Buying Land to Build a House - The Definitive New Zealand Guide

Our guide outlines must-know considerations unique to buying land, the pros, cons, costs to be aware of and questions to ask before making any offers. We also cover financing and suggest specialist construction loan mortgage brokers who may be about to assist

Updated 28 March 2022

Buying a plot of land can be a great investment. For some New Zealanders, securing a plot is the first step to building their dream home. However, there are unique risks in buying land and building which aren't widely known. Our guide covers:

Advertising Disclaimer: MoneyHub has no relationship with any company or government department listed on this guide. We include links to specific service providers where relevant, but their inclusion is not an endorsement of their service.

Are you looking to build? Our guides to Construction Loans and the Cost to Build a House in New Zealand explain everything you need to know.

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Know This First - Pros and Cons of Buying an Empty Section

New Zealanders looking to get into the property market often overlook buying undeveloped land. It's not without its risks, and the time and costs that come with building a home are significant. To help outline everything you need to know, we list pros and cons of buying a section outright:

Pros

Potential for high capital gains: Purchasing an empty plot in a strategic location presents a great investment opportunity, especially if the area is slated for future growth and being eyed up by developers. While more land will come into the market, it does mean the area you're buying in will become more established and desirable.
Less competition: Most buyers seek properties with houses already built to immediately rent out as an investment property or move in themselves. With fewer buyers interested in empty plots, you have greater negotiating power to negotiate a fairer price.
Lower cost of upkeep: If you don't intend to build on your plot in the short term, there is little you'll need to do to maintain the empty land.
Freedom to use the land: Barring a few constraints and upfront costs (e.g. adhering to zoning rules and resource consents), you have complete freedom to use the land however you like. If you want to build on your new piece of land, you can design the final product to suit your tastes.

Cons

Financing may be more difficult: Lenders often require higher deposits and interest rates for land purchases. Lenders view empty land as a riskier investment than a property that can immediately generate rental income.
Limited cash flow in the short-term: You won't receive rental income in the same way you would if you rented out a residential property. You may find alternative uses for your plot though, such as selling or leasing certain rights to use the land in the short term.
Uncertainty: There can be a whole host of unknowns associated with purchasing empty land, particularly if you plan to build on it. From hidden geophysical issues with the land, to obtaining resource consent, to unexpected delays in the building process, an empty section can be a costly exercise when it comes to building time.
Doubling up on costs in the immediate term: If you plan to build on your plot, you may have to pay rent or service your mortgage for your existing accommodation until the new build is complete. This can stretch your finances to an uncomfortable point. It is this financial constraint that puts lenders on alert when it comes to arranging construction finance.

Buying Land - Terms to Know and Understand

The process of purchasing any property is confusing enough without all the jargon and acronyms. We've listed some of the more common terms you may encounter if you're interested in purchasing an empty section:

Subdivision: When a piece of land has been divided up. The resulting lots or sections are typically easier to sell and can be developed into residential or commercial properties.
Certificate of title: A document showing the owners (past and present), details about the land (e.g. the size, shape and type of land), rights and restrictions, and a diagram of the section. Records of title are stored via Land Information New Zealand.
Land Information Memorandum (LIM): A summary report on the property that contains information such as potential hazards, permits and consents issued by the local council, and any rates owing. It may also provide information on what's happening around your section, such as other housing plans. You can access LIMs through your local council.
Covenant: A rule that governs how a landowner can use a specific piece of land. Covenants can capture all sorts of rules. For example, covenants can prohibit certain animals on the land, restrict building above a certain height, or require buildings to be constructed with certain materials. Covenants are indicated on land titles.
Easement: A right for another person to use the landowner's land for a particular purpose. For example, your neighbour may be able to drive across your land to get to their property that's further away from the road. Easements are also indicated on land titles.
Construction loan: A particular type of mortgage for building new homes or making major renovations on an existing home. Unlike a regular mortgage, your lender takes the total cost of the build, divides it up and releases it in stages. Usually, you will only pay the interest due on the amounts released; repayments on the principal and interest will begin when you receive the keys to your completed house.

Buying Land - Essential Questions to Ask Upfront

Buying a piece of land, whether you intend to place a building on it, is a huge decision with a large price tag attached to it. You want to make sure there won't be any nasty surprises lurking under the surface of what may appear to be a rather un-troublesome piece of empty land.

