18th of November 2014
It is the age old question in real estate particularly for First Home Buyers, should I buy new or should I buy an established property? The answer in reality will be different for everyone and will largely depend on what you want out of your investment and the stage that you are in within your investment or personal life.
At Nostra Homes we are a builder here in Melbourne that sells and constructs new property only, so remaining impartial in this discussion is somewhat of a challenge and we would look silly trying to do so. However, while we want potential buyers to purchase a new home and ideally through Nostra Homes it may not be the best decision for everyone so lets take a look at some of the positives and some of the things to consider when buying new versus established property.
Some of the Positives:
There are many positives of buying new versus established property and these include;
Stamp Duty Savings
Stamp duty is a tax imposed on the sale of real estate. The purchaser of a property must pay stamp duty associated with the purchase wihin 30 days of settlement of the property and this usually amounts to thousands in additional costs which usually are added on to your mortgage.
One of the key benefits of buying a new property off of the plan (generally how house and land is purchased) is the benefit of saving on the stamp duty costs associated with purchasing real estate. Purchasing new property in Victoria results in the buyer only paying stamp duty on the land component of the purchase - if a potential buyer was interested in purchasing an established home they will be slugged for stamp duty on the entire contract price.
So how does this work? Say you have a $450,000 budget to spend on a house, if you were to purchase an established property in Victoria today for $450,000 you will be charged $18,970 of stamp duty on the contract price taking your total expenditure on the property to $468,970, which is a big increase on your $450,000 budget. If you were to take this $450,000 and purchase a yet to be constructed home (off of the plan) you would only pay stamp duty on the land component of the total contract price. For example if the land component was $200,000 and the construction cost $250,000 (totalling $450,000) you would only pay stamp duty on the land and this would total $6,370 in stamp duty payable. That is a saving of over $12,000 on stamp duty as a result of buying new versus established, that is a large amount of additional money to borrow.
Adding your own touch
Another benefit of buying new versus established is the ability to add your own touches to the property up front and not have to worry about expensive renovations to make the home exactly what you want it to be. Some builders including Nostra Homes allow purchasers to custom design their own plans or make changes to exisiting plans in order to arrive at the home that suits the buyer and their living requirements right from the start. This includes picking the finishes of the home such as the perfect tile, the perfect kitchen and the ideal ceiling height.
Cost effective particularly for first home buyers
Buying new generally results in you the buyer receving more for less. As many of Melbourne's new communities aim to attract young families out to what is known as Melbourne's growth areas, what results is affordable house and land offers that deliver generous sized homes and allotments for a fraction of the price that you would pay in more established areas. A $450,000 budget would result in you receiving a bigger home in the new suburb of Plumpton than it would in a more established suburb such as Thornbury where a similar budget would not get you very far.
The time value of money
One of the things to remember when buying new is the potential to save more money while you wait for land titles to be delivered. If you buy a house and land package off of the plan generally speaking there will be a period of time that you will need to wait until you need to pay the final settlement cost of the land and the subsequent progress payments during the building process. When purchasing new you will initially pay a 10% deposit to the land developer for the value of the land and a 5% deposit to the builder for the value of the house and sign contracts for both. In most instances the land will not be titled or ready to settle and build on straight away, with waiting periods to settle the land anywhere from 6 months to 12 months. So while you have paid your initial deposits you may have a nice period of time in which to save more money until you are required to settle on the land, commence progress payments and start paying your mortgage. This is a real plus particularly for young buyers.
Some of the the things to consider:
While there are many positives in buying new versus established there are also a number of things that buyers should consider including;
The construction process and length
The time from when you buy a new home off of the plan to when you move in can be lengthy and can vary from buyer to buyer. Firstly unless you have purchased a block of land that is already titled (ready to build on) you will need to wait until the block is ready to build on or is titled. This length of time can vary from development to development and can be affected by things outside of a land developers control such as weather. If the civil construction of the land occurs during winter the delivery of your land title may be affected due to adverse weather and machinery not being able to get on site and construct the land. Once the title is delivered it is then a matter for the builder to get on site and construct the home. This process can take anywhere from 14 weeks up until 6 months or more depending on the design of your home and the complexity in building it. Rest assured both the land developer and the builder want this process to be as stress free and as quick as possible for you while still delivering the outcome that all parties require, as delays in delivery of both land and house affects not only the buyer but the builder and the developer too as they can not finish the job and receive final payment.So it is important to be prepared for the time it will take and potential delays outside of everyone's control when purchasing a new home.
New areas not as established as older suburbs
While this sounds very simplistic it can be easily overlooked. When you are building a new home in a new area it is important to remember that many of the amenity is continually being built around you as you move into your new home. Things like shopping centres, gym facilities and transport links may not be ready at the time you are ready to move into your new home and you initially may have to travel a little further than you would in more established areas to access these services. So make sure you understand the new area before you make the commitment and make alternative plans for your weekly shopping and exercise requirements just in case the new shopping precinct or gym that is planned isn't open in the first few years.
We hope that this has given you a bit more of an idea on some of the good things and things to consider when buying a new home particularly in a new area, if you have any more questions regarding the process of building and buying new and how you can manage it please don't hesitate to give us a call or send us an email.
The Team at Nostra Homes.
Should you believe Nostra Homes and Developments rights have been infringed, we encourage you to advise us. Should we successfully pursue the matter and be compensated, there will be a $5,000 reward.