One year ago, New Zealand’s Kiwibuild program started.
We have been often asked if this scheme can be applicable to client’s new home or investment projects. So this blog will explain about Kiwibuild and our advice with builder’s point of view.
What is KiwiBuild?
KiwiBuild is part of the Government’s multi-billion dollar work program to deliver 100,000 new homes within the next 10 years. They will do this by working with developers to build more quality, affordable houses, and connecting them with eligible KiwiBuild buyers through a ballot process. The half of 100,000 new homes will be built in Auckland.
Are you eligible?
The maximum income one person can earn is $120,000. For a couple (or more) the eligibility criteria states $180,000. This is measured in the same way as the HomeStart Grant. That is, the previous 12 months must total less than $180,000 (or $120,000). This is an important distinction from normal applications that take just the current salary. An applicant could have recently had a raise that pushes them over the limit but because they have earned less than that in the past 12 months, they will still meet the criteria for a limited time.
The Prices for First Home Buyers
With KiwiBuild, standalone houses in Auckland have a price cap:
One bedroom houses will be priced at a maximum of $500,000
Two bedroom houses will be priced at a maximum of $600,000
Three bedroom houses will be priced at a maximum of $650,000
Comparing with the market, in 2009, the median property price in Auckland was around $434,000, and it has been increased to around $833,000 in 2018. Of course the data is median so it’s not limited to “new homes” and floor sizes are different. However, even considering that each land and house sizes are smaller and school deciles may be not high, it is very attractive for First home buyers to get a brand new home with the price range that they could afford.
Japan Homes also have been trying to improve our construction prices, keeping the quality services. But most of the cases, our clients have already owned land and develop the sections. Finding a good section with affordable price is hard and it is the first hurdle for first home buyers to jump over.
How about utilising KiwiBuild system for property investment projects? This is a complete different story. We would say, it could not be profitable for a small to medium sized land development. For instance, 2 to 15 lots subdivision. Why? The first critical thing is the price cap that we stated above. If you have good land where you purchased at very competitive price long time ago, and currently with almost perfect condition (e.g. sufficient sized drainage: Stormwater & Wastewater within the site, flat section, no flood, no long driveway, no significant ecological area and etc), and you can use cheap materials and labour, then maybe it could give investors moderated profit but there could be a small chance to gain a high return.
If developers/investors have huge section that can be subdivided to hundreds, of course each section costs can be lower therefore investment return could be a good result. And it is a risk management as the KiwiBuild takes care of property sales so there will be no unwanted “stock”. From these reasons, we think that KiwiBuild is better for big sections, in other words, major companies that can afford and manage construction. In fact, the government has partnered with Fletcher Residential Ltd.
The second thing is that no one is sure how long the whole process will take. We asked several architects, planners and engineers if they and their clients have experienced KiwiBuild so far, but only one architect answered yes. He told us that KiwiBuild is not easy, and the application process and tendering have taken time. Time is the one of most important things for land investment. More time pass, more bank interests cost. Also, as we are seeing, Auckland property market is always changing. So investors need to consider about this point.
According to the data in the Kiwibuild web page, the below are the current progressing numbers. Only 53 houses have been sold to first home buyers.
In mid-January 2019, Housing Minister Phil Twyford acknowledged that the Government would only be able to build 300 of the 1,000 KiwiBuild Homes it had promised by 1 July 2019. Using KiwiBuild means that they have to find a way to save labour costs against the labour price has raised up every year. The scheme has just started and we believe the government is trying to improve this to push on, so we will keep checking updates and feedback from our subs, and when we find a good timing and matching projects, we will try KiwiBuild.
Thank you for reading this article.