Buyers of new builds should watch out for offers from developers to pay their mortgage or rent

Your mortgage covered for one year. A sweetener of $20,000 covered rent. If you are looking for a new home, these offers may seem interesting.

But there is a caveat that you might not get the value you expect.

Property development company Brooksfield recently launched a campaign offering to pay the mortgage of anyone who moves to Christchurch and buys one of its townhouses by the end of October.

In July, Jennian Homes Franklin offered to pay rent of up to $20,000 to those who bought a house and land in the Booker Estate in Tuakau, just outside Auckland.

A number of development companies, including Williams Corporation and Wolfbrook Residential, now offered one- or two-year rental guarantees to investors who bought properties from them.

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These types of incentives are more common when the housing market is cooler and developers have a hard time getting people to buy their products.

Nationwide house prices fell 5.9% year-on-year in August, while sales fell 18.3% year-on-year, according to the latest figures from the Real Estate Institute.

At the same time, new home building applications had fallen sharply since last year.

Opes Partners chief executive Andrew Nicol said buyers should be wary of new construction incentives as they did not provide additional value for free.

New construction sales incentives are intended to attract buyers.

MARTIN DE RUYTER/Stuff

New construction sales incentives are intended to attract buyers.

The main incentive he had come across was rental guarantees, or furniture packs, for people buying rental property, but he wasn’t a big fan of either.

“With a rental guarantee, for example, will you have the best tenant, or the first tenant he finds? he said.

“You’re likely to end up with the first one, and they might not be great, which can be a problem. You may also not end up with the amount of premium rent. And furnished rentals do not appeal to many tenants because they have their own furniture.

These types of incentives were gimmicks, as was the mortgage payment offer, because if a developer could afford to do so, they could simply reduce the price of the property, he said.

“As a buyer, if you think you’re getting something for free, you’re not. You’re paying for the incentive, because the cost will be listed somewhere.

“Buying a property based on a gimmick doesn’t get real value, so people have to think about the real value of a property and base their decision on that.”

If a property was of good quality and reasonably priced, a developer would find a buyer, while an investor would be able to find a good tenant for it, he said.

Signature Homes managing director Paul Bull said some developers were offering rental guarantees at the moment, but he was not aware of any other incentives.

This was different from past downturns when assets such as cars or spas were offered with a sale.

“These types of incentives are not good business. They’re included in the cost somewhere along the line, so the buyer will pay for it anyway.

Auckland developer David Whitburn says sometimes incentives work better than price discounts.

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Auckland developer David Whitburn says sometimes incentives work better than price discounts.

Auckland developer David Whitburn said the developers were in the business of providing housing stock and if they did not transfer enough stock they would not get the funding to continue.

This meant they had to make sure they were attracting buyers and selling their stock, and one way to do that was to offer discounts or price incentives.

Most developers would lower the price a bit, and price reductions were currently offered on a number of off-plan builds, but sometimes it might be better to pay for an incentive, he said.

“While I haven’t heard of the type of incentives seen in the aftermath of the global financial crisis, such as cars, I suspect we will see some as the market downturn progresses and buyers have the above.”

Paying the mortgage for a year as Brookfields offered was a rare move, but it was an innovative move that could prove popular, he said.

“Incentives are often part of the final price, but buyers have to do the numbers and if it works for them, they have to go for it.

“The biggest risk is that the developer does not remain solvent, because a buyer wants to make sure that the construction is completed and that he actually gets the payment he was promised.”

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