Choosing whether to build from scratch or buy an existing home is a question that many Kiwis struggle with. The decision outcome is highly individual. It depends on where in New Zealand you live, how much you want to spend and your ability to be approved for a home loan of the required size. Personal taste comes into it as well; some people just love brand new homes, while others prefer the in-built character that comes with an existing home.
In this guide we’ll explore the pros and cons of building a new home and buying an existing house. Then we’ll have a quick look through the lens of a property investor, because decision making can be different when you’re aiming for a rental property.
Construction loans are quite different to standard mortgages, and building a new home can mean a lower deposit and higher first home grants. That’s why it’s important to talk with an expert mortgage adviser before making up your mind. Our free Find a Broker service makes it easy to connect with an accredited professional adviser. They won’t charge for their service – they’re paid a commission by the lender you decide to sign up with.
Why build a new home?
Starting with a piece of land is a brave-but-exciting approach to getting the home you want. Maybe your dream is an architectural masterpiece on a couple of acres or perhaps you’re thinking about a practical ‘house and land’ package from a group builder. Whatever’s on your mind, new-builds demand careful planning to ensure you get what you need without blowing your budget.
Strategies for getting a brand new home
There are several ways to approach a new-build, such as:
- Manage the whole thing yourself – buy the land, commission a plan from an architect or designer, get quotes from builders, choose a builder, project manage your home to completion.
- Use a project manager – a bit like the first option, but you’ll have a project manager to do all the running around and organising.
- Buy off the plan from a developer – you agree to purchase a home from a property developer before building starts or while the home is in the process of being built.
- Buy a section and find a group builder – you source the land, then find a group builder with existing plans. After choosing a plan, the group builder constructs your house.
- Buy a house and land package from a group builder – a turnkey solution for a new house. You choose from available vacant sections, then select an existing plan that suits the land.
The benefits of building a new home
- A bigger first home grant
If you meet the requirements for a Kāinga Ora First Home Grant and your new home won’t exceed the house price caps for your area, you could qualify for a bigger grant. For existing homes the grant is up to $5,000; for new-builds it’s up to $10,000. Eligibility is per person, so if you’re building with a spouse or partner your grant could be as high as $20,000. Check out kaingaora.govt.nz for details. - A smaller deposit
If you’re planning to live in your new home, you’ll probably qualify for a 10% deposit loan. If you’re a first home buyer, deposit requirements could be as low as 5%. For existing homes, the deposit requirement is usually 20%. Read more about house deposits. - Better energy efficiency and comfort
New homes in New Zealand are built to exacting standards that ensure the dwelling will be fit-for-purpose, safe and energy-efficient. The Building Code sets minimum performance standards for all New Zealand construction, but there are often different ways to achieve those standards. For example, the code specifies how much natural light there must be in a bedroom, but it doesn’t prescribe how to achieve that light. If you want to know all the ins and outs, you could read the building code handbook on building.govt.nz. However, if you work with a respected licensed builder this probably won’t be necessary. - The look you want
Beauty is in the eye of the beholder. If you love contemporary architecture, building a home from the ground up is your chance to own an ultra-modern home that reflects your tastes. If you want to live in a home that looks like a barn, now’s your chance. And if you want a hobbit hole that’s built into a hill, so that it blends perfectly with the landscape, your fantasy could become fact. Depending on your budget, a new home is a blank canvas for your personality. - The floorplan you want
Getting a new home is a chance to get the floorplan of your dreams. Have you always wanted a family home where the kids’ area is separated from the adult’s haven? Or a home where the living areas face north? Or maybe you want self-contained accommodation for guests or renting out on AirBnB? When you’re building from scratch, even if you’re choosing an existing plan, there’s lots of scope for getting exactly what you want. - Less maintenance
Like a new car, a new home is unlikely to hit you with surprise bills for repairs. They also come with guarantees for materials and workmanship. What’s more, modern roofing and cladding materials typically require less maintenance than those of the past. When everything’s new – particularly wiring, plumbing, heating and appliances – there’s less risk of catastrophes that upset family budgeting. - Cheaper insurance
You’ll probably find that a new-build is cheaper to insure than an existing home, especially if the existing home is pre-1935. Depending on your location, insurance companies recognise that a brand new home may come with fewer risks than an old home. - Better resale
A recently-built home that’s all permitted and signed off (has achieved Code Compliance) provides buyers with peace of mind. Depending on where the home is located, this usually means a higher sale price. What’s more, near-new homes are easy to prepare for market because they require less maintenance.
