Where Does Your Deposit Go When Buying Off the Plans in New Zealand? Explained for Buyers and Investors

Where Does Your Deposit Go When Buying Off the Plans in New Zealand?

If you are buying a property off the plans, you may have wondered what actually happens to your deposit once you pay it.

This is one of the most common questions buyers ask, and it is often misunderstood. Many people assume their deposit is handed straight to the developer to fund construction, but in most cases, that is not what happens.

Before explaining where your deposit goes, it is important to understand what a deposit is and how it is structured.

What Is a Property Deposit?

A deposit is the upfront payment that secures the property you are purchasing.

For most owner occupiers, the deposit is usually 10 percent of the purchase price and is paid once the contract becomes unconditional.

For investors, the total deposit requirement is typically 20 percent, which is often split into two parts:

• The first 10 percent is paid when the contract is signed
• The remaining 10 percent is paid at settlement

Deposits can be funded using cash, equity, KiwiSaver, or a First Home Grant if eligible. For investors, equity released from an existing property is the most common source.

How to Work Out Your Usable Equity

If you are using equity, the calculation is straightforward.

(Home value × 80 percent) minus current mortgage balance equals usable equity.

For example:

• Home value: $700,000
• Mortgage owing: $400,000

($700,000 × 80 percent) minus $400,000 equals $160,000 in usable equity.

With $160,000 available, an investor could purchase a property worth up to $800,000 based on a 20 percent deposit requirement.

So Where Does Your Deposit Actually Go?

In most off the plan townhouse or apartment purchases, your deposit does not go to the developer.

Instead, it is:

• Paid into the vendor’s solicitor trust account
• Held securely until settlement

The developer cannot access these funds during construction.

Why This Protects You as a Buyer

Holding the deposit in trust significantly reduces buyer risk. If the development does not proceed for any reason, your deposit is returned in full.

Some contracts also specify that deposits are held in interest bearing trust accounts. In those cases, interest earned is either:

• Returned to you if the project is cancelled, or
• Applied toward your purchase price at settlement

When Is a Deposit Used for Construction?

In some scenarios, particularly with group home builders, the deposit may be used to help fund the build.

When this happens, builders typically provide insurance protections that include:

• Deposit loss cover
• Non-completion insurance
• Structural defect cover, often lasting up to 10 years

These protections ensure buyers are still financially safeguarded if the builder experiences financial difficulties.

Always Review the Contract Carefully

While deposits are protected in both scenarios, the protection works differently depending on the contract.

Before signing, it is essential to confirm:

• Where your deposit will be held
• What legal or insurance protections apply
• How your funds are treated if the build does not proceed

Independent legal advice should always be obtained before committing.

Final Thoughts

When buying off the plans, your deposit is not simply exposed or at risk when the right safeguards are in place.

Whether held in a solicitor trust account or protected by insurance, understanding how your deposit works allows you to invest with confidence while your property is being built.