New-build apartments offer investors good value for money, with the ability to claim for depreciation.One of the hardest decisions to make when buying investment property is whether to buy something new or off the plan – or something old and established.
The pluses and minuses for each have to be weighed carefully against each other, and hopefully with none of the emotion that can creep into a decision that’s being made for a home the buyer plans to occupy.
”I would definitely say new,” Mirvac’s chief executive of development John Carfi says. ”There are just so many advantages, like the depreciation you can claim, which really helps the investor.
”Then there’s the ability itself to buy off the plan so you can pick up something in two years’ time at today’s prices. Then there’s the quality of design. New product is also usually much better produced with better solar access and thermal efficiency and things like cross-ventilation.”
That’s all certainly true. Many older homes are either houses with interiors shut to the outside or apartments without balconies and with smaller windows that don’t make the most of light or views. Today, apartments are constructed with a great deal more glass, with sliding doors leading out to balconies and larger windows, all the better to see out.
But the state of the market also has to be a concern, believes buyer’s agent Chris Curtis, principal of Curtis Associates. ”It’s fine to buy off the plan when there’s a rising market, but this is a climate of low energy and restraint,” he says. ”There’s always the risk of the market falling, which can create real problems.”
New master-planned communities can also have difficulties, he says, such as too much product coming online at once, as in Docklands, or without enough infrastructure, as in Sydney’s Green Square and Victoria Park.
At the same time, he outlines the dangers of older buildings, too – when maintenance has not been done in the past, leaving reparation costly, as when fire ordinances aren’t up to date. ”For apartments, a buyer should make sure there is a 10-year maintenance plan in place,” Mr Curtis says.
Of course, all the regular checks should be carried out to make sure the location of an investment property is a good one, showing past capital growth and with future growth predicted.
There should also be a strong rental market, with the expectation of a healthy rental yield – the percentage of rental income for the purchase price – which is calculated by dividing the gross annual rental income by the purchase price or the current valuation.
”You’ll always get a higher rent for a new apartment than you will for an old home,” Murray Wood of agent CBRE says. ”The rent will usually be around 20 per cent higher than the rent for a comparable older property.
”Also, with new apartments, you have the chance to join the executive committee and play a role in your own destiny, rather than inheriting other problems, while the lifestyle you can enjoy in a new home is better.”
That lifestyle aspect is always a significant consideration when designing new homes, whether in equipping buildings with gyms and pools, or providing plenty of landscaped gardens around them, Mr Carfi says.
”And government incentives tend to be skewed towards encouraging new development,” he says.
Costs to consider
Sure, you have negotiated a good price for your new apartment, but what are other key costs to consider?Stamp duty: this is calculated on a sliding scale, and buying off the plan can provide considerable savings.Mortgage-related fees: these include a mortgage registration fee, establishment or application fees and valuation fees, as well as ongoing fees such as mortgage insurance.Other fees associated with the purchase include transfer of land and conveyancing fees.Owners corporation fees: these range from a few hundred dollars a year to well into the thousands. Special levies might also be required.Utilities: these include council and water rates and utility bills.Rental fees: if the property is being rented, these can include management fees and fees when reletting, such as for advertising.
Off-the-plan deals open up big savings
Investing in property has become a passion for Serge Ciciulla, and buying new is something he particularly relishes.
”I like buying new for the tax advantages,” says Mr Ciciulla, who runs a training company. ”You can claim depreciation, whereas a lot of old buildings have maintenance issues and start to have real problems as they age.”
Buying off the plan has the further advantage of not having to pay the whole amount until the building is finished and ready to occupy.
”And a lot can happen in that two years,” he says. ”If this one turns out particularly well, I could on-sell for a profit if it gains value.”
The latest investment for Mr Ciciulla is a $495,000, two-bedroom apartment off the plan in the William building in the city centre. Designed by Bruce Henderson Architects and developed by Hengyi Australia, apartments will be in adjacent 23-storey and 21-storey towers on William and Little Bourke streets.
Mr Ciciulla believes the rental yield prospects are good, too, as it is in the legal precinct, opposite the Supreme Court of Victoria.
”It can be rented out to anyone in chambers or for chambers, as there are limited places around there for solicitors, barristers and chambers,” he says. ”It’s also close to Docklands and the city and the markets.
”I like investing in property, it’s like a form of forced saving. And with property, you can physically see what’s happening, unlike with shares.”
This story Administrator ready to work first appeared on Nanjing Night Net.