Glossary for New Build and Off-Plan Homebuyers in New Zealand
Buying your first new build or off-plan home can be an exciting but overwhelming experience. You may encounter unfamiliar terms and jargon that can make the process seem daunting. To help you navigate through the home-buying journey, we have put together a glossary of common terms and phrases used in the new build and off-plan property market.
Key Terms Explained: New Build and Off-Plan Homebuying
Body corporate
An administrative body is made up of all the owners within a group of units, townhouses, or apartments. The owners elect a committee, which handles the administration and maintenance of the site. The body corporate collects fees from owners to cover the costs of maintaining the common areas and facilities such as gardening, cleaning, security, insurance, and repairs. The body corporate serves as a governing body that works to ensure the smooth running and upkeep of the development, while also promoting a sense of community among the owners.
Building code
The Building Code is contained in regulations under the Building Act 2004. The Act governs the building sector and sets out the rules for the construction, alteration, demolition and maintenance of new and existing buildings in New Zealand. All building work in New Zealand must comply with the Building Code, even if it doesn’t require a building consent. This ensures buildings are safe, healthy and durable for everyone who may use them.
Building report
An expert assessment of a building’s condition that identifies any current or future problems. REA recommends that potential purchasers get a building report done by a qualified building inspector who has professional indemnity insurance, understands the legal requirements and carries out their work in accordance with the New Zealand Property Inspection Standard.
Code Compliance Certificate (CCC)
A code compliance certificate is a formal statement issued under section 95 of the Building Act 2004, that building work carried out under a building consent complies with that building consent. The process of obtaining a CCC involves a thorough inspection of the completed building work by a council-appointed building inspector. Once the building inspector is satisfied that the work complies with the building consent, they will issue the CCC to the property owner or builder. This certificate is an essential document for homeowners, as it demonstrates that the property meets all legal requirements and can be occupied or sold without any concerns regarding its compliance with building regulations.
Conveyancing
Conveyancing is the legal process of transferring ownership of a property from the seller to the buyer. It involves various legal and administrative tasks, such as reviewing contracts, conducting title searches, and arranging for the transfer of funds. It plays a crucial role in protecting the interests of both buyers and sellers during a property transaction and ensuring that all legal requirements are met.
Deposit
A deposit is the initial amount of money paid by the buyer to secure a property. The minimum deposit required for a home loan is typically 20% of the property’s purchase price. However, first-time buyers may be able to purchase a property with a smaller deposit as low as 5%,
Equity
Equity is the difference between the value of a property and the amount owed on the mortgage. It is essentially the portion of the property that belongs to the homeowner outright, without any debt attached to it. As property values fluctuate over time, so does the equity in a home. For example, if a property is worth $800,000 and the mortgage balance is $600,000, the equity is $200,000. As the value of the property increases and the mortgage balance decreases, the equity also increases.
First Home Grant
The First Home Grant is a government scheme that provides eligible first-time buyers with a grant of up to $10,000 towards the purchase of existing, off-plan and newly built homes. House price caps are different throughout the country and are subject to change. The First Home Grant is a valuable resource for first-time buyers, helping to alleviate some of the upfront costs associated with buying a property. This scheme plays a crucial role in supporting individuals or couples as they take their first steps towards homeownership.
First Home Loan
The First Home Loan is a government scheme that helps first-time buyers with a low deposit (5% or more) to purchase a property. First Home Loans, underwritten by Kāinga Ora and offered by selected lenders and banks. It opens up opportunities for individuals who may have previously thought homeownership was out of reach, providing them with a pathway to achieve their housing goals.
Freehold (or fee simple)
Freehold, also known as ‘fee simple’, is the most common and simplest type of ownership. With a freehold property, you have ownership of the land and anything built on it, with some exceptions for registered or unregistered interests. These interests may include easements granting neighbouring property owners or utility providers the right to use part of your land, covenants that restrict the type of property you can build, restrictions under the Resource Management Act 1991, and whether the land is Māori freehold land.
KiwiSaver
KiwiSaver is a voluntary savings scheme in New Zealand that helps people save for their retirement and first home purchase. One of the key benefits of KiwiSaver is the ability for first-time home buyers to withdraw their savings to put towards the purchase of their first home. This can include using the funds for the deposit, legal fees, and other associated costs of buying a property. This feature has made KiwiSaver a popular option for those looking to get on the property ladder.
Land Information Memorandum (LIM) Report
A Land Information Memorandum (LIM) report is a comprehensive document that contains important information about a property that can significantly impact a buyer’s decision-making process. The report typically includes details about the property’s zoning, any building consents, rates and outstanding charges, known hazards or issues such as flooding or unstable land, and any restrictions or easements that may affect the property.
While it’s recommended to obtain a LIM report before purchasing an existing property, it’s a little different for off-plan and newly built properties. A new or yet-to-be-built property won’t have the same history of consents or unpaid rates, but you can get the same sort of information about zoning and hazards from the Council in the form of the resource consent documents that the property developer would have lodged to build the property.
Loan-to-Value Ratio (LVR)
LVR stands for Loan-to-Value Ratio and is a measure of the amount of the loan compared to the value of the property. It helps lenders assess the level of risk they are taking on when providing a loan. An LVR of 80% means that the borrower is putting down a 20% deposit and borrowing the remaining 80% of the property’s value. A lower LVR indicates that the borrower has a larger equity stake in the property, which is generally viewed favourably by lenders. On the other hand, a higher LVR may signal higher risk for lenders, as there is less equity to cover potential losses if the property has to be sold to repay the loan.
