Buying land vs building: what it costs in New Zealand
From Aaron’s YouTube: “Cost to buy land #newzealand #firsthome #kiwisaver ##nzfirsthome #nzmortgage #homeloan #asb #anz”
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Posted 17 July 2024
The short version
- Buying bare land requires a 50% deposit, with a $250,000 loan costing $369/week in repayments.
- To build on the land, your deposit requirement drops to 10-20% of the total land plus build cost.
- A $500,000 build on $500,000 land with 10% deposit means borrowing $900,000 at $1,432/week.
- Increasing your deposit to 20% on the same build reduces borrowing to $800,000 and repayments to $1,182/week.
The cost of buying land alone
If you're considering buying bare land in New Zealand (like the Mangafai example in the video), you'll need a 50% deposit. This means if the land costs $500,000, your loan would be $250,000 (the other 50% being your deposit). At current rates, this would cost you about $369 per week in mortgage repayments.
The trade-off is clear: while the deposit requirement is higher, the ongoing mortgage costs are lower. This can be appealing if you're not ready to build immediately but want to secure land for the future. Just remember you'll still need to account for rates and other holding costs while the land sits empty.
Adding construction costs to the picture
Most people buy land to build on it, which changes both the deposit requirements and mortgage repayments. Here, banks look at your total project cost (land plus build) when determining loan amounts. With construction loans, you can often get away with a lower deposit of just 10-20% of the total combined cost.
Aaron's example shows a $500,000 build on $500,000 land. With a 10% deposit ($100,000), you'd borrow $900,000, costing $1,432 per week. This jumps up because you're borrowing more (90% instead of 50%) and the total amount borrowed is higher. The key takeaway is that while the deposit percentage is lower, the actual dollar amount you're borrowing is much greater.
How bigger deposits change the numbers
As with standard home loans, increasing your deposit size when building makes a direct impact on your borrowing costs. If you saved a 20% deposit for that same $1,000,000 project ($200,000 instead of $100,000), your loan amount drops to $800,000. That cuts your weekly repayment from $1,432 to $1,182 - a $250 per week difference.
That $50,000 extra deposit (moving from 10% to 20%) equates to $13,000 less you'll pay each year. Over a 30-year mortgage, those savings compound dramatically. This shows why it's worth running these scenarios - sometimes waiting another year to save more deposit makes financial sense long-term.
This is general information, not personalised financial advice. For advice on your situation, talk to Aaron.
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