The negatives of building a new home
Building a new home isn’t all blue sky and sunshine. There can be grey clouds; sometimes even a major storm. We recommend you go into the decision with your eyes wide open, which means thinking about these negative possibilities.
- Money up front, before you can live in the home
Houses don’t build themselves. They require materials and labour, which means money up front and during the build. You’ll have to live somewhere while the build is going on, so it’s possible you’ll be paying a mortgage or rent while you fund the build or pay for the new property in instalments. - Budget blow outs
The risk of building costs blowing up during construction depend on the type of construction contract you have. If you’ve sourced the land yourself, you’ll probably have a ‘build-only’ contract. Sometimes these come with a fixed price; more often they involve a certain amount of estimated costs, which can spiral upwards during the build. If you’re working with a group builder, it’s likely you’ll have a turnkey contract. This is a less stressful way to build, because it involves a fixed price. Read our guide to new-build construction loans. - Naked landscape
More often than not, new-builds mean bare or nearly-bare sections. If you’re lucky enough to have trees on your land, there’s a good chance they’ll be in the wrong place. While you’re planting a landscape and waiting for it to grow, your home will have that naked look. Even with fast-growing trees, it’ll take a few years to establish an attractive landscape that perfectly frames your home. - Waiting and worrying
Even if you choose the most respected builder in town, it’s hard not to worry while you’re waiting for your new home to materialise. And you can’t really distract yourself with travel while the build’s going on, because there could be decisions to make and progress points to check. If you don’t have a turnkey contract with a fixed price, your worries could be magnified by rising construction costs.
Why buy an existing home?
With an existing home, it’s a case of ‘better the devil you know than the devil you don’t’, because it’s right there in front of you. If you do your due diligence and get a comprehensive building inspection, you’ll be fully informed about what you’re buying.
The benefits of buying an existing home
- A fixed cost
Whether you buy the home by auction, tender or negotiation, you know what it’s going to cost on settlement day. If you need a home loan, you can confidently go to a lender with figures in mind. It’s always a good idea to get pre-approval before you make an offer or go to auction. - Character
Not all existing homes have character, but many do. If you love the vintage look and feel of a wooden villa or bungalow, buying an existing home in a historic suburb is your solution. If mid-century is your thing, there are plenty of weatherboard and brick examples in New Zealand ready to take your Mad Men-inspired retro furniture. Moving into a slice of history makes you feel part of New Zealand’s heritage. - A garden and mature trees
Never underestimate the value of an established landscape with trees for shade and gardens for everyday joy. It can take years to grow a proper garden, so having one from the get-go is a bonus. With any luck you’ll gain a vegetable garden and fruit trees as well. - A bigger piece of land for capital gain
Established homes often have larger sections than new-builds. And land value drives capital gain more than the value of the structures on it. Depending on zoning rules and accessibility, you might even get the chance to sell off some of your land. - An established neighbourhood
Depending on the age of the existing home you’re looking at, the neighbourhood could come with decades of transport, community, education and retail development. With new subdivisions, the homes often come before the infrastructure, which can be inconvenient. - No waiting
As soon as you’ve settled on an existing property, you can move in. There’s no waiting around while a building takes shape.
The downside of buying an existing home
- Substandard construction Existing homes were constructed to meet the building code of their day. So a home that’s 100 years old may not have the insulation and ventilation that new homes must have today. While many existing homes have been through bouts of renovation and improvement over the years, only a detailed building inspection will reveal the truth about what you’re buying. You might need to spend a bit, just to make the home liveable.
