For those struggling to find a home in Auckland, off the plan purchases were looking attractive for a while, mainly because buyers were able to get around banks’ Loan-to-Value Ratio rules, sometimes paying only a 10 per cent deposit compared to a 20 per cent deposit required to buy an existing home. However, potential off the plan buyers need to be well aware of the increasing list of cons to this home buying option.
Recently, for the 800-unit Rose Garden apartment project, developers increased the prices of the apartments citing rising construction costs. Buyers were asked to pay more money to top up what they had paid the year before. The deputy manager of the project said in September that “Building costs have gone up significantly. Even if we ask for 15 per cent, the money still doesn’t cover construction costs”.
On top of the request to pay a top up, there is also the risk that the development project will be cancelled. It was not long ago when the Flo apartment project was cancelled before construction began. Initially selling from $375,000 and ranging up to more than $700,000, the real estate agency told purchasers that it was no longer possible for the project to proceed because of rising construction costs.
Off the plan buyers should examine the terms of their purchase agreement very carefully for developer friendly conditions – before committing to a purchase and also before responding to any developer requests for top ups.