For his view on the old versus new debate, Your Investment Property consulted George Raptis, director of Metropole Property Investment Strategists’ Sydney office. He sided firmly with well-established properties.
Raptis believes buying new is definitely a no-no if you’re looking for the ideal investment – that is, unless you’re a developer who can build a new project at cost and then on-sell at retail prices.
“Most investors are not, and have no intention of ever donning a hard hat. For the majority of investors, established properties will always offer far better capital growth potential than a new build for a whole number of reasons,” he adds.
Raptis argues that, when you buy a new property, you’re not only paying for the actual building, you’re also handing over a large chunk of money to the developer.
The situation is reversed with established properties when you ‘buy well’ (either at or below the property’s intrinsic value), he continues.
When you buy a new home, everything is already done for you; new floor and window coverings, modern kitchens and bathrooms and a fresh coat of paint. All that’s left to do is find some tenants to move in. While this might seem appealing, Raptis insists this is actually a huge disadvantage when it comes to investing in a new property.
“The problem is that you have sacrificed the potential to add value or manufacture capital growth that comes with an established house or apartment,” he says. “Although you should avoid anything that needs costly, structural repair, something that’s a bit dated and could do with modernising provides the perfect opportunity to create immediate capital growth and outperform the averages.
Raptis also believes that it is much simpler to secure an established property for a far better price than you will ever pay for a new build.
“Think about it this way: a developer would not construct a dwelling that they have to sell immediately and potentially lose money on. This has occurred in very slow markets, but it’s a rarity that we see very little of,” he comments. On the other hand, buying an established home means dealing with an imperfect market and vendor emotions.
One of the most critical factors when it comes to investing in real estate is to know your market, he adds, and conducting extensive research into values in the immediate area and on comparable properties to the one you are looking at is one of the best ways to ensure you don’t over-capitalise on your investment.
Raptis argues that this is a much more difficult prospect if you are buying new, particularly if the new property is in a relatively immature area such as a housing estate. You also have less historical data at your disposal to make an informed decision when it comes to pricing, and fewer comparable property sales to refer to.
One of the big issues with new – and, in particular, off the plan – properties, is that when the market slows so too does your rate of growth, says Raptis.
So, are there any disadvantages to buying established? Is there any point where purchasing a new build makes more financial sense? Raptis says there isn’t.
Raptis admits that maintenance issues are almost unavoidable in established properties; hot water systems give up the ghost, some of the plumbing might not be up to par and tenants might complain about a bit of a leaky roof in winter. But any little niggles that might crop up along the way can be taken care of when you do those value-add refurbishments.
“That’s not to say you should wade in blindly, of course: you should never buy an established property without commissioning a building survey to ensure you are not sinking your investment dollars into a money pit,” he adds.
Your Investment Property canvassed Nora Surya and Alex Huang of residential developers Metro Equity Property Group for their views.
Surya argues that ‘old versus new’ is not as simple a question as it seems.
Another key area of debate is price, adds Huang.
Opportunities such as these may not always be easy to come by, admit the pair, but they are present nonetheless, especially in markets like the one we are currently in.
However, Huang cautions that choosing the right property is not as simple as ticking off a list of bullet points.
Huang argues that, due to the sheer number of these key considerations, investors should first and foremost consider their own circumstances to determine what strategy would be best to employ.
Surya adds that this is as true for older investment properties as it is for new properties, however. She also points out that, investors may not have a choice about what type of property to go for if they wish to invest in certain areas.
Increasingly, the types of properties that you will most likely find occupying these strategic locations are brand new apartments, she says.
Nevertheless, the pair caution that not all apartments are created equal – despite what some developers promise. They suggest keeping in mind the key considerations mentioned above: poorly-designed or poorly-located apartments will miss out on growth – as might those located in high rise towers, due to the sheer amount of stock available.
Thank you for these tips, I just want to add something that You have to take care of the Cleanliness of the new home you are buying or renting make sure that new houses are well constructed and they have materials that are totally new in the construction phase.
I think this writeup offers a great comparison between new and used property. I agree with Nora in that both new and used properties have their distinct advantages, and it really comes down to an individuals investment goals and circumstances.
Other considerations to factor in when choosing between new and used property include: location, capital growth potential, local transport and infrastructure, government investment in the area, builder warranties, potential stamp duty savings.
Good article but I would have liked a discussion on the time value of money. Buying a new property, or one to be constructed within the next 12 months, gives the purchaser the price of an asset in today's dollars that won't be ready until a future date. i.e many builders experience 6-12months of capital growth for their house whilst it's being constructed.
Furthermore in WA new constructs are considerably cheaper than established properties and government grants are also better.