LVR announcement encourages new housing supply

LVR announcement encourages new housing supply

New loan restrictions for Auckland property investors ill boost demand for ‘off the plan’ purchases and encourage new supply in a heated market.

July 25, 2016

The Reserve Bank’s recently announced nationwide restrictions requiring a 40% deposit to purchase a property will encourage new housing supply by pushing buyers towards ‘off the plan’ projects.

The new restrictions contain the same exemption previously applied to new dwellings and off the plan sales, which incentivise purchasers to buy off the plan or new land and build packages.

Colliers International’s director of residential project marketing, Jeff Davidson, says owner occupiers or investors considering purchasing an off the plan property, will be able to borrow with more freedom than those buying built properties.

“This is a distinct advantage, alongside the many other advantages of purchasing off the plan, which in many cases requires a deposit of as low as 10%.

“At the moment, we know Aucklanders cannot afford to come up with the necessary deposit required to borrow against, and now a 40% deposit will make further investment in established properties even harder.”

Mr Davidson believes this brings good tidings for the development and construction sectors, which will be bolstered by increased interest in off the plan purchases.

“We are pleased with the Reserve Bank’s decision to maintain the exemption for new dwellings and off the plan purchases, as this provides people and investors with an alternative avenue of getting onto the property ladder.

“We also agree with the Reserve Bank’s view that this exemption will help to support the supply of new housing and in doing so, reduces some of the pressure arising from excess demand in our housing market.”

Under the restrictions, a median priced Auckland property valued at $821,000 would require an investor to come up with a $328,400 deposit – unfeasible for many.

“This kind of money is not practical for many people which makes off the plan purchases far more palatable.

“With a deposit of as low as 10%, you can secure your property and purchase it at a fixed market price, rather than an unknown figure in an auction process.”
Under this scheme, purchasers also benefit by buying at the day’s price and settling in only 18 to 24 months, which provides the time to arrange finances, sell existing property and benefit from market changes immediately.

Purchasers also benefit from buying brand new properties which are built to updated building codes, using upgraded materials and technologies and boast the latest design features.

“We are seeing an increase in interest in off the plan purchases from investors, people looking for a lifestyle change and those trying to make it onto the property ladder.

“The banks and regulatory policies are fuelling this by promoting buying off the plan apartments and homes with lower deposits generally required for investors and owner occupiers.

“When buying an off the plan product, purchasers are also protected against inheriting building or property maintenance issues from previous owners, and benefit from warranties provided with new builds.”

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