There is a lot of new supply in Sydney, and if you are looking to buy real estate in Sydney, particularly an apartment, you will often be faced with the choice of: do I buy new or do I buy an older property.
This choice is starker in some areas than others. I find that newer properties tend to be prevalent in the Inner South areas (Alexandria and Zetland etc) as well as the Upper North Shore and Canterbury areas.
So, which make better investments?
- New Properties are modern and appeal to tenants
- Greater depreciation benefits, particularly for off-the-plan
- Lower repairs and maintenance costs;
- Typically, newer builds come with higher density complexes, so the land to asset ratio is usually lower;
- Lower capital growth in the earlier years, as the building is depreciating faster than the land is appreciating.
- Potential rectification can be expensive: uncertainty about construction quality is ironed out in the early years.
- Older properties are cheaper
- Older properties tend to command the best position in the street or suburb, and have higher ceilings;
- You can manufacture capital growth through renovation;
- Older properties tend to have greater capital growth: the building is depreciated, and so you are relying on the appreciation of the land plus your rental return to drive performance. Most older buildings are fully depreciated.
- Older properties can lack street appeal
- Higher recurring repairs and maintenance costs, and potentially higher strata fees (particularly older buildings with lifts).
- Older properties are competing with newer properties for tenants: newer properties have air-conditioning, and new finishes. This puts downward pressure on (unrenovated) older property rent returns.
- Fewer depreciation benefits for buildings over 40 years old.
The magic of real estate is buying inexpensively and waiting for capital growth to compound. So, the strategy that I recommend to my clients, is to buy tired existing properties in great locations that can be renovated.
Buying old properties has less downside, because the downside has already played itself out over the past few decades of wear and tear.
Despite the tax benefits and the obvious appeal that new properties have, I have typically avoided newer properties because of the premium that they command.
There is one caveat however: there are moments in the property cycle – once every 10-15 years or so, when off-the-plan properties are selling into distress, and when you can buy new properties cheaply. With the influx of new apartment supply and the exodus of foreign buyers, there is a case that now is one of those rare moments where buying new makes a lot of sense.
For help sourcing, negotiating and executing your next property purchase, get in touch with John for an obligation free discussion at email@example.com