Getting the contracts reviewed by a professional
before signing up is critical to ensure there are no costly
surprises along the way. And just because a property is
new does not guarantee that it will be completely free
from faults. It is always a good idea to perform your own
due diligence on the builder and find out from previous
customers if the after-sales service of the builder and
developer lives up to their promises.4
YOU DON’T KNOW WHAT THE
NEIGHBOURHOOD WILL LOOK LIKE
One thing often overlooked by people buying in new
estates is that you have very little control over what the
surrounding neighbourhood may look like. At the time
of purchase, for example, you may have a lovely outlook,
but that may be impacted by future development in the
immediate area.
You also have no control over what the neighbour-
ing homes may look like. In an established area, it is
not unusual to consider the appeal of the street when
purchasing. But when all of the homes in the street are
not yet constructed, you are at increased risk of the area
being different from your vision.
Another big unknown when buying a new house-
and-land package is that it is likely you will not know
the demographic information of the other residents.
This is something that is already known in established
areas, so property buyers can get a feel for the suburb
and who lives there. You also have no control over
whether your neighbours are likely to be predominantly
owner-occupiers or tenants.5
YOU INCREASE THE RISK OF SETTLEMENT
DEFAU LT
There is a possibility that the value of a new house-
and-land property may decrease between the original
contract date and settlement. This has certainly been the
case in some instances in recent years when property
values have fallen. If a pre-settlement valuation is less
than the original value when finance was first set up,
then there could be a shortfall in funds to complete the
sale. This may leave some buyers scrambling for cash
to make up the difference.
No one wants to be in this position, so it is important
to understand this risk and have a financial buffer to
cover any shortfall in the event that the market value
falls during the construction period.
There are plenty of reasons why buying a new house-
and-land package may appeal to property buyers, and
there are obviously some lifestyle elements that will
contribute to this decision. But it is important to be
aware of the pitfalls, to prevent your home purchase
becoming a financial drain or a lifestyle burden. No one
wants to have sleepless nights because of the decisions
they make about where and how they want to live. MMelinda Jennison is buyers agent and property investment
adviser at Streamline Property Buyers.The problem lies in the fact that, in most cases, the
value of the building depreciates at a faster rate than
the value of the land appreciates. Investors who buy
brand new have the ability to write off the value of
the property through depreciation, as the value of the
building and its fixtures and fittings falls. Homeowners
do not have this benefit.
The relationship between the declining value of the
building and the slower increase in the value of the land
has an effect on capital growth soon after purchase.
Think about this ... when stage 1 in a new estate is sold
out and stage 2 is starting to sell, the price of the stage
2 properties is generally the same as the original price
of the stage 1 properties. But the stage 1 properties are
now second-hand, so buyers will no longer pay the same
price for a second-hand property when they can buy
a brand new one just around the corner!3
THERE MAY BE UNCERTAINTY ABOUT
THE QUALITY OF FINISHES AND OTHER
BUILDING ISSUES
Display homes, used to demonstrate the types of new
homes that can be built in a new estate, are often fitted
out with superior finishes and many “extras” that do
not form part of the standard inclusions in a new house-
and-land contract. Many buyers can be confused about
what they are actually getting and, in some cases, even
basic features such as driveways, fencing, a mailbox
and a clothesline may not be part of the standard price.Impact of tax
changes
With the pending feder-
al election, the Labor
Party proposes to abol-
ish negative gearing on
existing properties and
wind back the capital
gains tax discount from
50% to 25% for newly
purchased properties
(and other assets)
held for more than
12 months. This would
encourage property
investors to move
away from established
properties and buy
new. Investors need to
understand what their
long-term goals are and
not get caught up in
the short-term benefits.Weigh the long-term
benefits
Government incen-
tives, including the
First Home Owner
Grant and transfer duty
concessions, provide
big benefits to people
wanting to enter the
property market. Many
developers use these
incentives to attract
buyers to their new
properties. It is impor-
tant that buyers are
aware of this and make
sound decisions based
on what is right for
them over the longer
term, and not what will
give them the greatest
shor t-term lif t.