Have you heard of the new build exemption?

One cannot deny that New Zealand is in the midst of a housing crisis. With this shortage in housing, the government is encouraging investors to buy new build properties. The new build exemption means that now some banks only require a 20% deposit, compared to the 30% deposit need for pre-existing properties.

What is new build exemption?

To qualify for the new build exemption, investors must commit to purchasing a property during early construction, or buy within six months of completion from the developer. While new builds are likely to be more expensive than existing properties, their compliance with the recently implemented New Zealand Healthy Home Standards, the smaller deposit required, and less buyer competition, increases their affordability and could see investors broaden their portfolio faster than ever before.

To look at an example, you could purchase a new build two-bedroom townhouse near Christchurch's City Centre today for $449,000. This would require a 20% deposit of $89,000.  A similar pre-existing unit in the same area costs $395,000. However, this would require a 30% deposit of $118,500, and may have additional expenses to get rental up to the healthy homes' regulations.

The healthy homes standard ensures that rental properties are safe for tenants. From July 2020, any rental housing new tenants must provide a fixed source of heating, ceiling and underfloor insulation (if accessible), adequate ventilation, and drainage. Houses built after 2010 don't require a healthy homes report as the building standard at this time ensures that the property meets the bills requirements. However; we still recommend that landlords get a healthy homes report as to safeguard themselves from future claims.

The cost of getting your property up to standard depends on its age and condition; it may cost nothing for some with the building already meeting the standards, or be more significant for others. A property's compliance with the healthy homes standards, should be considered when looking to invest in any property, new build or not.

Although new builds require a smaller deposit, they may have a larger mortgage than a pre-existing home with a 30% deposit. However, the lower deposit means that you can diversify your portfolio quicker, and could see two investments being purchased in the space of five years compared to one with a lower value. 

Following Covid-19, the Reserve Bank, loosened LVR restrictions to prevent the housing market from crashing. The low interest rates and change of LVR restrictions has meant that the New Zealand property market has seen a surge like never before, and banks are quickly looking to reinstate pre-covid restrictions by March 2021. Now is the time to invest.

Ultimately, the property investment in New Zealand that best suits you depends on your personal situation and should also take into consideration your investment strategy and risk management: yield or capital growth.

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