New Zealand residential building company Signature Homes has reported a 25% increase in home building inquiries from first time home builders so far in 2017, as awareness about the LVR exemptions for residential home builds grows.
Signature Homes CEO Paul Bull says first home buyers, particularly in Auckland, are giving up on the inner suburbs and flocking to greener pastures because it’s easier to borrow money for a home build, and many of the old risks associated with over capitalising on new builds no longer exist.
"I can’t blame them. Who wants to live in a second-hand house in congested old suburbs?” Bull says. “Building your own home in 2017 is low risk and makes financial sense. By the time you've managed to save a 20% deposit, or $191,200, for a $956,000 existing house (the median house price in Auckland) – the price of the house will have already increased.
"It's like chasing your tail. It's not a race first home buyers can win, and there is growing awareness of that. Nowadays if you meet the lending criteria you can arrange finance on a new build with as little as 5% deposit, with payments commencing when you move in to your new home. And we can guarantee that your home will be finished at the agreed price," says Paul.
Managing Director of mortgage financier Newbuild, Ian Webb, says a major obstacle for new home builders has always been the ‘unaffordability’ of the process, not the actual house, because people are required to live somewhere and pay rent while they wait eight to twelve months for the house to be built.
"Now we can structure the loan to the needs of the borrower. For example, they may want to make a progress payment, interest only payments, or no payments while building is in progress.
"It depends on the buyer and their financial position, but for example, interest can be capitalised (added to the loan). We also build in funding for contingencies, and any unused funds belong to the customer and are returned to them at the end of the build process."
"When you have the option of building with a deposit from five per cent for residential owner occupiers, and from ten percent deposit for residential investors, it’s a no brainer to build in this market,” said Bull.
Although first home buyers may be increasingly looking to build in Auckland, based on home building inquiries, the latest data on building consents released today by Statistics New Zealand shows a downward trend across most of the country.
The trend for the number of new homes consented has decreased nationally by 15% in the five months to January 2017, after reaching a 12-year high in August 2016.
The trend excludes monthly volatility to give a clearer picture of underlying changes in home building intentions.
“Most regions appear to have contributed to the recent decrease in residential consents, although Canterbury is the most significant contributor, followed by Auckland,” business indicators senior manager, Neil Kelly said.
“However, building consents are quite volatile at a regional level. Canterbury is showing a sustained decrease from its post-quake peak, whereas Auckland is still close to a 12-year high and is now consenting over 10,000 homes a year.”
Building consents are an indicator of future building activity, and almost all consented work is eventually completed. The recent building consent decreases are not reflected in the latest building activity statistics, which showed that building work continued to increase in the December 2016 quarter.
Although the trend is decreasing, the seasonally adjusted number of new homes consented rose 0.8% in January. Weakness for stand-alone houses was offset by strength for apartments and townhouses.