Buying Off the Plans: Deposits, Sunset Clauses and Finance
🏗️ Buying a home before it is built
Buying off the plans means signing a sale and purchase agreement for a home, usually an apartment or a townhouse, before it has been built. You commit to the price today, pay a deposit that is held in a trust account, and then wait months or often more than a year for construction to finish before you settle and get the keys. It can be a smart way in: you lock in today's price, you may only need a small deposit, and a new build comes with lower maintenance and current building standards. It also carries risks that buying a finished house does not. Your finance and the bank's valuation are only firm at settlement, not at signing, so a lot can change while the building goes up. Construction can run late, the developer can strike trouble, and the contract may contain a sunset clause that lets either party walk away if the build is not finished by a long-stop date. This guide works through the deposit, sunset clauses and the current New Zealand law, the finance and valuation risk, GST, the new-build lending and tax rules, and the due diligence to do before you sign, with four worked examples using New Zealand figures.
How the process works, step by step
- You sign the agreement: You agree the price and the specifications from plans, drawings and a schedule of finishes.
- You pay the deposit: Commonly 10% of the price, paid into a trust account rather than to the developer directly.
- Construction happens: This can take anywhere from several months to two years or more.
- The council issues the code compliance certificate (CCC): This confirms the build meets the Building Code.
- The bank does its valuation and confirms finance: Usually close to completion, on the finished home.
- You settle: You pay the balance of the price, draw down the loan, and take the title and the keys.
A pure off-the-plan contract settles once the CCC is issued, sometimes before you have seen the finished home. A "turn-key" contract is similar but you settle only when the home is fully finished and ready to move into, with the valuation done near completion. Both leave the bulk of the price, and the finance, to be sorted at the end.
The deposit and why it sits in trust
The deposit on an off-the-plan purchase is usually about 10% of the price, though some developers ask for less and others more. The important part is where it goes. In most agreements the deposit is not handed to the developer to spend. It is held in a trust account, typically the developer's lawyer's trust account, until settlement is completed. That protects your money: if you validly cancel the agreement, or the developer cannot complete the development, the deposit can be paid back to you.
Read the agreement carefully to confirm this. Watch for any clause that lets the deposit be released to the developer early, or used to fund the construction, because that changes your risk if the project fails. Your lawyer should check the deposit is held by a stakeholder in trust and paid out only on settlement or valid cancellation.
Even at 10%, the deposit on a $700,000 apartment is $70,000. Once you sign, that money is committed for the whole build period, which could be a year or two. Make sure you can leave it tied up that long, and that losing access to it will not stop you settling.
Get advice before you sign
Off-the-plan agreements are long and heavily weighted towards the developer. Have a property lawyer review the contract before you sign, not after. Key things to check are the deposit terms, the sunset date and who can use it, the developer's right to make minor changes to the design or finishes, the settlement mechanics, and what happens if the build is late or defective. Signing first and asking questions later is how buyers end up locked into terms they would never have accepted.
🌇 Sunset clauses and the finance risk
What a sunset clause is
A sunset clause is a provision that lets the seller or the buyer cancel the agreement if the development is not completed by a specified long-stop date, the "sunset date". It exists because nobody can guarantee exactly when a build will finish. If the sunset date passes and the home is still not done, the clause gives a way out.
The problem is that a sunset clause can cut both ways, and it has been used against buyers. When the market rose sharply in 2020 and 2021, some developers used sunset clauses to cancel contracts and then re-sell the same home to someone else at a higher price. A buyer who had waited more than a year, and locked up a deposit, was tipped out with only their deposit back and no home.
This is the part people get wrong. Unlike some Australian states, New Zealand does not have a law that forces a developer to get your written consent, or a court order, before cancelling under a sunset clause. A private member's bill, the Property Law (Sunset Clauses) Amendment Bill, proposed exactly that protection, but it was voted down in Parliament in 2025. So as things stand, if your contract lets the developer cancel after the sunset date, they generally can. Your protection is the wording you negotiate into the contract before you sign.
