Should I buy old house vs new house NZ - 3 Pros & Cons 

Buying your first home is an exciting time, so now that you’ve got your finance in place, which is having a pre approval. Do you now decide if you want to buy an old house vs new house New Zealand? 

This is an age old question that many property owners seek to justify which one is better. 

In this article I’ll break into two parts, the first part is if you’re a first home buyer and asking yourself should I buy old house vs new house in NZ? The second part will be for the property investor, because the new rules that just been introduced by the Labour government as of (March 2021), will change the way property investors think of new builds. 

If you’re in the market of the year 2021, the nation is going through a massive housing construction boom and also a housing crisis that has been years of having supply issues due to the lack of funding into the infrastructure. 

Since COVID-19, NZ has had its borders closed and in a way, it has given some breathing room for the housing crisis to start to ramp up the construction of new homes and build up a better housing supply, as immigration from other countries has been reduced to practically zero, it does help. However, with the Reserve Bank of New Zealand removing LVR limits and slashing the official cash rate to nearly zero, that lead retail banks such as ANZ, ASB and others slashing their interest rates into the low 2.00%. 

This field the housing market to go completely ballistic! 

Part 1: Should I buy my first home as a old house vs new house NZ?

Ultimately, it really comes down to your own choice, some people like new cars rather than old cars. Actually, in terms of asset return, car’s isn’t a really great analogy. Because if you bought a brand new car, once it rolls off the dealerships lot, you instantly lose money on it and it’s depreciated. 

Property is different, as sometimes house prices appreciate and in the last 10 years alone most major cities such as Auckland doubled in house prices. However, I do want to stress if this is your first home then, please do not stress about finding the perfect home or finding the house that meets all the requirements of investing in property. It’s a HOME, not an INVESTMENT!

Should I buy a new build home in New Zealand?

New build homes are great because the government wants to push more first home buyers to buy new stock rather than an old home or existing home. A great initiative by the government is their First Home Grant, which they have an incentive to build up your deposit. If you want to know how to grow your deposit fast you can read my blog here. 

So to briefly recap what the changes are, you can now apply for the First Home Grant if you meet these requirements

Income Criteria

1. Your income is below $95,000 if you’re single, for the last 12 months 
2. If your combined income is less than $150,000 for the last 12 months

Property Criteria (Auckland)

1. The new home cap is $700,000
2. The existing home cap is $625,000

If you meet the above criteria, then you could be eligible to get a $10,000 grant per person to form part of your deposit. 

It is only considered a new build if the new property you’ve bought has got a code of compliance sometimes known as CCC in the last 6 months. 

So for example, if you’re a couple and both have been for Kiwisaver for more than 5 years and contributed for more than 5 years, then you could have a combined First Home Grant of $20,000!!

So there are many ways you buy a brand new build, most of the time it is called a turn key build, which I’ve covered here. This basically means, that you buy off a developer and you pay an initial deposit usually 10%, then pay the remaining on settlement. This is usually when the CCC and the title have been issued.  

In a hot market like 2020/2021, it could be a great option, because you start buying a mortgage and once the property is completed, the value of the property could rise dramatically. For example, I had one client who only had a 10% deposit, once the build was completed. The Title & CCC was issued, the house price rose so much that the overall equity of the home was now 20%, he can now access those cheap interest rates that the banks advertised as special! 

Should I build a new home in New Zealand?

Building your own home is a neat way to build that perfect home that is within your budget. However, there is a lot more stress to it, the time you need to put into it and the number of funds to continue to build should it go over budget. 

Usually building your home will create equity in it, but isn’t always the case, say you bought the section for $250,000 and the cost of the build was $300,000 then the overall value once it is completed could be worth $600,000. However, it is dependent on the market at the time. But like I said earlier if you’re building to live in it, the overall position is great but you shouldn’t always looking it from an investment point of view. 

The pros & cons of buying a new home in New Zealand 

Pros of buying a new build in NZ

1. BRAND SPANKING NEW
2. Has all the modern features 
3. More insulated, dryer and can save you money due to the technology advancement in building
4. Able to extract up to $20,000 from the First Home Grant, assuming you’re buying as a couple
5. Comes with a  10 year master builder guarantee (However you should check with the developer and agent that it does!)
6. LVR limits aren’t as tight for first home buyers
7. Could be more expensive compared to existing homes

Cons of buying a new build in NZ

1. Can take time to build usually 9-12 months to complete
2. Developer/builder could go bust
3. Sometimes more expensive and cost overruns
4. Construction loans can be difficult to manage at the main banks 
5. The rising cost of materials and Labour that need to be factored in if you’re building
6. Usually further away from the main city centre

Should I buy my first home as an old house?

Buying an existing home as your first is a great way to get onto the property ladder. Buying old houses as your first home is really down to the location you want to live in. As time goes on there is less land and so the houses become scarce to build on and more desirable ultimately driving the prices up. 

