Over the course of the last few years, investors had made a lot of money buying properties off-the-plan. The overall idea is simple enough: an off-the-plan
buyer can enjoy capital gains before having to service any interest costs. That was particularly the case in Auckland where settlements often got pushed
out by lengthy council delays without any increase in purchase prices thus compounding the gain an investor stood to make.
Be mindful that going forward, this may not be the case. The market is changing and investors, in particular, need to be careful. While we have regulations
such as LVR controls that were not there during the GFC, it is important to note that rules can change at any time and are indeed more likely to do
so in a slowing property market. We are seeing lenders who apply a far more stringent lending criteria than RBNZ rules to buffer themselves against
a market crash.
Understanding the attraction and risk of off-the-plan deals
Pre-2007, many purchasers (speculators in particular) profited enormously by locking down off-the-plan properties and on-selling them before settlement.
It was common, back then, for buyers to put down as little as $1,000 deposit and stand to make potential profits near the 6-figure region. You can
surely see why this strategy was particularly attractive.
But then, the GFC hit. Many people who bought properties off-the-plan during 2005-07 faced actual settlement between 2008-2010. By then, the financial
landscape was looking very different. Banks were pulling their LVRs right back from 90% for apartments to the 70-80% mark. When value dropped at settlement,
so did the lenders drop their funding (as banks usually fund off the lower of the purchase price and the valuation). The net...
