How I Complete Due Diligence - williamscorporation.co.nz

HOW I COMPLETEDUE DILIGENCE

on an off plan property

S c o t t i e @ W i l l i a m s C o r p o r a t i o n . c o . n z W i l l i a m s C o r p o r a t i o n . c o . n z

http://www.williamscorporation.co.nz/

How I complete due diligence on a new build property.

Firstly, what is due diligence? Due diligence is defined as “A comprehensive check of a proper ty under taken by a prospective buyer to confirm (among other things) physical state/Specs & Plans, legal standing and actual market value.”

When you find a property you think might suit your requirements, I always recommend you get it under a conditional contract as fast as you can. If possible, add or ask the agent or consultant to add a general due diligence clause to the conditions of the Sale & Purchase Agreement. This clause allows you to pull out of the purchase for any reason. This allows you to take control, complete your checks on the property and obtain finance and no one can buy the opportunity away from you while you decide during your conditional period.

Whether it be a home for yourself or investment proper ty the fundamentals remain the same, buying a home is an investment in your future so these investment points should come into consideration for the home buyer too.

You must ensure you have all the information you need about a proper ty before you buy.

In this guide, I’m going to run through how I do due diligence on a new build proper ty.



Whether it is for your home or investment it pays to take a good look at the location. Does the proper ty have good access to schools, good school zones, public transpor t, motorways, shopping and public amenities such as libraries and swimming pools? As these can have a positive impact on future proper ty values.

Is the proper ty in a sought after area or secluded niche market. Buying in sought after established areas with good transpor t connections and facilities can almost guarantee your proper ty will increase in value over time quicker than niche markets

Location

Get an idea on the estimated Annual rates, with a new build the council doesn’t assign these until completion but you should be able to get a good estimate from the agent or consultant based on comparable proper ties in the area.

You may want to review the council information is available on the council website or by obtaining a LIM (Land Information Memorandum) for the site. You can request this directly with the council or get your solicitor ask if there is one available and get your lawyer or another knowledgeable person to check for any potential concerns i.e. flood zones, overland flow paths or other land hazards.

This isn’t as necessary with a New Build Property as the developers will have to mitigate any hazards while building the new properties.

Council information

LIM - Land Information Memorandum

A Land Information Memorandum (LIM) is a Council document that provides all information

held by that Council in respect of a specific property. It is recommended you obtain a Land Information Memorandum (LIM) on a property

before you purchase, as it could disclose information that could influence your purchase

decision. A LIM only provides the information that the Council has on its records. The Council may not have all the information required to make a sound decision about purchasing the property.



Is the proper ty a standalone house, townhouse, unit or apar tment?

What is the ownership type?

Is it par t of a resident’s/laneway society, body corporate or nothing at all? A breakdown on the difference is below, both have positives and negatives. There is a stigmatism with Body Corporates so take that into account when thinking about re sale down the line.

House type and Governing Bodies

Understanding the types of ownershipThere are different types of land ownership in New

Zealand. The type of ownership has a direct impact on what you can and cannot do with the property.

There are four main types of property ownership in New Zealand – freehold, leasehold, unit title and cross lease.Each type means different rights, responsibilities and

restrictions for the owner.

Ask your lawyer or conveyancer to review the record of title (also known as the certificate of title). This is the legal document that contains the property’s legal description, details of its ownership and the

rights and/or restrictions registered against it. Most New Builds won’t have a certificate of title yet so ask the agent, consultant or solicitor what the proposed

ownership type will be.

Freehold, also known as fee simple, is the most common ownership type in New Zealand.

Leasehold is when someone else owns the land. You purchase an exclusive right to possession of the land and the buildings on it for a specific period of time

according to the terms of the lease.

Unit title ownership is most common in a building development where there are multiple owners.

In a cross lease, you own a share of the freehold title in common with the other cross leaseholders

and a leasehold interest in the particular area and building that you occupy. – This is no longer used in

new build properties.



Residents Agreement Townhouses, on Fee Simple Titles, are a safer and better long term ownership/investment, when there is a Residents Agreement in place.

Reasons to have a Residents Agreement Insurance: The Residents Agreement ensures there is an insurance policy in place for each home, each year. There can be significant savings by getting the homes insured through the same Insurance Broker/Company.

Future Maintenance: The Residents Agreement’s purpose is to ensure any common areas are maintained and repaired, to protect the value of the homes throughout their life.

The common areas can include walkways, access areas, fences, gardens and sometimes rubbish bins. The Residents Agreement details each owner’s obligations in relation to any retaining walls and building elements.

Benefits of a Residents AgreementA structure is set up, in advance, to control the insurance and future maintenance of the common areas and visual areas. Funds are put aside, in advance, to pay for these. It can also contain rules restrict your neighbours from painting their houses different colours and ruining the current look of the development.

