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There's limited value in new homes
New house packages often aren't the best investment. Picture: Tim Marsden
NEW house and land packages are not the best investments, according to a new analysis, with higher returns more consistent from properties in established areas.
Greenfield estates don't perform as well as established areas, when it comes to investment returns, 6 Point Property managing director Simon Pressley says.
"We're not talking about principal places of residence, which is an emotional decision about where you want to live," he says.
Pressley, a financial planner with a real estate licence, says because greenfield estates are generally released in stages, buyers tend to always buy in the newer stages, even if the price is $20,000 or so higher.
"Just because an area is destined for population growth does not necessarily mean that it is an automatic investment property no-brainer," he says.
"Imagine you've purchased your new property in stage one for $450,000. A year later stage two is sold for $470,000. What is your stage one property now worth?
"A further year and stage three is sold for $480,000 and so on. The value of your property will always be a margin below whatever the new stages are sold at.
"Meanwhile, the market in built-up areas is probably growing quite nicely. Properties released en-masse or in stages, as happens with new housing estates, often creates an initial over-supply situation.
"For values to rise, we need competition and that occurs when there is under-supply."
Property valuers and investment buyers rely on recent sales data to determine what an asset is worth.
If there is a large number of similar properties, it is very difficult to say that one is worth much more, unless there is something compellingly different about it.
While new estate marketing agents concentrate on promoting things such as artificial lakes, new appliances and tax depreciation, this offers little real value when it comes down to the hard numbers that make an investment stack up.
But investment manager for new home builder Ausbuild, Sean Porlier, says there are advantages of buying a new home as an investment over an older one.
"You don't have to spend any extra money refurbishing and all the appliances are new and under warranty, so you won't have to replace the oven, stove and dishwasher for many years to come," Porlier says.
"There are also no hidden building costs in our investment homes, such as unexpected site or retaining costs, and most properties are full turn-key homes which are ready for a tenant to move straight into."
New homes are also in demand from tenants, which helps boost the rental return.
There are extra tax benefits from buying a new investment home, as you can claim depreciation on it.
Porlier says investors are showing renewed interest in property since the global financial crisis.
"Many people watched the value of shares plummet, while property prices have remained relatively steady," he says.
"Investors are once again appreciating the long term stability and capital growth that property offers."
- By Alex Tilbury
- From: News Limited newspapers
- December 20, 2010 12:00AM
New house packages often aren't the best investment. Picture: Tim Marsden
NEW house and land packages are not the best investments, according to a new analysis, with higher returns more consistent from properties in established areas.
Greenfield estates don't perform as well as established areas, when it comes to investment returns, 6 Point Property managing director Simon Pressley says.
"We're not talking about principal places of residence, which is an emotional decision about where you want to live," he says.
Pressley, a financial planner with a real estate licence, says because greenfield estates are generally released in stages, buyers tend to always buy in the newer stages, even if the price is $20,000 or so higher.
"Just because an area is destined for population growth does not necessarily mean that it is an automatic investment property no-brainer," he says.
"Imagine you've purchased your new property in stage one for $450,000. A year later stage two is sold for $470,000. What is your stage one property now worth?
"A further year and stage three is sold for $480,000 and so on. The value of your property will always be a margin below whatever the new stages are sold at.
"Meanwhile, the market in built-up areas is probably growing quite nicely. Properties released en-masse or in stages, as happens with new housing estates, often creates an initial over-supply situation.
"For values to rise, we need competition and that occurs when there is under-supply."
Property valuers and investment buyers rely on recent sales data to determine what an asset is worth.
If there is a large number of similar properties, it is very difficult to say that one is worth much more, unless there is something compellingly different about it.
While new estate marketing agents concentrate on promoting things such as artificial lakes, new appliances and tax depreciation, this offers little real value when it comes down to the hard numbers that make an investment stack up.
But investment manager for new home builder Ausbuild, Sean Porlier, says there are advantages of buying a new home as an investment over an older one.
"You don't have to spend any extra money refurbishing and all the appliances are new and under warranty, so you won't have to replace the oven, stove and dishwasher for many years to come," Porlier says.
"There are also no hidden building costs in our investment homes, such as unexpected site or retaining costs, and most properties are full turn-key homes which are ready for a tenant to move straight into."
New homes are also in demand from tenants, which helps boost the rental return.
There are extra tax benefits from buying a new investment home, as you can claim depreciation on it.
Porlier says investors are showing renewed interest in property since the global financial crisis.
"Many people watched the value of shares plummet, while property prices have remained relatively steady," he says.
"Investors are once again appreciating the long term stability and capital growth that property offers."
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