| Lusail | lusail Qatar | property hunter |
Many people like the concept of constructing a unique house to fulfill all their requirements.
However, buyers of Kiwi properties have shown clearly a preference for existing buildings over new construction since the country's last building boom in the 1960s and 1970s.
Warning from the leaky housing crisis and a reluctance to undertake long construction with delays and extra costs are some of the causes.
This has started to improve over the last years and the government's newly announced regulations will speed up the process.
Borrowers now receive loan-to-value ratios (LVRs) for new buildings with a smaller deposit than expected for the existing house.
For a new building, first-hand buyers can typically have a deposit of 10 percent, whereas real estate investors have a deposit of 20 percent.
Home buyers typically need a 20% deposit to purchase an existing property, but developers already need a 40% deposit, which is official only in May.
However, the government's announcement of a package of new housing measures to increase housing availability and alleviate market pressure on 23 March has led to a stronger appeal for new buildings.
Impact reforms in the package aimed at reducing interest deductibility by borrowers and extending the bright line test to 10 years are excluded from new buildings.
Kelvin Davidson, CoreLogic Senior Real Estate Economist, says it allows buyers to buy new real estate rather than existing ones.
Assuming that new buildings are constructed without tax increases, it would clearly be a safer choice for potential buyers, says property investment coach Andrew Nicol from Opes Partners.
"The impacts of our improvements and a 600,000 dollars new building with 100 percent loans would be 75,000 dollars higher than a comparable current building over a 15-year period. In this time, the new building is projected to produce just over $45,000. The same property would lose $30,000 if it occurred in the same period."
It clarified that new buildings would be more effective than existing buildings, which are appealing to investors looking for profits.
"New construction is less risky for returns, needs less deposits and is better insulated from increasing interest rates.
I will therefore encourage investors to go to a new house - unless they can substantially boost an existing house with a big value-added renovation."
However, new buildings are not a good choice for real-estate builders, developers who focus on major upgrades, or anyone who expects revenues to drop for the next 12-18 months or is trying to purchase on the lower end of the market, said Nicol. Nicol.
The increased desirability of new investor construction projects could unintentionally have a negative consequences for first house buyers, who are especially strong players in the new building market.
The combination of the lower deposits needed, the incentives from KiwiSaver new buildings (up to $10,000 versus $5000 for existing homes) and higher prices available for grants and First Home loans (including appeals for First Home purchase from $500,000 to $700,000 for new buildings according to location)
Accountant Anthony Appleton-Tattersall claims developers don't buy as many new properties as first-home buyers actually do.
"And now, many developers will stack in new buildings and shed existing buildings. If you have two identical investments, then it is fair to do it, but one is dramatically disadvantaged in taxation. It will make it harder for home buyers to buy a new house, whether for the first time or for movers."
One aspect that could alleviate this is whether the government considers a new building to be described in legislating on tax changes. At present, the term to be used is unclear.
Appleton-Tattersall says the most likely scenario for "new construction" is that it is the first owner of a house. That means if an investor finally sells his "new building" property, it will no longer be a new building, and few investors will, he says.
"The market for capital gains is naturally restricted in these assets because most buyers tend to purchase brand new properties for which they still have interest. Thus, a new building site would theoretically have lower annualized capital growth than an existing property.
Differences in value growth are already a factor that can make existing property more desirable than new buildings.
Hamish Patel of Mortgages Online, mortgage consultant, said that the property played an important role in value growth and that existing buildings mostly lie in larger areas than new buildings.
"If you equate value development in traditional areas like Otara with new building areas like Flatbush for ten years, the fact is that the areas with existing housing have been larger."
That is why he says that existing homes, along with their potential for change and added value, are a better option for many buyers than new buildings.
'Buyers also lack the choices for existing premises in areas like Auckland, but there is an increasing demand for new homes and apartments. It's easier to get a loan with a smaller deposit into a new house, because you're on a ladder."."
New buildings will unavoidably see value rise over the years and if a buyer buys off-plan as the demand rises, he claims that he will certainly see profits on his property when he settles.