Before you look at things to be aware of specifically when buying a vacant plot, get familiar with the basics of what to look for when buying a house (as our guide outlines) as many of the considerations apply. Before making any offers, ensure you ask and understand the answers to the following questions:

What is the zoning of the plot, and will it change in the future? Zoning determines how a piece of land can be used and developed. It can limit your building specifications, such as how close to the boundaries you can place a building or how high you can build. Zoning will be indicated on a LIM. A change of zoning in the surrounding areas could affect your plot, too. For example, if the area around you will allow multi-level medium density housing in the future, the light your property receives and the view from your section may be obscured. The local council's district plans will generally show any changes to zoning in the future.
Will the neighbourhood change significantly in the foreseeable future? Ask the neighbours if they've heard about any development plans in the area. Council documents may also show this information.
Is the environment particularly harsh? If your plot is exposed to high winds, you may need additional bracing for any structures you plan to put on your land. Similarly, if your plot is coastal and is close to the sea, you may require stronger non-corrosive material. These extras could drag out the length and drive up the cost of your build.
Is your plot on a slope? While sloping sections may offer great views, sloping land tends to be cheaper for a good reason: landowners often face higher costs when building on it. For example, you will likely have to pay extra to put up retaining walls and major earthworks to lay a flat foundation for building. If you plan to build into the side of a slope, you may need to put in basement walls and arrange waterproofing and drainage. All these potential costs mean that a builder's quote may not always be accurate, so you should be prepared for a final bill that exceeds your initial quote. If you still want to build your dream home on a sloping section, you could ask your builder if they would agree to inflate their estimate slightly (to be on the safe side) and then refund the difference if actual costs are lower than the estimate.
Is the plot difficult to access? Are there powerlines or power boxes that could get in the way? Are there large trees or excessive foliage? If your builder struggles to get to the building site, you may be charged extra for the difficulties they experience. Check what requirements your builder has for site access.
What is the soil quality like? Is there soil contamination because the piece of land used to be an industrial site? Is there soft soil or hidden rock that could impact a potential build? For example, peat or sand may need to be removed so the land can bear the load of any buildings constructed on it. Try and get your hands on a geotechnical report from an engineer.
Is the plot likely to be affected by natural hazards? A high risk of erosion, liquefaction or flooding could drive up your insurance premiums. If you plan to build on a plot in an earthquake zone, you may need to pay extra for earthquake-proofing. A LIM report will typically show this information.
Is the section serviced? Ideally, you want a plot that's connected (or can easily be connected) to utilities like water, power, gas and internet so you can place a building on the land. Otherwise, it can be a hassle and a costly endeavour to get these systems up and running.
Is the section rural? The question mark around whether a section is connected to utilities is particularly important to answer if you're interested in rural land. Rural properties are often not connected to sewage and water, so you may need to install water tanks and a septic system. You should check that any sewage or water systems you install meet local and regional requirements. Additionally, if you plan to place a building on your section, your invoice may include extra costs for transporting materials to the building site.
Are there any restrictions on what you can and can't do with the land? There may be covenants listed on the land's certificate of title which set out these restrictions. Make sure to get the most updated copy of the title and ask your lawyer to help you make sense of any interests on the land (e.g. covenants, easements and mortgages).

How to Finance the Purchase of a Section

Know This First: Before you shop around for sections to buy, the first step is to determine your budget. If you are planning to build on your section, the major costs to consider include the price of the plot, the build costs, rates, resource consents and other paperwork. You should also factor in an additional 10% as a buffer for unexpected costs – this will minimise stress if something goes wrong.

Be Aware: Getting a loan for land purchase is different to getting a standard home loan and is often more difficult. You will need to:

Arrange a mortgage for the land itself and
Arrange a separate construction loan mortgage if you plan to build on your section.

Lenders are more hesitant to provide loans to buy an empty section. If you end up defaulting, your lender may find it challenging to sell a vacant piece of land to recoup their losses. Potential purchasers can't immediately generate rental income from the empty section, so bare land is less attractive to buyers and therefore a higher risk to lend on.

Christopher Walsh, MoneyHub's Founder, recounts an experience:
"When I worked in Auckland for an accounting firm, we had a client who had lent a lot of money during the financial crisis to property developers. He said, and the words have stayed with me, that the worst thing to own is bare land. He explained that during a recession it's near-impossible to sell and no one wants to own it. Half-completed houses are more favourable than bare land in his experience".

How to Maximise Financing Application Success

There are many things you can do to help finance the purchase and building on an empty section. We outline the best tips:

Show Clear Intentions - You can increase your chances of securing finance for your plot by demonstrating a desire to begin building on it soon. Communicate these intentions by showing your lender evidence, such as architectural plans.
Check Your Entitlements - You could receive up to $10,000 under the KiwiSaver HomeStart Grant if you qualify regarding the income level, don't own any other property and plan to build on your newly-purchased plot. If you are purchasing the plot with another person, they may also be eligible for this grant; between the two of you, you could receive up to $20,000 - our guide outlines everything you need to know.
Consider Withdrawing Your KiwiSaver - A KiwiSaver first-home withdrawal lets you buy an empty piece of land if you intend to build your first home on it. If you already own the land or received it as a gift, you can't use your KiwiSaver for building on that piece of land. To qualify for a first-home withdrawal, you must have been a member of KiwiSaver for three years prior. Furthermore, you must also intend to live in the house you build on your new section of land.

