Home Real Estate The risks of buying a brand new property

The risks of buying a brand new property

Here are the pros and cons.

Senior Digital Journalist, Your Money

Buying a newly-developed property can seem like an easy option for investors, but it can also be one of the riskiest.

A brand new property could either be a house built on a new estate, an off-the-plan apartment in a new building or a home that has been built on a previously unoccupied piece of land.

While it’s tempting to buy a property that nobody else has lived in before, property expert Margaret Lomas of Destiny Financial says this particular sector is frequented by ‘spruikers’ – or property agents that use dishonest sales tactics.

These kinds of deals are typically marketed as house and land packages and have been constructed in newly established estates – often far from where you live.

“There’s a lot more risk in buying a new property, whether that’s an off the plan one, whether it be in a new estate  or whether it be off someone else,” Lomas told Your Money Live.

If you do decide to buy a new house, Lomas says there are a number of potential drawbacks that buyers should be aware of.

First, it can be difficult to know the true value of the land if the property was built in an untested estate.

“How do you know if you’re paying too much in the first place? Without plenty of resales, an actual market value is hard to establish in those new estates and in those off the plan apartments,” Lomas warns.

That also means the area might not have a lot of infrastructure and it can be difficult to predict how fast that will be established.

Buyers may also find themselves having to pay a builder’s premium which isn’t reflected in the property’s true underlying value, meaning the value of the property could go down after it’s settled.

Because you’ve paid more, you may also find a lower rental yield overall – particularly if the area is slow to pick up renters.

“I’ve certainly seen enough examples of people who’ve bought them with varying degrees of success,” Lomas says.

The Benefits

But not all new properties are a bad buy and there are a number of benefits to buying one, according to Lomas.

First, there is a required warranty period which means buyers are covered by the builder for six to seven years if there are any structural issues. Plus, if you buy the deal before the home is constructed you could have a say in the design of it.

Meanwhile, there’s also the option of claiming a higher depreciation on newer properties.

“For the past two years, only those brand new properties where you’re the first owner has the plant and equipment depreciation allowed on it, and that can create some really useful tax breaks in the first few years.”

Watch the video above for more hot tips.

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