It’s a question that many property investors ask me: should I buy a new property or an established one?
It’s obviously on the minds of lots of investors so it’s time we revisited this issue in a bit of detail.
On the surface, it makes sense to buy a new property.
Buyers like new things right?
If you could choose between a home built 50 years ago that needs structural repairs and a major renovation down the track or a brand new home with all the mod cons, which one would you choose?
But buying what is pleasing to you at the time and buying a good investment that will hold and increase its value over the coming decades, are two very different things.
This is why investors need to buy with their heads rather than their hearts.
And nearly all of the time, it is much better to buy an established property rather than a new one.
Let me explain my main reasons why.
New homes and apartments are a dime a dozen.
One of the biggest misconceptions of real estate is that it’s about desire.
Certain properties attract more buyers because they’re more attractive.
In reality, real estate is about supply and demand.
That’s why at Metropole we like buying properties with a twist, that offer something you are not going to see anytime soon, such as a second garage; extensive solar panels; or ornate, attractive period features.
Note: Sure, attractive properties are going to perform well, but only if they are in short supply in the desired location.
There has to be that all-important scarcity factor.
In fact today most off-the-plan properties are being valued on completion for considerably less than what the purchaser paid.
You can imagine how distressing this is for the purchasers.
Never has this been more apparent in Brisbane and Melbourne at the moment, where a tonne of off-the-plan apartments are being built.
We steer clear of these because they are bad investments.
People fall in love with period homes.
Established properties consistently do well over time and period homes are always in high demand.
Why is that?
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Partly it is to do with the fact that the designs never date, so to speak.
Take a look at some of the ‘contemporary’ apartments built in the 1990s, which seemed very cutting edge at the time, but look old-fashioned now.
Period homes, on the other hand, are timeless.
Getting back to my original point: they are also scarce.
You will never be able to replicate the 1920s deco craftsmanship, and even if you tried, it would not be original.
And the more homes that are knocked down to make way for modern homes or apartments, the more in demand these remaining period properties become.
Then there is the fact that many period homes are better built and have more generous proportions.
Art-deco homes and apartments, for example, are renowned for their generous room sizes.
Another key point to remember is that property is about the land value or more specifically the land to asset ratio.
New homes in new estates tend to be located a long way from the CBD, which is why they are so cheap.
The land is worth far, far less.
Established homes, however, are concentrated in the inner-city suburbs, where land is highly valuable.
It is much more valuable to own a derelict house in Melbourne’s blue-chip suburb of Albert Park or Sydney’s Randwick than it is to own a brand new home 40km outside of the city.
Furthermore, many established homes were built with huge backyards and plenty of room to unlock the value of the land.
Owners can subdivide, for example, or developers can knock the home down and build townhouses.
The land is valuable to different buyers for different reasons.
And it’s much the same with apartments, it’s the notional land value under your apartment that is critical.
I’d rather own one-tenth of the land under my block of established apartments than one-hundredth of the land under the new high-rise tower.
So, while you may be tempted by the gleaming surfaces of a new build, I would caution you to hold fire on buying one.
You should always think long-term when investing in real estate and established properties will grow in value in ways a new home in a new estate never will.