Mortgage
A mortgage is a loan used to purchase a property. The property is used as security for the loan, and the borrower makes regular repayments which consist of both principal (the amount borrowed) and interest (the cost of borrowing the money) to the lender until the loan is paid off. Mortgages come in various types and terms, including fixed-rate mortgages where the interest rate remains constant throughout the loan term, and floating-rate mortgages where the interest rate can fluctuate based on market conditions. The repayment period for a mortgage can vary but is commonly between 15 to 30 years.
Mortgage broker
An individual or company that brings borrowers and lenders together. Mortgage brokers typically require a fee or a commission for their services, which is usually paid by the lender.
Multi-offer process
This is when there are more than one interested party in a property who has submitted an offer. Buyers are encouraged to submit their best offer as the seller may choose to only negotiate with or accept one offer. Real estate agents aren’t allowed to pretend there are competing offers if they don’t exist.
Offer
A proposal to purchase a property. To make an offer, the agent will usually draw up a sale and purchase agreement and ask the buyer to sign it. The offer is made up of the sale price, deposit amount, and settlement date. They can also be made subject to certain conditions, such as finance, the sale of a current property or a satisfactory building report.
Off the plan
Off-the-plan purchase means that you are buying the property based on the floor plans, designs, and other details provided by the developer, rather than being able to physically see the property before making a decision. It can offer potential benefits such as lower prices, customisation options, and potential for capital growth as the property is built.
Pre-approval
Pre-approval is conditional approval from a lender for a home loan. It is based on the borrower’s financial situation and the property’s value. By obtaining pre-approval, buyers can confidently house hunt within their budget, avoiding the disappointment of falling in love with a property they ultimately can’t afford. Pre-approval also enhances a buyer’s negotiating power. Sellers are more likely to take offers from buyers who have pre-approval as it shows that they are serious and capable of securing financing.
Private Treaty
A private treaty is a sale where the property is listed as sale by negotiation or at a fixed price, and buyers can make offers to purchase the property. The seller can choose to accept, reject, or negotiate the offers.
Purchaser’s Conditions
Purchaser’s Conditions are specific terms outlined by the buyer in a sale and purchase agreement to protect their interests. They may include clauses like building inspection reports, finance approval, or selling an existing property. If conditions are not met within the specified timeframe, the buyer can withdraw from the sale without penalties, providing flexibility and peace of mind in real estate transactions.
Record of Title (Title)
A Title is a legal document that shows who owns a property and any restrictions or encumbrances on the property. It is important to review the title before purchasing a property to ensure there are no issues that may affect the buyer’s ownership. This information is held by Land Information New Zealand (LINZ).
Residents’ Association
A Residents’ Association aims to safeguard your home’s value and the community’s quality within the development. Responsibilities include maintaining communal facilities, collecting levies, landscaping, and enforcing rules to preserve the development’s appearance. Membership and adherence to the Residents’ Association’s rules are mandatory.
Resource consents
Resource consents are an important part of the regulatory framework governing land use and development in New Zealand. They are necessary when a proposed activity or development does not comply with the rules and regulations outlined in the district or regional plans, as well as the Resource Management Act 1991. It is important to note that resource consents are different from building consents. While building consents focus on structural safety and compliance with building codes, resource consents are concerned with broader environmental considerations and land use planning, taking into account the needs of current and future generations.
Sale and purchase agreement
A sale and purchase agreement is a binding contract between the buyer and seller, detailing all aspects of the transaction such as price, included chattels, property conditions, and settlement date. This agreement provides clarity to both parties on the process and expectations. There are various types of sale and purchase agreements with different clauses, so buyers and sellers need to understand them before signing. It is advisable to seek legal advice before signing any agreement. To obtain a sale and purchase agreement, one can contact a lawyer, conveyancer, or licensed real estate professional. Additionally, these agreements can be purchased online in both printed and digital forms.
Settlement
Settlement is the final stage of the home buying process, where the buyer pays the remaining balance of the purchase price to the seller, and the property’s ownership is transferred to the buyer. This payment is often facilitated through a certified check or wire transfer. In return, the seller will provide the buyer with any keys, garage door openers, and relevant documents such as the deed and title to the property. Once all documents are signed and funds are transferred, the title company or closing agent will record the sale with the appropriate government office. This step finalises the transfer of ownership and officially makes the buyer the new legal owner of the property.
Sunset Clause
A provision in a property contract that sets an expiration date or condition for the agreement, is commonly used in off-plan purchases. It allows either party to terminate the contract if the property is not completed or settled within a specified timeframe, providing protection and establishing a timeline for completion.
Unconditional agreement
Where a buyer and seller agree to buy and sell a property without including any conditions.
A conditional sale becomes unconditional when all conditions are met.
Unconditional offer
When a buyer offers to buy a property without attaching any conditions to the sale.
Under Contract
Being under contract signifies that both parties have signed and agreed to the terms and conditions of the sale as outlined in the sale and purchase agreement. It provides a level of security for both parties involved in the transaction.
Valuation
A valuation is an assessment of a property’s value by a registered valuer. It takes into account factors such as the property’s location, size, condition, and recent sales of similar properties in the area. Lenders often require a valuation before approving a home loan to assess the risk associated with lending money for a particular property. The valuation helps lenders determine how much they are willing to lend based on the property’s value.
Conclusion
Buying your first home is an exciting milestone, but it can also be overwhelming, especially when faced with unfamiliar terms and jargon. By familiarising yourself with the common terms and phrases used in the real estate market, you can feel more confident and informed throughout the home-buying journey. At Wallace & Stratton, we’re dedicated to assisting you with your new build or off-plan purchase, ensuring a seamless experience. Explore our current developments to find the perfect match for your needs.
