Build new or buy established – Which is better?

Build new or buy established – Which is better?

5 October 2023

When looking to enter the property market, there are a number of questions you need to ask yourself and one of the most important is whether to opt for the convenience of a brand spanking new “house and land package” or to go for something older in a more established area. The answer to this question depends on your needs as a buyer – Everyone has different requirements and there are a multitude of factors involved in figuring out what best suits you.

Here are the things you need to consider.

 

Capital Growth

There’s an old real estate saying you may have heard: Buy the worst house in the best street. History has shown that established locations with good access to amenity and local services tend to yield the highest capital growth. After all – The property market, just like any other market, comes down to supply and demand. Demand for property in central locations, close to infrastructure and services is a commodity that will always be in high demand, regardless of the state of the market. Because it is established, supply in such areas can also be limited, which tends to naturally drive capital growth.

Conversely, fringe localities which are still in development, and still lacking in essential services and infrastructure, tend to have a high supply of mostly new build homes to choose from. Any established properties listed for sale in such areas will be competing against brand new homes for the attention of potential buyers. This has a tendency to cause median values to remain relatively static for long periods of time, or at least until the area “matures”.

If achieving capital growth is important to you, then it may be wise to look to buy something in an established, central location, rather than opting for a brand-new build or house and land package in a developing suburb on the fringes of suburbia.

Ongoing Maintenance Requirements

Another major consideration for any buyer (whether an investor or owner occupier) will be the ongoing costs of maintaining the property in good and working order. New homes will obviously require far less maintenance, whereas fixing everything that goes wrong in older homes can be a constant drain on your finances, which can significantly affect your monthly household budget. New homes also usually come with a 6 ½ year structural warranty, as well as warranties on all of the new appliances and electrical components, which gives you peace of mind that (for several years at least) you aren’t going to be constantly reaching into your pocket to replace fixtures and fix problems.

While older properties can be gold mines in terms of capital growth, owning one comes at a cost – And if you can’t afford the ongoing costs of refurbishment and maintenance, then you might be better served looking for a new home instead.

Government Incentives

Since the turn of the millennium, where we have seen some of the most pronounced property booms in history, property market growth has been significantly boosted by government stimulus, mostly in the form of “grants” which have been (and in some cases are still being) offered as incentives to buy property. In recent times, these government grants have trended towards incentivizing the purchase of new build “house and land package” homes rather than established homes, which has provided a major boost for the construction and building industries.

As of 2023 in Queensland, the First Home Owner Grant offers $15,000 to first home buyers looking to purchase a brand new home or house and land package. This has influenced many young home buyers to buy brand new homes in newer, developing areas and gives young people struggling to save for a deposit a means of entering the market where otherwise they may not have had the opportunity.

If you are looking to buy your first home, this may be a good option for you if you are finding it difficult to save for a deposit or unable to afford to get into older, more heavily developed areas.

For more information on this, visit First home owner grant – Queensland Revenue Office (qro.qld.gov.au)

Depreciation Benefits

If you are an investor, then the consideration of tax minimization will come into play when looking to buy a rental investment home. While you should be guided by your accountant in this instance, there are certainly some extra benefits that come with a brand new home which you won’t necessarily get when buying an older property.

One of these benefits is depreciation – As a house gets older, the improvements (ie. The dwelling and all assets contained within) depreciate in value, and the Australian Taxation Office allows property investors to claim this depreciation as a tax deduction. There are 2 classes of depreciation deductions – Capital Works Deductions (depreciation on the structure of the property and its permanent fixtures), and Plant & Equipment Deductions (depreciation on non-fixed items such as carpets and appliances). While any home built after 15th September 1987 is eligible for depreciation deductions, brand new homes generally benefit from much higher deductions than established properties, which means if you are looking to invest in property, it may be beneficial to consider a brand-new home to maximise these deductions.

Til next time, ciao 😊

 

Disclaimer: The information is this article is for general information only, it is not intended and should not be considered as either legal or financial advice. The information contained herein should not be relied upon solely and all parties are encouraged to obtain their own independent advice before making any financial decision.
Lee Knutsen

Article by Lee Knutsen

Co-founder & Managing Director of House, Lee Knutsen first entered the real estate industry in 2006 as a residential sales specialist. After more than a decade as a sales agent…

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