It really comes down to you, buying an existing home in New Zealand will mean a lot more work that needs to be done to bring it up to a modern standard, unless the property is already renovated. If that is the case the chances of buying a first home at an affordable price is going to be quite limited. 

The great thing about buying an old home is that you don’t need to wait for the property to be built and you can move into it on the settlement date. This is still the most common ways that Kiwis buy their first home and if you’re in Auckland buying this home will mean going to auction and so getting a property could be a bit more difficult compared to negotiating on a price of a new build. 

Similar to the new home, you could also get the First Home Grant on an existing property, but the grant will be lower, it will be a maximum of $5,000 and so for a couple, it’d mean $10,000 vs $20,000 on a new build, this is again assuming that you’ve been with Kiwisaver for more than 5 years. 

The property cap if you do get the grant will be limited to $625k, if you’re based in Auckland. 

I’ve done a whole recap on this on my last blog here, which is 3 top tips for first home buyers. 

The pros & cons of buying an existing home in NZ

Pros of buying an old house in NZ

1. You can renovate the property to a standard you want, so you add value to the property
2. Location is the biggest advantage
3. Move into it straight away 
4. Could potentially get it at a lower price if you know what you’re looking for 
5. Able to extract up to $10,000 from the First Home Grant, assuming you’re buying as a couple

Cons of buying an old house in NZ 

1. Cost to renovate could be expensive
2. Problems that are unforeseen such as rotten timber
3. Older and smaller 
4. Could be more expensive because of the location you’re buying in 

Part 2: Should I invest in my first investment property in an existing property or a new build in New Zealand?

This section is for investors, not really applicable for first home buyers as the rules are different because of their crescent changes to the rules around investing that was introduced by Labour in March 2021.

So the biggest question that I get as a mortgage adviser is what property should I or we invest in? 

I believe there are three ways to look at investing in property 

1. Numbers - you need to know what you can afford and understand yields
2. Property - type do you want brand new, old, stand alone, townhouses and many more
3. Location - do you want to buy in major cities only and not any towns

So as of March of 2021, if you’re buying an existing property as an investment property you need a 40% deposit and if you buying a new property then you only required a 20% deposit!!

Should I buy a new property as an investment in New Zealand?

With the new rules introduced, it starting to favour more towards that buying new builds make more sense than buying old existing properties because of the hands-off approach as the maintenance will be low. 

Secondly, if you don’t have a 40% deposit and you’re leveraging off other properties to buy which equate to only a 20% deposit, then going down the new build path could be the one for you. 

However, the best thing to do is to sit down with your mortgage adviser to work out the numbers in terms of financing. Then follow it up with your accountant, because with the new tax law regarding interest deductibility it would be worthwhile to seek professional advice from them! 

The pros and cons of buying an investment property as a new build 

Pros of buying a new build as an investment property

1. Have limited deposit i.e. only 20%
2. Long term holders 
3. Hand off approach
4. Limited time to spend on the property 
5. Could be cheaper than existing properties depending on the location 

Cons of buying a new build as an investment property

1. If you planning to flip the property for a profit in under 10 years
2. If you plan to renovate the property
3. Location is not the target area you’re seeking 

Should I buy an existing property as an investment in New Zealand?

It really comes down to what type of property investor are you, existing properties now especially in Auckland that have large amounts of land will be very difficult to compete with developers, as they see more potential to developing the land and have the money to do so.

For example, buying an existing land now requires a 40% deposit vs new builds. That is a huge difference, to put it in perspective if the existing property is $1,000,000. The deposit required on a new build would be $200,000, if it’s an existing property, expect that to be $400,000!

However, if you do have that sort of cash ready to go, then flipping properties is a great way to build capital, but you really need to understand the numbers and if it’s your first time doing so, then I’d advise that you seek professional advice from people who have completed before. 

The pros and cons of buying an existing house as an investment property 

Pros of buying an old home as an investment property

1. Understand the market value
2. Renovate the property for a flip
3. Landbanking the property 
4. Have relationships with professionals to reduce the cost of renovating the property
5. Location is usually better 

Cons of buying an old home as an investment property

1. You have a 40% deposit unless the rules have changed
2. Speak to an accountant about tax implications 
3. Maintenance cost could be higher 
4. New healthy home standards to comply so extra cost 

Summary - should I buy old house vs new house NZ?

Buying your first home is an emotional experience and shouldn’t look at from an investment point of view. Everyone has a different taste and perspective on what their first home should be, only you can decide on what that should b be!

There is no right or wrong to buying that home, hopefully, this blog gave you some value. Good luck house hunting 

If you’re buying an investment property that is either deciding it to be a new build or an old property, then buying a new build isn’t in everyone’s favour. However, with the new rules more tipped towards buying a newly built property, it would make financial sense to do so. Hence it is prudent that you speak to your professionals to get independent advice. 

If you want to get mortgage advice, you can book a free no obligation phone call with me below, or flick me an email will@simplyfinance.co.nz 

Got a pressing question, comment below!