Kiwi Mortgages


Housing Affordability in Auckland


Housing affordability has been an ongoing issue in New Zealand for some time, and with ever increasing house prices, this problem has only been getting worse over the years. Auckland is the worst hit but most parts of the rest of the country are not left unaffected by this unabated housing market inflation.

The successive Governments have been trying their best to arrest the trend, aided by Reserve Bank monetary/fiscal measures, LVR restrictions etc. One of the steps taken has been a growing emphasis on constructing new houses, to ease off the supply pressure. Making more land available, allowing more dense housing, easing the consent processes, exemption to new built houses finance from LVR restrictions are few of the many ways to incentivize the new build industry to increase the supply.

We are currently witnessing a massive growth in new build activity, especially in Auckland that was not seen in the past.

From buyers’ perspective, purchasing a new build property can be a very complex transaction, which requires deeper understanding of the process involved.

As opposed to purchasing an existing property which you can settle within a short time, in case of a new build property, the completion of the construction typically takes a longer time.

The two most common ways to buy the property under construction:

  1. You purchase the land and then the developer/builder completes the construction on your behalf as per a pre-determined and documented “fixed price contract”. In this case, you are required to fund the build cost at progressive stages of the build. This is commonly called by the lenders as “construction loan”.
  2. You enter a “turnkey contract” with the builder, where you are required to pay the upfront deposit, around 10% of the property price and the balance is paid after completion.

Before you commit yourself to either of the above two contracts, you must carefully understand:

  1. The type of the contract you are signing. We strongly recommend seeking advice from your lawyer before signing, as these contracts can be very complex and require detailed understanding of various clauses, such as “the sunset clause” in “turnkey contracts” and “scope of works” or any “escalation clause” in progressive payment fixed price contract.
  2. Depending upon the type of contract you signed with the builder, the lender approval also requires careful understanding around the conditions mentioned in the offer letter, few of which may include:
    • Registered valuation of the property
    • Copies of the council consents
    • Acceptable Builders’ fixed price contract with progressive payment schedule and exclusions if any
    • Adequate builders’ risk insurance during construction
    • Any other conditions specific to your situation

Aside from the specific loan offer conditions, any lending offer will likely include general conditions, such as:

  1. Any conditional loan offer is valid for a certain period. If its validity has expired and the construction is not yet complete, any extension request will be assessed by the lender afresh as per the current laws and their own lending guidelines at that time.
  2. No material adverse change in your own financial situation, such as an event leading to loss/reduction in income (loss or change of job; reduction in business income or any other) or increase in expenses (childbirth; illness or any other)
  3. No material adverse change in the value of the property (market conditions)

These general conditions need to be taken into perspective, noting the risks they pose.

We do not mean to not consider new build properties, but a more detailed discussion with your lawyer and lender/adviser will likely enable you to mitigate these risks to a great extent.