Some developers are holding back selling off the plan so they can make more money by auctioning the finished product.
Developers have traditionally sold off the plan in order to get finance from banks so they can go ahead with the development.
But in Hamilton, where many suburbs are under construction and where infill housing is going full steam ahead, Lodge Real Estate managing director Jeremy O’Rourke has noticed some developers changing the way they operate.
Not only are they holding back from selling but they are approaching second tier lenders to get the finance.
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“Developers have realised in the current market the type of properties they used to try to sell off plan to get some cashflow up front are worth a lot more if they can hold off selling until it’s built because residential prices are rising rapidly month by month,” he said.
The lift in the market has seen the median sale price in a third of the city’s suburbs cross the $1 million mark.
“In some cases, developers have been staging their projects, selling what they need to off plans and holding off on the last couple of lots, building the houses and taking them to auction,” O’Rourke said.
This means instead of the home buyer realising capital gain from the time they bought off the plan to when the house is built (sometimes 18 months away), the developer is the one pocketing that gain.
O’Rourke points out not all developers are doing this but says he has noticed a trend for a few months now, saying some have noticed homes they may have sold off plan for around $850,000 then reselling by the new owner for $1m after the property has settled.
Construction on new homes. Developers typically sell new builds off the plan but some are switching tactics. Photo / Getty Images
“They’ve looked at that and gone ‘it would be advantageous for me to hold on to it and sell at the finished price rather than sell early’.
“The second thing is, they’re getting nervous about what the supply chain looks like and what that may impact on the cost of the build.”
Where build costs were relatively stable not long ago, now they were not, meaning developers could sell off the plan but then find their costs escalate.
This new trend is a nationwide one, says Scott Massey, director of Omega Capital which finances build projects.
As banks continue to tighten loan to value ratios and debt to income ratios, and the Government looks to change more rules to cool the housing market, second tier lenders have become more attractive options for developers, the Cambridge-based lender says.
They are not bound by the banks’ rules and while second tier lending rates are higher than that of banks, it’s still worth it to developers because of the big house price increases being seen.
“Developers know the prices are continuing to go up because they have seen what has happened in the market so far and it’s given them reason to pause and think they’ll take profit off the top of that which more than offsets the additional cost of non-bank lending rates.”
Massey says his company has funded developments in Hamilton, Auckland and Christchurch.
O’Rourke says the Hamilton market has swung back into action since the Lockdown levels were dropped but listings are still very low.
Hamilton’s median sale price for August hit $840,000, according to the latest REINZ figures. Photo / Getty Images
The first weekend of open homes saw good flow within the restrictions of social distancing and mask wearing and appraisals lined up before lockdown was lifted are now being carried out, he says.
“A lot of people were saying ‘hey, springs coming up, it’s a time to move’. Our offices have almost been a little bit desolate because you’ve had salespeople out doing appraisals and getting themselves through properties so they can get them on to the market.”
August sale price figures released by the Real Estate Institute of New Zealand last week reflect what they are seeing on the ground.
“The median price soared to $840,000 – the previous high was $780,000 in the city and it’s been bouncing between $750,000 and $780,000 for the last six months and all of a sudden you get $840,000.”
O’Rourke puts that down to a confidence in the upper end of the Hamilton market bringing the median up, pointing out the figures show 24 suburbs now have a median sale price of more than a $1m. “To give you an idea, there were three the month before.”
Some of those suburbs are still developing, however, such as Rotokauri, so will only have had a couple of sales, but the wider picture shows people in the Hamilton market are competing for the higher end stock, he says.
