Purchasing brand-new properties can be risky

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Investors might be attracted to buying brand-new properties because of government-initiated incentives, but it’s a decision that can have consequences, said a buyer's agent in Brisbane.

"There are benefits for government to incentivise brand-new properties because, of course, the building and construction industry is very important to our economy and various levels of government make money through new development through costs such as local infrastructure charges, stamp duties and GST, for example," Melinda Jennison, Brisbane buyer’s agent at Streamline Property, told Your Investment Property.

Brand-new homes are commonly situated in new land estates, which are most often located on the fringes of capital cities. In these areas, numerous lands are available. It follows that an ongoing supply of new dwellings is assured for many years.

The setup also often means that capital growth is stagnant, and investors find that they see very little growth in the value of their property for several years, according to Jennison.

Investors who are looking for a capital-growth strategy, then, may be disappointed.

Investors who are looking for a cash-flow strategy, though, may take advantage of the situation. Because the property is brand-new, there are huge depreciation benefits.

Jennison said that the yield on brand-new properties is often higher than on established ones. This is because people will pay slightly higher rent for a new property when all else is equal.

In the end, keeping a strategy in place would help investors.

"If an investor is looking to create long-term wealth through compounding capital growth, then I could recommend steering away from brand-new properties.  But for an investor looking to make short-term income from their investment property, then this may be a good investment strategy," Jennison said.

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