How do old & new stock find an equilibrium?

[vbplease]

Hi All,

Something I’ve been thinking about for a while and would appreciate your thoughts.. I’d like to know how people think prices for new and old stock find an equilibrium over time. I think units and houses might be slightly different, but if I could just give the example of units because they’re what I’m looking at

Blue chip suburb, lots of 60’s & 70’s 8pack units (2bed, 1bath, 1car), with say mean price $350k.
Recent builds are 2bed, 2bath, 1car, and a mean price $450-$500k.

Obviously there are features (extra bath), better layout and mod cons with the new builds that command the $150k premium, but how long does it take for these features to wear off and prices reach an equilibrium?

One could say the new builds lift up the price of the old? I know looking at RPData can give that illusion..

One the other hand the new stock may give a slight oversupply, less rental demand which may leave the old a little stagnant?

Thoughts?

 

[INVSTOR]

Take a look a Greenslopes/coorparoo units and history as there was a lot of new units built about 12 years ago. I think the gap has reduced significantly lately although I haven't done a lot of research. What suburb are you referring to?

 

[datto]

I have a 2 bedda with LUG in Liverpool NSW, about 40 years old. Heaps of new units around the place. I'd say there is about a $100 difference (minimum).

You just can't compare the two IMO. As you say the new ones have 2 bathrooms, views, some are two levels, some have 3 bedrooms but most dont have LUG, only carpaces in the basement.

The new ones are triple the size of the older units in some cases. I dont think there will ever be an equilibium price wise. Once you live in a new unit will all the added features you would dread going back to an older style unit.

Compare driving an average car from the seventies with a modern one with fuel injection, power everthing. You just cant compare.

True that there can be an oversupply of units and as a result prices and rent may suffer. Good time to get in for the next boom!

 

[Lawry]

agree, don't think they ever reach equilibrium, the older ones get redeveloped/ knocked down and split in most locations, over time. As datto says, the newer ones are "better" and always will be. Only benefit of the older ones is often they have a bigger land parcel, which offers bigger back yard or more development potential, imho.

 

[vbplease]

Take a look a Greenslopes/coorparoo units and history as there was a lot of new units built about 12 years ago. I think the gap has reduced significantly lately although I haven't done a lot of research. What suburb are you referring to?

Greenslopes is actually where I bought last and am looking to buy again I think it's one place where the 60's & 70's units are worth the same, 80's and 90's only a touch more. Reason for this could be the layout of the older ones aren't too bad, have good bones, and can come up quite nicely after a reno?

I have a 2 bedda with LUG in Liverpool NSW, about 40 years old. Heaps of new units around the place. I'd say there is about a $100 difference (minimum).

You just can't compare the two IMO. As you say the new ones have 2 bathrooms, views, some are two levels, some have 3 bedrooms but most dont have LUG, only carpaces in the basement.

The new ones are triple the size of the older units in some cases. I dont think there will ever be an equilibium price wise. Once you live in a new unit will all the added features you would dread going back to an older style unit.

Compare driving an average car from the seventies with a modern one with fuel injection, power everthing. You just cant compare.

I agree, so many are like chalk and cheese, and would never converge in price.

That's an interesting illustration you gave though with cars. I think cars these days may deppreciate to very little value in 10years, whereby older units, in theory deppreciate to nothing in 40yrs, can actually come up quite nicely after a reno provided they have a good layout/good bones. Which in a roundabout sort of way may be the convergence I was thinking about and something to capitalise on i.e. buy old stock in new developing area (assuming the unit has a great layout), reno and after a few years the gloss comes off the new builds and they are more comparible.. and that large initial price difference may get absorbed into older reno'd unit.. maybe?