Buying Existing Properties vs Brand New Properties

Hi all,

I have been thinking recently about purchasing brand new investment properties in the future rather than buy existing properties. All of the properties in my portfolio are currently based on buying existing properties (made up of houses, townhouses, and units) but I've steered clear from buying off the plan. This is mainly because I heard of some bad stories of certain developers who built sub-par developments with defects etc.

Note - I would prefer to focus on purchasing brand new houses or townhouses (not units, as I believe there is an oversupply so would prefer to avoid).

Below are what I view as the benefits and costs of purchasing brand new properties. Could you offer your thoughts on this, and what strategy do you all use in regards to this topic?

I also heard that there is significantly less land tax (or no land tax at all) for purchasing brand new properties - is this correct?

Benefits of purchasing brand new properties
* Developers may feel more desperate or under pressure to sell within a certain time period, so it gives further room for negotiating a lower price
* The simple fact that is brand new
* There are greater tax depreciation benefits for new properties
* Less land tax (to be confirmed)
* The fact that there have been highly publicised building defects recently (e.g. Opal tower) will make it likely for less buyers to be interested in purchasing brand new development - which leaves potential better room for negotiating a lower price
* Often new development are located in areas with alot of new investment (e.g. new shopping centres, transport links, etc)

Disadvantages of purchasing brand new
* Potential building defects/risk since it is a brand new development
* Can often be located in area with a lot of supply (less scarcity), meaning potentially less capital growth potential
* Any others?

Would be good to get your thoughts.

Thanks.

 

The demographics could be less OO and more Rental which will put downward pressure on the CG, and also more competition for tenants.

 

Sounds nice but in reality I've been seeing the opposite for clients looking to build new houses, especially since the government grant was announced developers seem less willing to negotiate as they know there are plenty of other buyers looking for land at the moment. Huge increase in numbers of new build inquiries via our client base.
Most developers are fairly cashed up and not desperate to sell at all.

Well if you're talking about houses/townhouses not sure how this even relates? Opal tower was an apartment building, if anything you think it would make more people want to buy a house/townhouse therefore more competition & less negotiating power for buyers of houses/townhouses?

In general new houses are on smaller blocks of land, there are large commissions built into the sale price so it's highly likely going to overpay and or it could take many years to see any capital growth at all.

 

Understand the point about government grants for first home buyers if new properties having a positive impact for developers, which I guess is true.

My point about building defects is that it may scare away people from purchasing brand new properties altogether (although presumably most if not all are apartment building defects). People may not care to differentiate between the type of building, just new developments done by builders in general.

 

Personally never met someone who views apartments the same as houses, the two are very different so it would be strange to do so. If anything it may make people gravitate towards buying house and land vs apartment.

 

When we think of brand new land and houses, we can categorise them into two types - those in vast estates on the outskirts of towns and cities, and infill development in the inner and middle ring suburbs. I am seeing some tiny infill developments in my local region which would appeal to OOs. They seem (I have not investigated further) to be well designed boutique estates or single KDR homes. This is under 20 kls from the CBD north. Would these "new" properties be good investments?

 

Depends

 

There's a whole lot going on behind the scenes that affects what you pay for brand new. You mix that with your own circumstances and market conditions and it all gets very difficult. As a general rule, apartments and townhouses outside of inner Sydney and Melbourne are not too popular- certainly in Brisbane performance hasn't been good, especially if you bought brand new.

It is very much possible to buy a well priced brand new home that offers a good return and suits your portfolio.