Buying a new home versus established home
Should you buy an established home or build a new one? This is a question faced by all residential property buyers regardless of whether you are a first-home buyer, an upgrader, a downsizer or an investor.
Certainly there are more incentives for buyers of new homes - especially, but not only, for first-timers.
For a start you will pay less in stamp duty, which, depending on which state you are buying in, ranges from $27,000 to $41,000 on a $750,000 established house. But with a house-and-land package you will pay the stamp duty only on the land, not the house.
So, for example, if the land component of your $750,000 house is $300,000 you will save between $20,000 and $27,000.
Some states, most notably NSW, also provide incentives for people to buy new homes. Its New Home Grant Scheme gives you $5000 towards the purchase of a new home, as long as the price is $650,000 or below or the land price is $450,000 or below. In the Northern Territory, owner-occupiers buying a new home get a $7000 stamp duty discount.
First-home buyers in South Australia receive a grant of $15,000 only if they buy a new home, as long as the price does not exceed $575,000. And in Western Australia first-time buyers are eligible for a $10,000 grant if they buy a new home but get stamp duty relief only for existing homes.
Investors who buy new will find this boosts their cash flow due to greater tax depreciation benefits, says Tyron Hyde, director of quantity surveyor Washington Brown, in his book Claim It! "Investors can claim a 2.5% depreciation allowance on the construction cost," he writes.
"Plus you'll also be entitled to claim the full amount of depreciation allowances on plant and equipment items, such as blinds, ovens, carpets and air-conditioners, which will all be brand new."
Another attraction of buying new is that the property will come with a builder's warranty, making it easier to define potential maintenance expenses. You can also customise your property to suit your needs and new properties are usually more energy efficient and environmentally friendly than older ones.
But a big pitfall with new properties is you often have to pay a premium. Developers need to make a profit so they add a margin, and often marketing costs, to the price. This may mean it takes longer for the property to grow in value.
And while you don't have to pay stamp duty on the building component of a house-and-land package, you will pay GST.
Getting finance for a new home is also more complex, as part of your borrowings is likely to be a construction loan, which will be drawn down during building when the lender is satisfied specified works have been completed.
One advantage of buying an established home is you know exactly what you are getting and can be more confident you are not paying over the odds. And established homes are more likely to be in areas with more infrastructure, including transport.
Finding an existing home is also usually much faster than building a new one. And you can add value, manufacturing more rapid capital growth.
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