Buying Off the Plans: Deposits, Sunset Clauses and Finance

🌇 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.

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.

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.

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.

Your pre-signing checklist

1. Property lawyer reviews the full agreement before you sign.
2. Deposit confirmed as held in trust, not released early to the developer.
3. Sunset date is a clear calendar date, with your protections negotiated in.
4. Finance plan allows for the pre-approval expiring and a possible valuation shortfall.
5. Developer and builder track record checked, and guarantees understood.
6. 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.