- A layout that doesn’t work for you If the home you buy doesn’t have the floorplan you need, sooner or later you’ll be off to the designer and builder for plans and a quote. Renovations and additions seldom involve a fixed price construction contract, so costs can easily creep upwards. When you start taking an old house apart, you can discover expensive secrets – like borer-chewed foundations and water damage. These revelations add costs to renovation projects.
- Wear and tear Even the mostly perfectly presented existing homes have been lived in, so they don’t have that ‘straight out of the box’ feeling that new homes have. You might need to spend money on a lick of paint, bathroom upgrades, a kitchen makeover and new flooring.
- A smaller First Home Grant If you’re eligible for a First Home Grant, and the property you want to buy meets the required criteria, the most you can get for purchasing an existing home is $5,000.
- Higher maintenance An existing home that’s a century old will always have a ‘to do’ list, as far as maintenance and repairs are concerned. But if the existing home you buy is only 10 years old, it’ll probably fall into the low maintenance category. When you’re getting a building inspection, ask the inspector about ongoing maintenance, so that you understand what you could be in for.
- More expensive insurance If the home is pre-1935, you should expect to pay more for insurance. Older homes are a riskier proposition for insurance companies, so they usually offset that risk with higher premiums. 1
What’s best for an investment property - new-build or existing property?
When you’re looking for a property to start or add to an investment property portfolio, the pros and cons for existing vs new-build are a bit different. It’s all about practicality and getting the numbers to work.
It’s important to remember that the 10-year bright line test applies to both new-builds and existing homes. Also, from 1 October 2021 you can no longer claim interest on loans used for residential rental properties. 2
Pros and cons of an existing house as an investment property
For
- The price you arrive at by auction or negotiation won’t change, which makes yield calculations more accurate.
- Homes are usually within communities that have transport, schools, shops and essential services. This makes them desirable to tenants.
- Landscaping (gardens, trees and outdoor living areas) may already exist, adding to property appeal.
- The repairs and maintenance you may need to do can be claimed as an expense.
- The property may have a sub-dividable site.
Against
- Homes can cost more, because they are often in more established parts of a town or city.
- You need at least a 40% deposit.
- Existing properties with large amounts of land attract higher rates.
- Depending on the age of the property, you may need to renovate to meet Healthy Homes standards, however some expenses may be tax deductible. 3
- You can’t claim for renovations that substantially improve the value of the property.
Pros and cons of a new-build as an investment property
For
- You only need a 20% deposit.
- The home is likely to be low-maintenance. And because it’s new, repairs for wear and tear will be few.
- It will meet the new Healthy Homes standards for insulation and ventilation.
- You might be able to attract better tenants who will take good care of the property.
- Rent could be higher than for an equivalent existing house.
- A new-build could be cheaper than an existing property, because it’s in a new subdivision further out of town.
- If you have a turnkey construction contract, you can tailor the cost of building to fit your yield calculations.
Against
- If you don’t have a fixed price contract with your builder, costs can spiral upwards and have a negative impact on your yield calculations.
- The location of your new-build might not be a desirable part of town, because it’s further out and the neighbourhood lacks amenities.
- The section is likely to be bare; it will take a while to establish trees and a garden that make the home look attractive.
Read more about buying an investment property in New Zealand
Keep an open mind and do your homework
Whether you’re looking for a home to live in or an investment property to rent out, considering both strategies – existing property or new build – can help you to understand the local property market from every angle. Talk to group builders who are active in your area, keep a close eye on online property listings, monitor sale prices and discuss potential home loan requirements with a lender. Whatever you eventually decide, you’ll feel better about your choice because you fully-explored all the opportunities.
Read more about ‘How much it costs to build in New Zealand’
Sources
IMPORTANT: 29/09/2023 – Due to recent unprecedented demand, the Kāinga Ora First Home Partner scheme is now fully subscribed and therefore they will not be accepting any new applications while they work through their commitments to those already in the scheme. Find out more here.