How does a Residents Agreement Work?The Residents Agreement states what is to be done.

The Residents Agreement requires a common account to hold any funds for future repair and maintenance of any common areas.

The residents vote, using a majority vote, at an annual meeting of the residents.

Body CorporateApar tments, are titled as Unit Titles and by law, require a Body Corporate Management Agreement.

Purposes of a Body CorporateInsurance: The Body Corporate is responsible for the insurance of the building, as well as any common areas.

Future Maintenance: The common areas include the maintenance and repair of walkways, access areas, fences, gardens and sometimes rubbish collection and sometimes access lighting. Other areas of maintenance are visual areas such as walls and roof of the building and sometimes retaining walls.

Compliance: Compliance is required for the building, such as access and fire compliance requirements.

Benefits of a Body CorporateA structure is set up, in advance, to control the management of the insurance and any common areas and for visual areas such as cladding of buildings. Funds are put aside, in advance, to pay for these.

How does a Body Corporate Work? The rules are stated in a Body Corporate Agreement.

The Body Corporate annual costs are shown in the Body Corporate Agreement.

The Residents generally meet on an annual basis and can vote and agree to use a different Body Corporate management. Residents can also vote on the matters that affect them.



The great thing about buying off the plans is that it’s super easy to get all the build information and specs on multiple developments and compare them side by side. If a developer withholds the plans or specs it’s a definite red flag. If you aren’t sure about construction materials find someone familiar with the industry or ask your lawyer for recommendations. Things to check are:

Measurements - Check the total internal square meters compared to other comparable developments. Check the bedroom dimensions and compare them to your current proper ty to give you some context on the sizing. Some developers use images that make spaces look bigger than they actually are.

Cladding, the outer weatherproof building material – Do the renders look like cedar but the specs say brown painted fibre cement?

Well-known brands - Are they specifying and using well-known brands – Resene, Dulux or PPG paints, Gib plasterboard, Colour steel roofing etc.

The complexity of design - Do the plans have architectural rooflines and no eaves? The more technical the designs are the more chance for issues. A roof with eaves (overhangs) will have fewer issues over the life of the proper ty compared to ones without.

Inter tenancy wall - if the proper ty is a townhouse or apar tment, check what the inter tenancy wall (wall between you and your neighbours) is constructed of, what are the acoustic and fire protection proper ties of this.

Insulation – Are they putting minimum building code spec insulation in or are they going above spec?

Flooring – Tiles, Timber laminate, vinyl or carpet. What brand/quality are they using?

Landscaping – Is landscaping included? What does this consist of? Is it low maintenance?

Build Specs



It can be easy to tell the quality of a proper ty or developer based on the specs of the build and chattels. Some developers will put the bare minimum in and others will include the full suite. Things to consider are:

Do they include well know brand Oven, Hob, Range hood? – If not do some research on the brand and warranties etc

Have they included additional chattels like a Dishwasher or washing machines?

What is the main source of heating? Does it include a heat pump or panel heaters?

Do they include window furnishings (cur tains/blinds)?

Do they include heated towel rails?

What brand tapware are they using? (Nothing worse than a water leak!)

Are the electrics basic fitment or do they include extra PowerPoints/TV/Ethernet points etc.

It may sound silly but are they installing aerials/satellite dishes? (Ever tried putting an aerial on a 3 storey house?)

Depending on the length of the build time it can be difficult for the developer to confirm the exact specs and models of Fixtures, fittings and chattels. But they should be able to give you a good idea of the level of quality and your sale and purchase agreement should include a clause that any alternatives have to be of the same or similar specs

Chattels



In relation to Build Specs and Chattels are there any added costs or “upgrades” as these can quickly add up and can sometimes be cheaper to arrange after settlement.

These could be the upgrade or inclusion of heat pumps, upgraded flooring etc. Sometimes developers add a profit margin to “Upgrades” so assess whether these

are better completed after you take possession if you go down this route.

Many developers especially in the Affordable Home markets rely on having no changes or upgrades to maintain affordable prices.



Completing Due Diligence on the developer themselves can be difficult. The easiest way to do this would be to check the name of the vendor on the Sale and purchase agreement and check that is who you are being sold it buy.

Does the vendors name resemble the branding? Is the name “Sample Street development 2020” or “The company name Limited”?

The easiest way to do this is ask the agent or consultant about how many houses the developer has

Developerbuilt previously. Ask for the addresses or photos/videos. Look online for website and testimonials, google the company name and news websites ie. “ABC developers NZ Herald” and see if anything positive or negative comes up.

