Saturday, November 27

New construction ‘absolutely not’ recommended for first-time home buyers

The rising cost of building materials is putting the finances of first-time home buyers at risk.

Lucy McPherson

Lucy McPherson says the cost of her first home is increasing and results in sleepless nights.
Photo: Supplied

The rapid increase in the price of materials such as bricks, wood and steel, of up to 50 percent in the last year, is pressuring builders to invoke escalation clauses within so-called “fixed price” contracts.

A lawyer cautions that there is no fixed price contract and buyers should be careful.

Master Builders advises companies not to remove clauses from contracts that allow them to raise prices even after signing an agreement.

Lucy McPherson, 25, and her partner Ben Butterick signed up in July for a $ 545,000 construction that has yet to start in Selwyn, near Christchurch.

They thought that by going to the country they had gotten a good deal on a four-room house and land package.

But the price has already gone up $ 7000 and the sleepless nights have begun.

“You don’t know what to do,” said McPherson, who works in marketing.

If what they end up paying goes over the $ 550,000 limit, not only will they have to pay the extra, but they will also lose their HomeStart grant.

“I can’t imagine having to finish your first home, and then turn around and pay not only for the additional costs that I didn’t know were going to show up, but also the HomeStart grant, which is a huge help to ‘Time Buyers Like Us’ , said.

Their bank had pre-approved up to $ 550,000, but was “strongly” advising them not to go ahead.

“They gave us a very stern warning that they’ve seen a lot of cases like this, that have gotten out of control,” cases where the cost overruns had reached more than $ 60,000, McPherson said.

A mortgage broker told RNZ about two overflows of similar size that he had recently seen in Auckland.

“If someone comes up to me today and says, oh, I’m a first time buyer, should I build a new one?” I’d say, ‘absolutely not, don’t even bother,’ “McPherson said.

“You’ll have your head on the ground for months and months and months dealing with all the … insanity right now.”

‘We are absolutely sorry we put money into KiwiSaver’

The couple is eligible to receive the maximum of $ 20,000 Startup grant because he invested all his savings in KiwiSaver.

“Years and years ago, we were sold on this KiwiSaver idea and how wonderful it was to put all this money in it for years and you would be ready to buy your first home.”

Now, KiwiSaver was just a “choke around his neck,” he said.

“We are absolutely sorry that we invested money in KiwiSaver to that end.”

Their builder had told them that the advice of the Association of Registered Master Builders for him weeks ago was: Don’t offer a job at a fixed price.

The standard Master Builders contract has a provision that covers price fluctuations, but builders have been known to eliminate it.

The executive director of the Master Builders Association, David Kelly, cautioned against that.

“We advise builders to exercise caution before removing these clauses given the current environment,” Kelly said in a statement.

The global disruption that was forcing material costs to rise was “making it very difficult to determine exactly how much a construction will cost.”

“The key for builders is to communicate and be open and honest with their customers.

“Provide realistic cost structures and schedules and talk openly about risk – then together you can manage it.”

Goal posts changing

However, Christchurch real estate attorney Prue Miller said home buyers were taking too much risk without realizing it.

He said he even had to tell banks that the regular “fixed price” contracts they demanded from customers almost always allowed for cost “adjustments.”

“There is and never has been a fixed price residential construction contract,” he said.

Previously, Miller would strike out any escalation clause he came across, and the builders would “never argue”, but the goals were changing.

“Now they certainly would [argue]. “

Kelly said buyers should talk to their builder and designer, and be clear about their budgets.

McPherson has been told they can make less than $ 550,000 if they build just two or three bedrooms, not four. But he’s concerned that this will give the builder a license to hit the $ 550,000 maximum.

“There is no protection. It is so uncertain.

“Months ago we were encouraged to build more houses … blah, blah, blah. Now, it has become very difficult.”

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