Is off-the-plan the answer?

In a hot market, buying off-the-plan can often save first home buyers thousands of dollars and hours in repeated due diligence and legal advice ahead of missing out at auction after auction.

John Bolton, founder of Squirrel Mortgages, says part of the appeal of off-the-plan homes is that they are sold at a fixed price. And that that price, in many cases, is discounted.

“The developers are motivated to get them sold so they can start building and because there’s no physical product to wander around and get emotionally attached to it’s a harder sales process so they do tend to sell at a little bit of a discount compared to what they’re worth at the end,” Bolton says.

Often, the property has already made money by the time it is completed, but that’s not always the case.

Sometimes the market drops, and you are caught on the other side of having something that’s worth less than the sale price, he says. “But if the market’s steady, you would expect to get an incremental step up in value simply through the build process.”

Bolton thinks off-theplan homes and KiwiBuild homes could be among the hottest markets in the year ahead, because the fixed three-bedroom price of $650,000 in Auckland might buy you an $800,000 value property in the city. Outside of Auckland, Queenstown and Wellington, KiwiBuild prices are capped at $500,000.

“I think the great thing with KiwiBuild is the price is set. For buyers lucky enough to get one it’s a fantastic purchase.”

He says buying offthe-plan is going to be an “increasing reality for many first home buyers, just being able to buy something at a price they can afford, so you’re talking terraced townhouses principally”.

“There’s a heap of stuff coming into market and I reckon that’s where you’re going to see a lot of your first home buyer activity.”

And while terrace houses are compact, a growing number of people are beginning to realise they don’t need a large backyard. A modern, sometimes architecturally designed, townhouse with a cafe´ at the end of the road and a park across the road can be just as good as a quarter acre section.

A fixed price means buyers don’t need to battle it out in an auction room competing with others, he says.

A deposit is paid up front, usually 10%, and most people can access KiwiSaver for this, plus still keep saving ahead of the eventual settlement.

Bolton advises offthe-plan buyers to do their due diligence and research other developments by the same developer. “That way you can see if you like it. It does take a little bit more effort to figure out what it’s going to be like to live in a property when you’re just looking at pictures.”