Mortgage Broker vs Bank - Which is best for buying land?

Going directly to a bank - If you plan to build on your plot of land, you will probably need a construction loan which many banks offer. If you're buying a section in a subdivision, it's a good idea to ask the developer if they are offering a financing package. In some cases, the terms may be better than what a bank is offering.
Using a Mortgage Broker - As the process for financing a land and construction purchase can be complex, consulting a mortgage adviser may be a good idea. Brokers such as Newbuild.co.nz and Squirrel both specialise in construction loans.
Our guides to Construction Loans and the Cost to Build a House in New Zealand explain everything you need to know with regards to costs and current finance options.

Buying Land in a Subdivision

You may choose to purchase a piece of empty land within a subdivision, possibly from a developer. Compared to buying a vacant section that's not part of a subdivision, this could be a good idea for a few reasons:

Utilities will often be connected already, so you can save time and money on arranging this yourself.
Plots in new subdivisions are usually flat, so they will be easy to build on later. This will save you from paying for major earthworks in laying foundations.
Developers are probably quite familiar with the structure of the land and any underlying geotechnical issues, meaning they can give you a reasonably accurate cost estimate.
There is potential for high capital gains as the area around your plot becomes more popular.

Nonetheless, there are several key things you should be aware of if you do purchase land in a new subdivision, which we outline below:

A certificate of title may not have been issued for a newly subdivided plot yet. As the title to land can contain important information on whether the plot is a good purchase or not, you should proceed with caution.
You could negotiate a "sunset clause" with the seller/developer if you want to make an offer for a plot where the title has yet to be issued. A sunset clause will allow you to walk away from the deal if the title has not been issued by a certain date without penalty. Similarly, you should discuss what happens if the title is not issued by a certain day with your finance provider.
Subdivision Guidelines - a developer may want all buildings within a subdivision to appear a certain way. They may place restrictive covenants on new buildings to ensure uniformity, so you may have to build using the same (or similar) designs, colours and materials as other buildings in the subdivision. Some subdivisions, such as Jack's Point in Queenstown stipulate rules about what plants you're allowed to grow in your garden. If you want to place a tiny house on wheels on your new section or relocate your existing home to the new site, purchasing a section in a new subdivision may not be possible.
Check exactly what will be included in your bill. There may be additional costs that a developer has not have paid, which you'll need to cover (as the property's owner), such as a Infrastructure growth charge and/or water/council fees and outstanding rates bills.

Frequently Asked Questions

Where can I browse land for sale?

Trade Me, RealEstate.co.nz and Property Press are good places to start. You could also contact a real estate agent in the area you are interested in, let them know what you are looking for and ask if they can keep a lookout for any sections matching your requirements.

I am not a New Zealand citizen. Can I still purchase a section of empty land?

If you are a New Zealand resident and have been living in New Zealand for at least a year (including a minimum of 183 days in the previous year), you can purchase a section of land to build a home on. If you are neither a New Zealand citizen nor a resident, you probably won’t be able to purchase a plot to build a home on. However, you may be able to purchase a section of land if you plan to develop the section and provide new housing for others (i.e. you cannot live in the new buildings you develop). Check your eligibility here.

How much deposit could I expect to put down for a plot of land?

For a plot of land not too far out of city boundaries, connected (or can be easily connected) to utilities, and has public access to roads, expect a minimum of 20% deposit. For a lifestyle block, expect a deposit of around 20% to 50%. If you wanted to buy a plot of land and build on it, but cannot put down a deposit of 20% or higher, you may be limited to purchasing flat land where major earthworks will not significantly inflate costs.

Does the size of a plot impact the purchasing process?

Yes, potentially. You may find it more difficult to find a lender if you are interested in a particularly large block of land. As a percentage, you will probably be unable to borrow as much of the land’s value as you would for a smaller plot, so you will probably need a larger deposit.

There’s so much information I need to gather during the due diligence process. What can I do to make this easier?

You could book an appointment with an urban planner to go through some of the items on your checklist. For example, you could ask a planner about zoning and whether any council plans may change how you use your plot of land. You should also get a lawyer’s perspective and assistance with due diligence. A good lawyer will know what to look out for and help you make sense of any legal issues.

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