Better Finance

Land purchase occurs first. Housing manufacturer / builder needs confirmation that the buyer has first mortgage bank lending for both house and land.

It is possible that the buyer might use all their equity on the land purchase, leaving none for the progress payments on the house. In that case, they will need to prove that they have access to financing before the house can be procured.

The required works at the house site include utility connections, stairs, landscaping, gaining Council consents etc. can be coordinated by a single reliable party – usually this is the housing manufacturer / builder. Single oversight is ideally needed to have a clear path to the Code Compliance Certificate (CCC). For local sites, own
builders are sent to complete work. For sites further afield, a local builder is subcontracted to the main builder.

The lender is concerned about what happens if the builder goes into receivership. The lender needs to be able to have the house (and materials) as security. Although a General Security Agreement (GSA) exists, it is acknowledged that this is not a hassle-free option. Small companies give an unconditional personal guarantee against builder failure – but this is of more comfort to the buyer, than the bank.
DISCUSSION POINT: What other instruments can enable a bank to claim the work completed to date when the work is completed away from the final building site?

If the house is partially completed offsite, a third-party can gain access to complete it for the bank (including access to plans and consents etc.). This is a practical solution as the emphasis is on meeting Building Code (BC) compliance towards CCC which is the assurance that the bank is looking for.

The bank’s establishment of the builder’s experience should be the same, whether the house is constructed at site of offsite.

The bank should be conducting a ‘check-box’ exercise to determine that the relevant construction contract is in place and that BC is being met towards CCC being achieved.

The value of the part or the house before delivery if it had to be sold to a third-party to repay the debt would be the value of works completed to date, eg. 40% if it is for panels, and 100% if it is a transportable house. It will be the percentage relative to the entire project’s value.
NOTE: The lowest risk option for the bank is to complete the job offsite, attach it to the land, and reclaim the project value that way. Fundamentally, the house-plus-land package is worth more together, than separately.

There are no recorded issues with a potential buyer not accepting a house. If there is any dispute, then the dispute resolution process is the same regardless of whether the house is constructed at site or offsite.

Granting and payment of Building Consent Authority (BCA) costs and permits are transparent, and the same regardless of on site or offsite construction. Just BC and CCC is needed to be issued. Most cases of transportable housing do not require a Resource Consent (RC) but this needs to be confirmed with local BCA.

Council approvals take the statutory amount of time, excluding any Requests for Information (RFI) which can extend the process – same for on site or off site.
NOTE: There is general consensus that the BCA should nominate a single point-of-contact for each building project.

If the bank had to repossess the house and sell it after delivery, then the bank would have access to all required documentation through the BCA. The bank is the first security, while manufacturers are second.

Costs associated with repossessing and transporting the house would be approximately $12,000 (and up to $30,000). There is very little chance that the house-in-a-yard doesn’t sell – “everything sells, for a price”.

If the buyer’s situation changes before delivery eg. they lose their job, then the builder will negotiate an appropriate exit from the contract on a case-by-case basis.

If a buyer requests variations that reduce specification and or increase cost, then these are issued as variations to the contract – the same process whether the build is on site or off.

The builder may consider a lower level of total progress payments before delivery if they can secure requisite finance to manufacture the building. Normally, up to 90% is needed before handover / delivery.

If the bank puts in place mortgages for buyers with low equity to increase builder house sales, it is possible that the builder could take the first loss if things go wrong, eg. put the first 25% of progress payments in themselves to be repaid on final payment.
NOTE: This arrangement would need to be discussed with the banks, and only possible if bank secured lending was in place.