How to protect yourself in the contract
- Push for a buyer-only sunset right: Try to make the clause one that only you can trigger after the long-stop date, so the developer cannot use it to cancel and re-sell.
- Require your consent to any developer cancellation: If the developer keeps a cancellation right, ask that it can only be used with your written agreement or a court order.
- Set a realistic, dated long-stop: A vague or very long sunset date leaves you exposed for longer. A clear calendar date is easier to hold the developer to.
- Add an extension mechanism: Agree how delays are handled, so a short, genuine hold-up does not automatically end the deal.
Where the development still needs a survey plan deposited, section 225 of the Resource Management Act 1991 lets a buyer cancel if the seller has not made reasonable progress within set timeframes. It is a buyer-side escape hatch, not a limit on the developer, and lawyers note it often does not help ordinary buyers much. Do not rely on it in place of good contract wording.
The finance risk: your loan is only firm at settlement
This is the single biggest trap in buying off the plans. When you sign, you may have a pre-approval from your bank. A pre-approval is conditional and time-limited. Most New Zealand bank pre-approvals last around 90 days, sometimes up to 120 days. An off-the-plan build can take far longer than that, so your pre-approval will very likely expire before you settle and need to be re-done on your circumstances at the time.
Two things can move against you while you wait:
- Your own situation: If your income drops, your debts rise, interest rates increase, or lending rules tighten, the bank can lend you less at settlement than it indicated at signing.
- The valuation: The bank lends against a registered valuation done near completion, on the lower of the purchase price or the valuation. If the market has fallen and the home values below your contract price, the bank lends less, and you must cover the gap in cash.
Build a buffer for the gap
Because the loan and valuation are confirmed at the end, treat off-the-plan buying as needing more cash headroom than buying a finished home. A sensible approach is to keep extra savings on top of your deposit so that, if the valuation lands a little below the price, you can still cover the difference and settle. The worked examples in this guide show how quickly a small valuation shortfall turns into a large cash call.
🏦 New-build lending, GST, tax and due diligence
New builds and the LVR and DTI rules
The Reserve Bank sets loan-to-value ratio (LVR) restrictions, which limit how much banks lend above certain deposit levels, and debt-to-income (DTI) restrictions, which cap borrowing as a multiple of income. New builds are treated more generously: lending on a new build is exempt from the LVR speed limit, and new-build lending is also given room under the DTI rules.
In practice this means a bank can often lend up to 90% on an owner-occupier new build, so you may get in with a 10% deposit, sometimes less, where it might want 20% for an existing home. That is genuinely useful for first-home buyers with a smaller deposit. It does not change the fact that you still have to service the loan, and the bank still has to be comfortable you can afford it.
Inland Revenue defines a new build as a self-contained residence that receives its code compliance certificate (CCC) on or after 27 March 2020. A home bought off the plans that gets its CCC on or after that date qualifies. The same idea, a brand-new dwelling, is what banks treat as a new build for lending.
The tax picture has changed
New builds used to carry two big tax advantages: they were exempt from the old interest limitation rules, and they had a shorter 5-year bright-line period instead of 10 years. Both of those advantages have largely fallen away, so it is worth being clear about where things stand now:
- Interest deductibility: From 1 April 2025, 100% of interest on residential rental property is deductible again for all properties, new or existing. The special new-build exemption no longer gives an edge, because everyone now gets the full deduction.
- Bright-line test: For property sold on or after 1 July 2024, the bright-line period is 2 years for all residential property, regardless of when it was bought. The old 10-year rule, and the 5-year new-build version, are history.
So the current reason to care about new-build status is mainly the LVR and DTI lending treatment, not a tax break. If someone tells you to buy off the plans "for the tax advantages", check the detail against current rules before you rely on it.
GST is included in the price
A new residential home sold by a GST-registered developer has GST of 15% built into the sale. The key point for you as the buyer is that the advertised price already includes GST. You do not add 15% on top at settlement. The developer collects the GST as part of the price and passes it to Inland Revenue. Contrast that with an existing home sold by a private owner, where GST usually does not apply at all. Always confirm the price is the full amount payable and check whether it is described as inclusive of GST.
