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New Builds in New Zealand: Are They a Smart Choice?

NEWBUILD

New Builds in New Zealand: Are They a Smart Choice?

As a property investment mentor, I’ve always steered clients away from new builds. While the government incentives – lower deposits and tax breaks – are undeniable, there’s a strategic element to consider that goes beyond the initial purchase price.

The Allure of New vs. The Long-Term Game:

New builds are undeniably attractive. They’re shiny, modern, and potentially hassle-free in the short term. However, for investors and first home buyers wanting the best first start, the focus should be on long-term value creation. Here’s why new builds might not be the silver bullet:

  • Market Saturation Looming: Insights from people in the industry suggest a potential surge in new builds hitting the market next year, due to many developers refinancing their completed projects with non-bank lenders at higher interest rates (rather than selling them as planned) and more likely a temporary solution. This oversupply could lead to price fluctuations, potentially negating the benefit of a lower deposit. Remember, rental yields are just as important as purchase price – with more supply, rents might not keep pace.

  • Limited Upside Potential: Unlike established properties, new builds are already “new.” There’s limited scope to add value through renovations or improvements, a key strategy for building equity in an established property. Your return on investment is primarily tied to market forces, over which you have little control.

  • Risks of ‘Off-The-Plan’ New Builds:  Buying off-the-plan in New Zealand can be risky. Sunset clauses can let developers cancel the project, leaving you without a home (and lost opportunities, especially when the market is hot. Delays or incomplete builds could mean you’re stuck waiting or finding alternative housing. Your deposit could also be tied up for a long time, limiting your ability to buy elsewhere.

  • Building Quality: New doesn’t necessarily mean quality. While council sign-off is a requirement, it doesn’t guarantee top-notch construction. Often, developers dissolve their companies after selling a project, making warranty claims difficult. 

Beyond the Numbers: Considering the “X” Factor

While the government incentives are mathematically appealing, there’s an “X” factor to consider – the property itself. Established properties often offer:

  • Location Advantages: They might be situated in established neighbourhoods with existing infrastructure, amenities, and a sense of community – factors that can significantly impact rental yields and long-term property value.

  • Unexpected Gems: Established properties can hold hidden value. Larger land sizes with development potential, or potential for renovation can all contribute to increased equity over time.

 

The Verdict: A Calculated Approach

New Zealand’s new build incentives are a powerful tool, but they shouldn’t be the sole deciding factor. For investors, a strategic approach that prioritises long-term value creation and income generation is crucial. Carefully weigh the potential drawbacks of new builds, like market saturation and limited improvement opportunities, alongside the benefits of established properties with their inherent value potential and improvement advantages. Remember, the best investment strategy is the one that aligns with your individual goals and risk tolerance.

 

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