New Versus Old
By Greville Pabst, CEO & Director, WBP Property Group
With a general overall trend of increasing land prices across Australia narrowing the gap between the price of new and old property, which housing type represents the best choice for homeowners and investors - new or old?
When choosing between buying newly built or established property there are a number of factors to consider which can ultimately impact on the property's capital growth potential, rate of return and marketability. While returns for both new and established dwellings are generally comparable, each property type offers its own pros and cons for both investor and owner occupier buyers.
New dwellings not only offer buyers substantial stamp duty savings if purchased off the plan, but they also represent a greater prospect for depreciation tax benefits for investor buyers. However, initially, new dwellings do not have the same capital growth rate potential as some established properties. This is because more established dwellings tend to be situated in more established areas and communities with developed infrastructure and public amenities, which aid their marketability. Further, established period dwellings are highly sought after and costly to replicate. Solid brick walls, hardwood flooring, high ceilings and fire places in every room cannot be replicated economically these days, and as such, are features that add value to a dwelling.
New properties and those purchased off the plan can retain their value well if purchased at the right price and if designed well with architectural and energy efficient features. But buyers need to be aware that property purchased off the plan, although offering stamp duty savings, may be priced at a premium, which on balance, can erode the savings benefit of an off the plan purchase.
Newer properties, particularly in recent times, are more often located in fringe areas where there is a greater and more affordable supply of land. As these fringe areas are still developing, they often do not have the same level of infrastructure and amenities as those in more established areas. Quite often, new dwellings in planned estates have a fairly homogenous design without the unique differentials that make one property more valuable than another.
Furthermore, when considering investing in off the plan, new or established units or apartments it is necessary to be aware of body corporate fees, as these can be quite high and significantly diminish your returns.
A useful tip when buying either established or new property is to be wary of price tags that are well above the suburb's median price. Careful consideration will ensure buyers avoid the risk of overcapitalising on a property that is beyond the general level of affordability for an area, which will ultimately affect the property's resale value.
Property buyers must do their research well and employ the expertise of a professional independent property advisor or certified practicing valuer to help determine fair market value, especially when purchasing off the plan. Overpaying for any type of real estate asset can take up to several property cycles to recover.
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