New property market needs new rules
As the Australian property market begins to spring back to life, it is clear we’re dealing with a very different market than the one operating prior to 18 May 2019.
This new market is characterised by two very distinct speeds –
- Moving backwards or just no movement at all and zero potential for change in the next 12+ months = off the plan + house and land properties
- Roaring back to life operating with the elements of a sizzling hot market = established properties, houses on larger blocks, character homes.
Of course, we have seen this before. Just over 15 years ago, the market exhibited very similar features, although back then the backward flow was confined to a smaller percentage of the ‘new’ property (off the plan / house + land) market.
This time, buyers who didn’t heed or hear the warnings a few years ago when they made their purchase will be hit by a longer and more savage impact due to the greater over supply of stock (properties) that no one wants to buy.
Unfortunately, many owners of the ‘soiled’ stock will have their investing future extinguished unless they take radical action and a short term hit on their finances. Their predicament lays at the hands of inexperienced and – often – unscrupulous market operators who positioned the properties as gold plated tickets to a sunny future while, in reality the properties were over priced and over hyped.
The two speed flow is just one of the features of the new property market but, on the upside, this situation provides the foundation of one of the new rules that you can apply in order to make successful purchases now.
Whether you’re considering a home, commercial or investment purchase, Crave has developed eight rules to guide your decision making and ensure your purchases will perform well over time. These rules are detailed in our guide ‘New Property Rules’ which can be accessed here or from the main page of our website – www.craveproperty.com.au.
A sneak peek at rule number 8 – New Property Doesn’t Rule is outlined below.
There’s many reasons why ‘new property doesn’t rule’ starting with value for money. Often new properties will be on a smaller floor plate and land parcel than existing properties, and be more expensive than comparable established properties in the same area. This is because you will pay a premium for new properties, and these properties will lose value the minute you purchase them because they will no longer be ‘new’ and will not come with the hyped ‘benefits’ of being the initial purchaser.
One of the key features of new property hyped by vendors is the ability to depreciate a large percentage of the original purchase price. But even this has a sting in its tail in that when you want to sell the property, the depreciation has to be paid back. And this is a feature often omitted during the purchase process.
Another fact is that, in more cases than you can imagine, the properties will not achieve good rental returns because you will be competing with a higher number of other investors who are looking for tenants in the same street / complex as you. Many investors will be more successful buying an established property with an opportunity to add value when the time is right than buying new.
On the flipside, simply avoiding new properties is not a good blanket rule. In some cases, a new purchase in a quality location can be a great strategic move. Consider purchases in established suburbs such as a well located duplex close to public transport, a newly constructed town house in an established suburb close to the city (but be sure not to buy into a field of town houses), or a unit that meets all your ‘lock up and leave’ requirements and that has a fabulous view that won’t be built out (just make sure the strata fees are reasonable).
New property can work for first home buyers due to the stamp duty relaxation and grants provided in each State, however buyers should pay particular attention to do a detailed price comparison with existing purchases. In most cases, new property prices are so inflated that benefits may be mitigated. Think not only about price here, as you should consider future uplift and the area you’ll be buying in – there’s nothing worse than being one of the few proud home owners in a complex full of tenants who don’t care about the property.
For more rules click here to receive a copy of the guide ‘New Property Rules’.
Buy smarter = limitless ways to build lifetime income
Crave Property Advisory is a unique property strategy and buyers agent service. As the only independent and unbiased advisory that can help you use any property strategy Australia-wide, Crave’s services extend to home, investment and commercial property. A highly client focused organization, Crave developed the Modular Investing System (MI System) to provide clients with the ability to use a tailored mix of strategies and efficiently build profitable portfolios that create lifetime income.
Debra Beck-Mewing is the CEO of Crave Property Advisory, and has more than 20 years’ experience in property investing, Australia-wide. She has used a range of strategies to build her property portfolio including renovating, granny flats, sub-division and development. Debra is skilled in identifying development opportunities, and sourcing properties that have multiple uses and multiple exit strategies. She is a Qualified Property Investment Advisor, licensed real estate agent and also holds a Bachelor of Commerce and Master of Business.