Which first home is best?
New or preloved – what should first-home buyers look for? Colleen Hawkes reports.
Buying a first home may be a decision put on hold during the Covid-19 lockdown, but it does give you time to do a little homework over the pros and cons of buying a new house versus an existing property. Talk to the experts and it’s clear there is no ‘‘right or wrong’’ decision, but there may well be one option that works better for you.
Looking for a ‘do-up’
Many young people like the idea of being able to add value to their first home through renovation.
Alice and Caleb Pearson, who won The Block NZ in 2013, are serial renovators who have just finished their 10th house. They started with their first home, a four-bedroom 1950s ex-state house in Panmure, Auckland, in 2010.
Caleb Pearson says he knew nothing about renovating so it was a baptism by fire.
‘‘I had no skills and no idea what I was doing, although I enjoyed it. We had a working bee with a few friends to do some demolition work, and Alice laughed because all I did was tidy up after people with a broom and dustpan.’’
Pearson says people buying a ‘‘do-up’’ need to be prepared to put in a lot of time and hard work.
‘‘Our first renovation was very basic and simple. We saw it as a good way to put in some sweat equity and add some value. We only spent about $15,000 and did as much of the work as we could ourselves. Alice’s father taught me a lot of handy, practical skills.’’
Pearson says he is aware there is a tendency for ‘‘do-ups’’ to sell for a premium. ‘‘Friends of ours were looking at one such property and costed it out. It turned out they were better off just buying an already completed house.’’
Craig Lowe of Lowe & Co Realty in Wellington agrees. He believes the rise in popularity of renovation shows such as The Block NZ has created a demand for ‘‘do-ups’’. Consequently, the price of such houses tends to be much higher.
‘‘It’s really a cultural thing – our national pastime is investing in real estate and doing up houses. There’s also that desire to make money quickly by flipping or renovating for gain.’’
‘Wild stab in the dark’
Lowe says he has had nearly two decades of watching some people in Wellington do this well, and some do it badly. ‘‘So many people take a wild stab in the dark thinking their work will be right on trend for buyers. They also don’t factor in their own time, or the holding and transactional costs. If you do the maths, there is no money in it.’’
Lowe says many renovators feel like winners because housing prices have gone up while they worked on the house, but that doesn’t mean the renovation paid off. ‘‘It’s interesting that the minute the market flattens out, no-one is renovating to sell any more.’’
This doesn’t mean an older home is not a good idea – it just means you need to do your homework and get a builder’s inspection before you sign up.
‘‘If you plan to stay in your house for seven to 10 years, then you will get value from your renovation and get some of that capital back.’’
Buying new
Many first-home buyers choose to buy a new property, and most often they are buying ‘‘off the plans’’. They pay a small deposit and sign up to pay the rest to the developer or builder on completion.
The time gap gives buyers time to gather finances, and buy at ‘‘today’s’’ prices.
‘‘This can be a wonderful way to get into a home – you are locked in, but don’t need to settle for 12 months or so,’’ says Lowe. ‘‘You also get the scale advantage the developer has [in terms of buying power], so you are likely to get a cheaper home than if you had to do it yourself.
‘‘A lot of young people like the lifestyle that comes with a shiny new apartment or townhouse.’’
Natasha King and Matt van der Haast bought a house in Pukekohe on this basis, and say they like the security of knowing their home came with a 10-year builder’s guarantee. They can call up the builder should any problems arise.
The couple also appreciated they signed up more than a year before the house was built, which meant by the time they moved in, the house was already worth more. So they benefited from that increase in value.
But there is a potential downside. Sunset clauses can be a problem. A sunset clause enables developers to cancel a contract after a certain time period if the build is not completed.
Numerous first-home buyers in Wellington were stymied recently when developer Tawa LLP invoked a sunset clause, cancelling contracts, then relisting the units at a higher price.
Property law expert Joanna Pidgeon’s advice to first-time buyers is to beware of sunset clauses shorter than one-and-a-half to two years.
‘‘In genuine use, vendors have sunset clauses to get out when they can’t finish a build in time,’’ she said. ‘‘But it can also be an opportunity to get finance off the back of having you signed up, then terminate and sell for a higher price if the market is moving upwards.’’
Young people are ‘property savvy’
Judy McGaffin of Fletcher Living, which has many developments under construction, says she has been impressed by how much young people are doing their homework before buying off the plans.
‘‘They are conscientious with their KiwiSaver accounts and they don’t reach into their pockets to spend their savings easily,’’ she says. ‘‘They bring their parents along, then their grandparents, and they are quite property savvy.’’
McGaffin is marketing a Fletcher Living development in Titoki St, on Te Atatu Peninsula. She says the first week the terraced houses went to market ‘‘off the plan’’, she sold four to first-home buyers. ‘‘Fletchers see it as a mission to include properties that first-home buyers can buy using their KiwiSaver funds and KiwiSaver HomeStart grants.’’
Meanwhile, the Pearsons are capitalising on their 10 years of experience with ‘‘do-ups’’. They are working on a renovation tool kit that will be available to people embarking on their first project, offering all the advice and tips they could have used themselves when they set out.