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New Properties May Not be the Best Investment at Hand

new propertyProperty investors often get confused while choosing between a new property and an established one. There is no dearth of advisers giving reasons in favour of either of them. No matter how hard pressed I am to concede otherwise, I will always root for established properties, and I have good reasons to do so.

New properties attract tenants easily

At the end of the day, choosing a property has to be a financial decision and must be backed by sound monetary reasoning rather than emotional prejudices. I had a client who was talking about how new properties were much easier to rent out. My first objection to this line of thinking is that it seems to be heavily borrowed from precedence. Let us consider certain truths of the times before jumping to any conclusion.

An erroneous thought process

The demand-supply gap is such that the rental market is always flushed with prospective tenants, and this is just as, or even more true for established properties. If you are buying a new property in an owner-occupied area, it will still be easy to rent, given that such properties are better cared for as far as consumer perception is concerned. Tenants, however, are somehow averse to renting a new, plush apartment managed by property managers. They feel they would be biting more than they can chew, and this makes new investment properties not-so-well-sought after among prospective tenants.

Tax rebates…is it really that big a draw?

Let us not even get started with the tax benefit debate. For one, the tax benefits, if diligently sought, apply just as well to established properties. If you are backed by an able Quantity Surveyor, you might get a depreciation schedule that is good enough to bring a ‘tax’ smile on your face. Add to this certain kinds of renovation projects, which can only add (and add quite well) to the tally of tax rebates.

Also, I feel that whatever owners of new properties gain through tax breaks is more than offset by the premium price they have to fork out for the acquisition.

Maintenance can still be a worry

There is also a point about maintenance given by those who advocate choosing new properties. It is not hard to understand that new properties are easy and relatively cheaper to maintain. However, new properties are generally real estate investments managed by property managers, and once the owners are not there to personally take a good look at the day-to-day running of the properties, the structure always catches some sort of ‘disease’ in the form of various problems. There’s this saying that goes, “they do not make like they used to do in the past”, and it applies ever so completely to the property world, too.

Developer margin erodes capital growth

On buying new property from a developer, there is a very good chance that you will have to pay a hefty developer’s margin.  When summed up with commission of the agent and the cost of marketing the property, that margin can truly reach a rather exorbitant value, and capital growth gets distorted in the process. What you should be otherwise gaining is quickly reduced to a much lower value by the flurry of costs.

All these are just the tip of the iceberg. Here’s hoping that you also take a lot of things into consideration before taking the “new property” plunge. Let’s just say that there are a number of good reasons why the new properties floating in the market do not hold a candle to the established ones.