Google the developers name and Sunset Clauses, some developers have bad reputations of pulling out of contracts and reselling at higher prices, but this information is normally all over the media outlets and easily searchable

Ask if the completion timeframes you have been given are “Best case” or “worst case” ask if other developments have been completed on time.

A lot of developers don’t have a lot online but anything you find just check to see if it is for good or bad reasons.

If you’re wanting to go extra deep you can always ask if they have any previous customers you can chat to.



Ask the developer, agent or consultant how the developer or builders warranties or guarantees are assigned to you. Do you get standard 10 year structural warranty? Do you get the individual product warranties? Is there a 12 month workmanship defects warranty? A lot of workmanship defects can show after different seasons so do not accept anything less than 12 months i.e. Paint cracks, loose door knobs or rubbing doors

A lot of this section comes down to the quality of products and brands used and the likely hood of needing to use the warranties. Are the brands being used reputable and have a good name when it comes to repairs etc.

It isn’t necessarily a benefit or negative to have a Master build guarantee as a Master build Guarantee doesn’t really apply to Turnkey developments (where you don’t pay any progress payments and your deposit is safe in the Lawyers Trust Account if the development doesn’t proceed.) There are benefits to it but it isn’t necessary.

Guarantees/Warranties

Getting your lawyer/solicitor to investigate the Title and check the Sale & Purchase Agreement for any concerns. It isn’t unusual for lawyers to want to change multiple clauses and look after your best interests but understand that not all changes can be agreed to by developers due to their financing requirements as well.

Lawyer/Solicitors Checks

Check the rental appraisals or get yourself independent rental appraisals. Speak to a proper ty manager experienced in the area and ask about the rentability of the type of proper ty you are looking at e.g. bedrooms, location style and how confident they would be to get the appraise amount easily. Also, ask the proper ty manager about the type of tenants and length of tenure the proper ty would attract.

This is impor tant to review even if you are buying to live it. A lot of proper ties end up as what I like to call “accidental rentals” which is when you decide to move to another proper ty and either can’t sell quickly or decide not to sell your old proper ty so if you take the investment potential into account when you buy could help you pick between multiple options when choosing where to buy.

Rental return

Whether you are looking for a home or investment it is always beneficial to understand the area you are buying in. Some areas increase in price quicker than others and if you are picking between a few different builds and locations this should definitely take some consideration.

A lot of this region and suburb data can be found online on websites like REINZ, QV or asking a local real estate agent. You can compare the long term price growth in the suburbs you’re looking

Long term growth data

This will most likely be a condition of your finance approval. Depending on the length of the build some people do this during the conditional period and others prefer to wait until before settlement to avoid having to pay for two valuations.

Getting a Registered Valuation

Williams Corporation is a property developer that produces high-quality

homes in existing suburbs. Close to environments where people can live,

work and play, perfect for homeowners and investors alike. Their high quality,

affordable product has extremely high demand and is delivered in industry-

leading timeframes. Williams Corporation is one of the largest residential

developers in New Zealand.

We believe that owning a home that you can be proud of, an investment that

increases your wealth, or a space where you can grow your business shouldn’t

be so difficult. That’s why we carry the same unwavering commitment to

quality and affordability through every NZ property we build.

We will develop our cities with beautiful homes that are affordable to buy,

affordable to live in and affordable to maintain.

Scottie has nearly 10 years’ experience in property investment and sales.

Property and finance runs in his blood, he entered the property industry

full time after investing in property during his successful and adventurous

military career in the Air Force. He is driven to help people achieve their life

goals and to be able to live the life they dream of. Scott loves to help first

home buyers and investors get into the best housing possible.

If you need assistance trying to find the right home or just have other

questions you’d like answered feel free to get in touch via the details below.



IMPORTANT NOTICEThe information contained within this document is of general nature only, and has been prepared solely for information purposes for use by prospective property purchasers and/or investors. This document has been

prepared without taking into account any person’s individual objectives, financial situation or particular needs. Therefore, it may not be relevant to individual circumstances.

This document is not intended to be, nor is it capable of being construed as constituting financial, legal or investment advice. You are solely responsible for forming your own opinion and conclusions on such

matters and for making your own independent assessment of the information. Before purchasing a property or making any investment, borrowing, insurance or financial planning decisions, you should seek

your own investment, accounting, financial, legal, tax and other professional advice.

Although steps have been taken to ensure the information contained within this document is correct, no representations or warranties are made as to the accuracy, completeness, reliability, adequacy or

reasonableness of the information and neither Shot Property Limited T/A Scott Muirson Property nor Williams Corporation Limited or any of its related companies accepts any responsibility or liability for any

loss caused as a result of any person relying on the information supplied.



How I Complete Due Diligence - williamscorporation.co.nz

Documents

Transcript of How I Complete Due Diligence - williamscorporation.co.nz