Off the plan buys outside LVRs

Auckland’s supply shortage and the need for intensification mean apartment construction in the city has ratcheted up significantly in recent times.

This rise in construction, accompanied as it is by a rise in house prices, means that off-the-plan purchasing has grown in popularity.

Barfoot & Thompson director Kiri Barfoot said the process allows buyers to secure a property early, while also taking advantage of time to build up their savings, or sell their existing home.

“Not only are there now more quality options available for sale than in the past, more people are showing interest in this method of securing a new home.

“This is particularly the case for higher-end apartment complexes in the city and fringe, backed by reputable developers.”

Purchasing off-the-plan appears to be particularly popular with first home buyers and downsizers.

However, it also presents a possibility for Auckland investors.

Mortgage broker Kris Pedersen said new builds – which off-the-plan purchases qualify as – sit outside the LVR restrictions on Auckland investors.

This means it would be possible for an Auckland investor to borrow to the limits set by the banks for an apartment, which are less conservative than they used to be.

Potentially, a bank could lend an investor up to 85% or even 90% for an off-the-plan apartment purchase.

Pedersen said buying off-the-plan can be a good way to get around the LVR rules, especially if an investor doesn’t have the equity or wants to get into the Auckland market.

It can also be a good investment strategy, depending on the time in the market, he said.

“The amount of time between signing up and then settling on an off-the-plan investment can see good capital growth.

“Alternatively, if the market tightens or changes in that time, there can be serious financial risks for investors.”

For this reason, investors should tread carefully when it comes to off-the-plan purchases, Pedersen said.

“New builds which are due to be completed within 12 months are probably okay but, with properties that aren’t due to come on to the market for a couple of years, you would want to make as sure as possible that a life-changing event isn’t on the cards.”

The Mortgage Supply Company’s David Windler said he has seen increased investor interest in off-the-plan apartment purchases in Auckland – although it hasn’t been a massive shift to date.

It was worth noting that, while there are exemptions to the LVR restrictions, there was some resistance to the exemptions from banks.

“They are trying to be as careful as possible not to break the law, which means that sometimes they don’t want to exercise the exemptions.

“So, even if a property should be LVR exempt, make sure that you double-check with your bank first, before signing anything.”

In Windler’s experience, serious apartment investors are still sticking to older apartment stock as they present better value for money.