developer. It’s worth noting that the size of the yard might not be a significant concern for tenants, unlike for those purchasing properties for owner occupancy.
4. Consider shared driveways carefully. Opting for an end unit within the development can help you avoid the daily traffic of neighbours passing by your house. Double glazed windows do eliminate a lot of traffic noise. Additionally, pay close attention to the layout and positioning of bedrooms and living areas to minimize potential disturbances.
5. Does the property include a garage or solely off-street parking? Not having a garage might be viable if you’re conveniently close to public transportation, but it’s essential to think about where you’ll store your e-bike or scooter if this option aligns with your preferences.

Through our Financial Modelling software, we not only guide you but also demonstrate how to expedite your journey toward your financial goals. Buying a new build may be one option to help you get there. We recognise the uniqueness of each individual’s circumstances, and uphold our ‘Clients for Life’ philosophy by tailoring a plan that aligns with your needs.

We look forward to partnering with you on your path to financial success.