Five reasons buyers seek new dwellings: Pete Wargent

Five reasons buyers seek new dwellings: Pete Wargent
Five reasons buyers seek new dwellings: Pete Wargent

 

We traded in a car this week for about a twentieth of what it was bought for when new.

 

Not so keen so reproduce this underwhelming result, in its stead I bought a 2012 Ford with 36,000 clicks on the clock, for around half of its 'as new' price. A bit more palatable.  

 

Being no spring chicken any longer, I could obviously afford to buy new, but it's only a runabout and buying second hand simply offers far superior value. 

 

Besides, I feel I should practice what I preach: when compounded over a couple of decades, $20,000 could be worth quite a lot in the future. 

 

Of course, someone must buy all the new vehicles, else they'd never be sold. But who?

 

Well, some people just like the 'feel' of driving something brand new. And it sometimes makes sense for some company car drivers. 

 

Other people just have money burning a hole in their pocket, I guess, and more power to them...

 

Who buys new dwellings?

 

In a similar vein, buying new property tends to incur quite a hefty price premium, and for those buying 'off the plan' there is always that nagging risk that the final product doesn't much resemble what was breezily sketched in the brochure (those busy main roads just never seem to feature, hey!). 

 

Some speculators go down this path anyway, hoping to make a fast capital gain before the property is even constructed. I've seen this work very well (e.g. Barangaroo), but have seen it go wrong more often (too may places to mention).  

 

I must confess I've bought new property in Sydney before, and I'm even considering doing so elsewhere again right now, though I wouldn't necessarily recommend it to anyone looking for a bargain.

 

Why?

 

In fact, why would anyone buy new property? It's a bit like buying a new car in many ways. 

 

Well, firstly, some people just like the undeniably fresh feel of an unused dwelling. 

 

Secondly, downsizing Baby Boomers can comfortably afford to buy new for cash using the proceeds from their home sale - so they may elect to buy new, as indeed they have earned the right to. 

 

Thirdly, and unfortunately, some would-be investors attend 'educational' courses which convince them that there are great benefits to buying new, often not realising that the apparent white knights doing the educating are actually salesmen (sometimes egregiously posing as psuedo-financial advisors).  

 

The middlemen/salesmen may secure up to a 6 percent or greater commission from the developer, unbeknownst to the unsuspecting buyer. Goodness knows how this is still allowed to happen, but nevertheless it does. 

 

Nascent self-managed super-funds (SMSFs) and inexperienced investors are key target groups for this type of salesman. 

 

In truth, there actually are tempting depreciation and other deductions available to investors in new properties, since policy makers know that they must attempt to incentivise investors to buy new dwellings in order to stimulate construction. 

 

Strangely these generous benefits are rarely mentioned in the now-traditional annual negative gearing debate.

 

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Five reasons buyers seek new dwellings: Pete Wargent 
 
That said, if anyone ever throws you this sales pitch in order to flog you a new property, tell them you're considering buying a one-year-old dwelling for the same benefits and gauge their reaction (if they're dead set against the idea, you'll know why: obviously they are angling for a sales commission from the developer). 
 
Fourthly, a high percentage share of the new dwelling stock in Australia is bought by non-residents, a cohort typically restricted from buying established stock (except in certain circumstances, such as for development purposes). 
 
The Foreign Investment Review Board (FIRB) typically restricts non-residents to new properties or development projects in order to encourage construction, and by and large this policy works. 
 
For this reason - especially with lenders less than keen to extend finance to offshore buyers of late - non-settlements on new apartments will be one of the most keenly observed market metrics over the next two years. 
 
And fifthly, purchasing new just suits some buying demographics. It is frequently said that Chinese buyers like unused property to the extent that some don't even let out their new dwellings, in order to keep them in a pristine condition.
 
Incentives for first homebuyers
 
For first homebuyers, there are typically incentives available to buy or construct new homes.

These tend to vary over time, and by state and territory. The available incentives as at September 2016 are summarised in the table below. 
 

Five reasons buyers seek new dwellings: Pete Wargent

In the same way that I wouldn't buy a new investment property for the depreciation benefits due to the purchase price premium, first homebuyers should be wary of buying new solely to get their hands on cash grants. 
 
Fortunately, most young people are quite wise to this, and a larger cash grant doesn't necessarily equate to more buyers. 
 
In August, for example, the housing finance figures recorded only 6 (six!) owner-occupier commitments for the purchase of new dwellings in the Northern Territory, despite a lavish cash grant of $26,000 being available for first-timers!
 
That said, well-targeted grants do tend to be effective, as the recently revised first homebuyer statistics showed. 
 
 
Five reasons buyers seek new dwellings: Pete Wargent
 
New dwelling purchases
 
 
With such a high share of new dwellings being bought by offshore buyers, particularly from mainland China these days, the domestic housing finance figures only show a part of the story. 
 
Overall, the August housing finance commitments figures showed domestic transaction volumes for new builds holding up well, which is good news for the economy given that there is a record number of completions due over the next two years. 
 

Five reasons buyers seek new dwellings: Pete Wargent

At the state level, when the original data is plotted in rolling annual terms, it appears that volumes began to increase steadily in each of the most populous states from around 2012 when the interest rate easing cycle commenced in earnest.
 

Five reasons buyers seek new dwellings: Pete Wargent

Stay and renovate
 
Finally for today, various forecasters have long predicted a boom in major renovations.
 
Generally this makes sense as a concept, for the stamp duty thresholds for the two largest cities were originally designed with much lower purchase prices in mind.
 
As such, from the sublime to the ridiculous, stamp duty collection in Sydney has risen to what would previously have been thought of as absurd heights - the state's coffers are literally overflowing!
 
Homeowners should therefore be incentivised to stay put and renovate rather than incur the punitive transaction costs of moving. 
 
In the event there has indeed been a decent boom in major renovations activity in Sydney, but to date this has not been replicated elsewhere, and the anticipated contribution to GDP has not yet materialised.
 

Five reasons buyers seek new dwellings: Pete Wargent

PETE WARGENT is the co-founder of AllenWargent property buyers (London, Sydney) and a best-selling author and blogger.

His latest book is Four Green Houses and a Red Hotel.


 

Pete Wargent

Pete Wargent

Pete Wargent is the co-founder of BuyersBuyers.com.au, offering affordable homebuying assistance to all Australians, and a best-selling author and blogger.

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First Home Buyers New Housing

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