Construction and developer-insolvency risk
When you buy off the plans you are relying on the developer and the builder to finish the job. If the developer runs into financial trouble, the project can be delayed or cancelled, and you generally cannot cancel the contract just because the developer is in liquidation. Reduce the risk with due diligence:
- Check the developer's track record: What have they built before, and did those projects complete on time and to standard?
- Check who is building it: A reputable, solvent main contractor matters as much as the developer.
- Understand the guarantees: Look for a Master Build or Certified Builders guarantee, and understand the statutory warranties under the Building Act.
- Confirm the deposit protection: Make sure your deposit is held in trust and only released on settlement or valid cancellation.
- Read the change and defects terms: Know what the developer can alter, and how defects found at handover are fixed.
Delay on its own does not let you cancel unless the contract or the sunset clause says so. That is why the sunset date, the extension terms, and your finance buffer all matter so much. Get the contract reviewed and know your exits before you sign.
Your pre-signing checklist
- Property lawyer reviews the full agreement before you sign.
- Deposit confirmed as held in trust, not released early to the developer.
- Sunset date is a clear calendar date, with your protections negotiated in.
- Finance plan allows for the pre-approval expiring and a possible valuation shortfall.
- Developer and builder track record checked, and guarantees understood.
- Price confirmed as GST-inclusive, with all costs of settlement understood.
🔢 Worked Examples
These four examples use round New Zealand figures to show how the deposit, the finance risk, a sunset cancellation, and the new-build deposit rule play out. The prices are illustrative.
Situation: Priya and Sam sign to buy a new apartment off the plans for $700,000. The developer asks for a 10% deposit, held in the developer's lawyer's trust account until settlement.
The $70,000 is locked away for the whole build, which could be well over a year. They need to be sure they can leave it tied up that long and still cover their living costs and any surprises in the meantime.
Situation: Eighteen months later the apartment is finished. Priya and Sam had planned on an 80% loan. When they signed, an 80% loan on $700,000 would have been $560,000, leaving $140,000 of their own money to find, of which the $70,000 deposit was already paid. But the market has softened, and the bank's registered valuation comes in at $650,000. The bank lends 80% of the lower of price or valuation.
Their plan needed $70,000 on top of the deposit. The lower valuation lifts that to $110,000, an extra $40,000 they must find in cash, because they still owe the developer the full $700,000. If they cannot raise it, they risk failing to settle and losing the deposit. This is why an off-the-plan buyer needs a real cash buffer.
Situation: In 2024 Tane signs to buy a new townhouse off the plans for $650,000, paying a 10% deposit of $65,000 into trust. The contract has a sunset date 24 months out. The build runs late and the sunset date passes. The contract lets the developer cancel under the sunset clause.
Tane gets his deposit back but no compensation, and the market has moved beyond him. Negotiating a buyer-only sunset right, or a term requiring his written consent before the developer could cancel, would have stopped the developer walking away to re-sell at the higher price. That negotiation had to happen before signing.
Situation: Mere is buying an $800,000 owner-occupier home. For an existing home her bank would want a 20% deposit. Because a new build is exempt from the LVR restrictions, the bank is willing to lend up to 90% on the new build.
Put your own numbers in with the new build GST calculator, the loan-to-value calculator, the house deposit savings calculator and the first home buyer all-in cost calculator. For more reading, see our guides on new build vs existing home, construction loans and progress payments, buying an apartment and unit titles, and the first home legal guide.
Verified July 2026 against: Settled.govt.nz (considering your property options, buying off the plans and deposit held in trust); Inland Revenue (new-build definition and code compliance certificate, interest deductibility from 1 April 2025, the 2-year bright-line test); the Reserve Bank of New Zealand (LVR and DTI restrictions and the new-build exemption); the New Zealand Parliament record and legal commentary on the Property Law (Sunset Clauses) Amendment Bill being voted down in 2025; and the Resource Management Act 1991 section 225. Prices used in the examples are illustrative.
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