COULD YOUR FIRST HOME BE A NEW HOME?

For many people, the path to homeownership is through the construction of a brand new at home. There are a number of incentives in KiwiSaver grants and loans to- value rules that can make it really attractive.
Some first-time home buyers are buying from a builder offering a row of homes in a new housing estate, or buy an apartment on the plans in a brand new complex.
Others fend for themselves and ask a builder to produce a dream house on a plot of land that has been carefully selected after the buyer has marked the campaign for months. (This option is usually reserved for the first house buyers with significantly larger budgets.)
But, as with most real estate transactions, construction is not always simple. Unlike an existing house in which you move in as soon as the the deal is done, when you buy a house that is still under construction — or not still, the construction has begun — you put a certain degree of trust and faith in the builder and developer to make it happen. Here’s what you need to know.
1-Finance
In some ways, getting funds for new construction may be an easier prospect than for an existing house.
Loans for properties under construction are exempt from the loan-to-value ratio restrictions, which means that banks have more leeway when it comes to lending to people whose deposits are less than 20%.
You can also access the KiwiSaver First Home grant twice (if you qualify, and if your new construction meets the price restrictions).
Usually, developers will take a small deposit of between 5% and 10 percentage of the final cost of the property when you register to buy and hold than in their attorney’s trust account until the agreement is settled and you have the keys.

Sometimes real estate developers will take an even smaller amount of money to register your interest.
Holding the deposit in a lawyer’s trust account gives you some protection in case of problems during the development process.
The developer can’t just tap into your deposit to pay for an unexpected expense.
If you have a turnkey development (where the construction of the property is finished before you buy it), you don’t pay anything extra until the settlement date, when you are supposed to pay the rest.
This is usually once a certificate of compliance with the code has been issued, but sometimes it’s at the practical end of the build — if your builder is in aiming at the latter, you will have to ask your lawyer and your bank for advice on the implications.
This can be a great advantage for people who save hard. If you are in a rising market, you may also find that the property you are buying is worth a little more by the time the project is completed and you are called to settle the case. Often, registering to buy a property that has not yet been built is cheaper than buying a comparable property that already exists, so some buyers aim to get instant equity this way.
But you will have to make sure that you will have the money at your disposal for settle the case when the time comes.
Sometimes delays in the construction process can mean your the pre-approval expires before you need the money. Buyers can sometimes face difficulties in trying to find another lender to give them a loan, especially if their situation has changed — maybe they have a new job or they have had to reduce the work for a while.
Property lawyer Joanna Pidgeon says it has become more of an issue when Covid-19 caused problems with the construction supply chain materials. Costs have increased and delays have added time.
“[Building new] gives buyers the opportunity to set a price and keep saving with KiwiSaver and so on until you are ready to buy,” she says.
“I hope to set a price and give more time to save to get the 20 per cent deposit.’
But she says the Covid-19 experience-creating lockdowns that have held up the construction processes, the pressure on the supply chains makes it difficult to obtain materials and absences of staff at NZ land councils and information-shown how exposed buyers could be to delays.
“Funding can only be approved for a fixed period of time. With buyers having to reapply for funding-life changes; people lose their jobs, get pregnant — we have seen some people get really stressed, need to settle down before going on maternity leave because they need to have finances approved. This is one of the problems that some people face.’

Progressive payment agreements differ in that you get an approved home loan for the total cost of the project in advance, and the bank then pays it in stages as the work progresses.
Usually this happens when the section is purchased, when the foundations are ready, when the frame is in place and the roof continues, then when the project is over.
The payment schedule may vary but will be explained in any contract you sign. The advantage of this is that you have the financing in place from the from the outset, by removing the risk, you will be caught short and unable to settle down. This is the case take a little more management with the bank but these properties can sometimes be a little cheaper because you, rather than the developer, carry the holding costs.
2 – How long does it take to build a house?
There are many things that can affect the time it takes for a property to be built.
In recent years there have been significant delays for things like plasterboard (like the GIB® board) and the builders have sometimes had to wait months to their orders to be fulfilled.
As a general rule, if a developer builds a lot of similar houses in one particular subdivision or development area, your house is likely to be built faster than a unique architecturally designed property that is being built on a specific plot among the existing houses.
It is also faster if the services are all configured and ready to be connected, and if the driveway is already in place.
But all sorts of things can make a construction take longer — the weather, the type of the site on which is built (steep terrain can make it more complex and costly), any legal process involved in clearing the site for your work at start, all the earthworks that need to happen to give you space to build on, and any vegetation that needs to be cleared.
Even things like public holidays can increase the time you have to wait.
You should generally expect the construction process to take about six months and the entire project can last up to a year. But factor in some leeway for delays and unforeseen events to occur.
You will also need to consider where you will be living during the period of your the house is under construction. If you can live with your family or a friend and save on renting, it could put you in a much better financial position when the time comes to settle down and move in. Some people are able to save a little more money in this way, it can reduce the amount they have to borrow.
If you pay rent and also make payments on a construction process such as it goes hand in hand, which means that you are also managing a loan, this can put you under pressure. This is a problem for progressive payment construction contracts rather only turnkey solutions.
If you are buying an apartment in a multi-unit development, the the construction period can be significantly longer.