Where Does Your Deposit Actually Go When You Buy Off the Plans

Have you ever wondered what happens to your deposit when you purchase a property off the plans?

It’s a common question we get from buyers, and one that’s often misunderstood. Many assume their deposit goes straight to the developer to fund construction, but in most cases, that’s not how it works.

Before we dig into where your deposit actually goes, let’s first clarify what a deposit is and how it’s calculated.

What Is a Property Deposit?

A deposit is essentially a down payment that secures the property you intend to buy.

For most purchasers, this is typically 10% of the purchase price, payable as soon as you confirm your contract (after your due diligence period).

For investors, however, the deposit requirement is 20%, usually split into two tranches:

• First 10% – paid upfront when the contract is signed
  

• Second 10% – paid at settlement, taking the total to 20%
  

Your deposit can be made up of cash, equity, KiwiSaver funds, or a First Home Grant (if eligible).

For investors, equity, leveraged from an existing property, is often the most common source.

Calculating Your Usable Equity

If you’re using equity, here’s how to work out how much is available for your deposit:

(Home Value × 80%) – Mortgage = Usable Equity

For example:

• Home Value: $700,000
  

• Mortgage Owing: $400,000
  

(700,000 × 80%) – 400,000 = $160,000 usable equity

With $160,000 usable equity, an investor could purchase a property worth up to $800,000 (because investors need a 20% deposit overall).

So, Where Does Your Deposit Go?

Contrary to popular belief, your deposit usually doesn’t go directly to the developer. Instead, for most townhouse or off-plan contracts, it is:

• Lodged with the vendor’s solicitor in a trust account
  

• Held securely until settlement day
  

This means the developer cannot access your deposit during the build.

Why Is This Important?

This structure protects buyers from risk. If, for any reason, the development doesn’t proceed, your deposit is returned in full.

Some contracts even state that deposits are held in interest-bearing accounts. In these cases, any interest earned is either:

• Comes back to you if the development is cancelled, or
  

• Is credited toward your purchase price if the property proceeds to settlement
  

What About Builders Who Use Your Deposit?

In some cases, particularly with group home builders, your deposit is used to help fund construction rather than being held in trust.

When this happens, the builder typically provides comprehensive insurance coverage to protect you. These policies often include:

• Loss of deposit cover
  

• Non-completion cover (if the builder fails to complete the home)
  

• Structural defect cover for up to 10 years

  
  

This ensures your money is still protected, even if the builder were to fall over financially.

Always Check Your Contract

No matter which scenario applies, you’re protected from losing your deposit, but it’s crucial to know how that protection works in your specific contract.

We always recommend seeking legal advice before signing, so you fully understand:

• Where your deposit is going
  

• What safeguards are in place
  

• Whether insurance or trust arrangements apply
  

The Bottom Line

Whether it’s held in trust or protected by insurance, your deposit is never simply “at risk” when buying off the plans, as long as you have the right legal protections in place.

By understanding how deposits work, you can invest with confidence knowing your money is secure while your future home is being built.

---

How Can We Help You?

We help Kiwis build wealth through property investment. Our advisors will take the time to understand your individual needs and recommend suitable investment properties to help you build wealth and set up your retirement.

What Does This Look Like?

We use a 3-step process:

1. We start with a Discovery Meeting where we learn about you, your goals, etc., and you learn more about us.

2. This is followed by a Strategy Meeting where we model your retirement plan, understand key investment concepts, and briefly touch on some investment choices.

3. Finally, an Asset Selection Meeting where we discuss investment options in more detail and make any recommended adjustments based on what we now know about you.

Who Are We Right For?

We help people make smart investment choices and set up their futures. From first-time investors to experienced investors, we can cater to a wide range of people and help set up their futures through research-based property investment.

How Much Does It Cost?

Our advice is free to you! If you choose to invest, we’re paid by the property developer. This developer-paid model allows us to provide no-obligation property investment advice in New Zealand, without charging clients directly.

What Do We Do, And What Don't We Do?

What We Do

We offer end-to-end New Zealand property investment advice, helping Kiwi investors grow wealth through smart, data-led decisions. Our focus is on quality new builds in strong locations, tailored to your goals, guided by a team that knows the NZ market inside out.What We Don’t Do

We don’t do KiwiSaver, shares, cryptocurrency, or broad financial planning. Thrive is not a generalist firm. We specialise in property investment in New Zealand because that’s where we deliver the most value. By staying focused, we cut through the noise and help our clients make confident, well-informed property investment decisions.

How Do I Start?

Start the process now by booking a time to talk with our advisor by clicking here.