New Developments
- Thread starter BenG
- Start date
at times new developments can be selling below replacement costs (paricularly if land or construction costs have recently increased). this is because the developers dont care, they want the profit based on the numbers they entered into. It could even be that they secured the land cheap e.g. had a bonus density or somehting. I saw an example recently in Midland WA where they were selling 3x2 villas of high standard at $350k... you would be struggling to replicate that price now. This means anyone buying these units has a pretty decent assumption of capital growth occurring.
Had too many issues in the past with OTP and brand news - would personally stay away from them now.
Some issues:
1. faults - often harder to detect
2. valuation for loan - may come in under expectation
3. neighbourhood
Cheers,
The Y-man
Depreciation is not a reason to buy property - capital growth is.
And, if you buy well you are more likley to get good capital growth from an established property, especially one to which you can add value - for examle through refurbishment.
In the price of new properties there is nore han just the developers margin - there is also agent's commision, GST marketing costs,etc
Currently you can buy established apartments much cheaper per sq mt than new proeprties - in other owrds below replacement cost so there is likely to be more upside.
I wouldn't touch new developments that others have built for a number of reasons:
1. usually priced above median value for area so capital growth is less
2. Developers have taken the profits out of them nothing left for investor
3. No room to value add. There is nothing you can do to improve its value immediately, with older homes you can subdivide, renovate, redevelop etc. With new developments on postage stamp blocks you can do NOTHING except sit and wait and claim tax benefits in the mean time.
The reason why they push depreciation and tax benefits so much is because thats all there is, ZIP nothing else!
We have 3 new properties in our portfolio with max tax benefits, but we built them ourselves, wholesale, we keep the profits!
1. usually priced above median value for area so capital growth is less
2. Developers have taken the profits out of them nothing left for investor
3. No room to value add. There is nothing you can do to improve its value immediately, with older homes you can subdivide, renovate, redevelop etc. With new developments on postage stamp blocks you can do NOTHING except sit and wait and claim tax benefits in the mean time.
The reason why they push depreciation and tax benefits so much is because thats all there is, ZIP nothing else!
We have 3 new properties in our portfolio with max tax benefits, but we built them ourselves, wholesale, we keep the profits!
Hi Ben,
It depends on which stage you come in at I suppose.....
If you get in at the ground floor with all of the developers - great stuff, happy days. If you get in right at the end when all of the risks have been managed (DA, site works, negotiating with builders etc), hard work has been done (the thing is built).....well then really, of course you are going to pay through the nose for it.
What would you want if you'd put in all of the hard yards and risked all of your time, money and talents.....would give it away for cheap as chips. Of course not, you'd want maximum dollar return - if you sold it, or maximum rental dollar if you leased it out.
Sometimes standing there with the other party's hat on illuminates the world.
Spot on Xenia!
Depends on what your preference is? Do you want capital growth or do you want cashflow? Its either one or the other. I have a personal preference for older properties because they are in established suburbs and offer excellent to good capital growth.
I certainly stay away from OTP/New Props because...
The off the plan ones are also the hardest hit - simply because they bet on the market going up and think that they can on-sell it for a large profit later on. The "bigger fool" principle.
If your preference is cash flow, then OTP/New properties do have higher taxation benefits, but don’t expect any capital growth for the next few years because the profit is taken up by the developer and it is the prices of the other properties in that development that set the price for your unit.
If you buy new property off the plan they can more vulnerable to economic ups and downs within the market than those already investing in the established sector. Trying to find out the correct market value for established properties is easier because transaction histories are more readily available. You may also find it difficult to visualise what a new building and apartment will look like. Builders reserve the right to make changes that may have a material impact on any aspect of he buildings attractiveness and resale value. Under the terms of contract the builder and the developer may be permitted to alter the specifications and dimensions of the building and individual apartments without allowing purchasers the right to withdraw from the contract.
Established properties perform better in terms of capital growth. You don't even have to renovate them, they're on a continual growth path. You can even accelerate the equity by simply adding value if unrenovated, simple cosmetic touch ups for example, which means you don't have to wait for the market to do it for you.
Older properties
Advantages
• High capital growth. Grows faster than new property in the first 5 years.
• You are buying in established areas. People like living in established areas. Close to schools, parks, shops, train stations, hospitals etc.
• You can add value and attracts depreciation allowances and its not subject to GST.
• Are in highly desirable locations.
Disadvantages
• Requires more work, like researching, managing the renovations, and possibly higher maintenance.
New properties
Advantage
• High depreciation allowances, means higher tax deductibility.
• Better cashflow.
• Cheaper to own, because they require less maintenance.
Disadvantage
• Offer low capital growth because of supply and demand and price comparison. Because there is a lot of new property to chose from, supply outstrips demand, which keeps prices down. There is a lot to choose from so there is also a lot to compare and the properties become very price competitive.
• New property only grows in response to inflation, and while inflation will increase prices it is not the best way to get growth because everything else goes up in price at the same time as your property.
Hope this helps.
Cheers
John.
Depends on what your preference is? Do you want capital growth or do you want cashflow? Its either one or the other. I have a personal preference for older properties because they are in established suburbs and offer excellent to good capital growth.
I certainly stay away from OTP/New Props because...
The off the plan ones are also the hardest hit - simply because they bet on the market going up and think that they can on-sell it for a large profit later on. The "bigger fool" principle.
If your preference is cash flow, then OTP/New properties do have higher taxation benefits, but don’t expect any capital growth for the next few years because the profit is taken up by the developer and it is the prices of the other properties in that development that set the price for your unit.
If you buy new property off the plan they can more vulnerable to economic ups and downs within the market than those already investing in the established sector. Trying to find out the correct market value for established properties is easier because transaction histories are more readily available. You may also find it difficult to visualise what a new building and apartment will look like. Builders reserve the right to make changes that may have a material impact on any aspect of he buildings attractiveness and resale value. Under the terms of contract the builder and the developer may be permitted to alter the specifications and dimensions of the building and individual apartments without allowing purchasers the right to withdraw from the contract.
Established properties perform better in terms of capital growth. You don't even have to renovate them, they're on a continual growth path. You can even accelerate the equity by simply adding value if unrenovated, simple cosmetic touch ups for example, which means you don't have to wait for the market to do it for you.
Older properties
Advantages
• High capital growth. Grows faster than new property in the first 5 years.
• You are buying in established areas. People like living in established areas. Close to schools, parks, shops, train stations, hospitals etc.
• You can add value and attracts depreciation allowances and its not subject to GST.
• Are in highly desirable locations.
Disadvantages
• Requires more work, like researching, managing the renovations, and possibly higher maintenance.
New properties
Advantage
• High depreciation allowances, means higher tax deductibility.
• Better cashflow.
• Cheaper to own, because they require less maintenance.
Disadvantage
• Offer low capital growth because of supply and demand and price comparison. Because there is a lot of new property to chose from, supply outstrips demand, which keeps prices down. There is a lot to choose from so there is also a lot to compare and the properties become very price competitive.
• New property only grows in response to inflation, and while inflation will increase prices it is not the best way to get growth because everything else goes up in price at the same time as your property.
Hope this helps.
Cheers
John.
Thanks for all your inputy guys and sorry for the delay iin getting back. I guess I was just trying to work out if I was to do a devlopment who would be the best target market. Clever investors obviously look for best value in terms of potential capital gains and cash flow which may exclude some developments. I guess the real target market are non investors who want a low maintenance ready to move in home?
Cheers
Cheers
