9th June 2014
Buying New vs Established Property
Buying an established home during a “buyers market” period of the property cycle can result in a significantly lower outlay than buying land and building from scratch. Although the inherent land value is similar when compared to similar newly released land, the value of the building is discounted by the market according to its age, accommodation provided and the supply of competing housing stock for sale.
This situation can reverse during a “sellers market” (boom) where demand for land exceeds supply and building costs are also driven higher by the demand/supply imbalance. In addition the delay of purchasing land and building is not an attractive option for purchasers and a “premium” is often paid for established housing during this stage of the property cycle.
As a further consideration, if your property is income producing, you can claim depreciation on buildings as a tax deduction. This deduction can provide a significant boost to after tax returns. Optimum depreciation benefits are obtained from “new” income producing buildings. For residential buildings constructed after 18 July 1985, both capital works allowances and plant & equipment are able to be claimed for depreciation purposes. Even if the original building is older, extensions and renovations/alterations completed subsequent to this date are still able to be depreciated.
Therefore the new v established purchase decision should be made after consideration of the market cycle and the purpose for which the property is acquired.