The property market is bounding upwards at a rapid rate, introducing the perfect environment for spruikers, property weirdos and downright lies to fester and flourish.
Sellers and buyers become victims as this sinister element creeps through the industry and most won’t feel the financial wounds until it’s too late to save themselves.
Making matters worse, in their bid to help first time buyers even the Government is helping to trap people into a lifetime of financial hardship.
Protect yourself
In this market, buyers will take the greatest hit as spruikers masquerading as buyers agents amp up their marketing to flog their over priced, poorly constructed, badly located, under performing properties.
Outlined below is a list of the most common lies you will be told about ‘new’ property. You can protect yourself by recognising the bad operators and their lies, and knowing how to validate any information presented to you. Full disclosure . .there’s more than five top lies listed but I like to exceed any promises I make.
Top 7 bullsh_t claims about new property
- Purchase price – always do a price comparison when presented with a property. Use the portals to see what other properties in the area sell for. Usually you will find you can buy a property close by for a lower price. If you can’t find any comparable sales because it’s a ‘new’ suburb set in a greenfield area . .run – hard – in the other direction.
- Using grants and stamp duty exemptions will mean you’re saving money – once again, a simple comparison search will throw light on the pros + cons of the grants. For example – first time buyers can access $50,000 worth of grants buying new property in new suburbs. But if the full purchase is $750,000, and you can buy a great property in a better area for $650,000 . . a $50,000 grant is useless to you.
- You can use depreciation to put money in your pocket – you’ll often be given lovely spreadsheets showing all the ‘money’ you can ‘make’ through depreciation using negative gearing on new property. What you won’t be told is (a) if you want to sell the property at some stage, all that depreciation has to be paid back. (b) if you lose your job or want to take a work break, your ability to depreciate your property will cease because you won’t be paying tax at the original rate and (c) you will be left to make extra payments because the property doesn’t cover its full costs (d) if you don’t face hardship and have to sell . .you’ll be buying with plenty of others who might be forced to sell and that will drive down the value of your property.
- Forecast capital gain – if you’re lucky you be advised of a ‘conservative’ 5% capital gain and the floggers will guarantee this. Firstly, why buy in an area where there’s only 5% cap gain when you can get 10% everywhere else, secondly, check their guarantee . .it usually has so many caveats (requirements) that you will never be able to hold the marketer to their guarantee. Thirdly – understand that prices are a result of the demand v supply equation – if there’s lots of properties in the area on the market there will be nothing to drive prices up . . ever.
- New property will attract a better tenant and they will pay a better rental – tenant quality is more dependent upon location, so if your property is located a long way from transport and coffee shops, then you’ll have limited chance to attract any tenants, let alone ‘better’ ones.
- Rental guarantees ensure you won’t be out of pocket – often property floggers will hype a ‘rental guarantee’. This issue alone is a red flag because properties that need a guarantee are properties that don’t have evidence of good rental demand. Even worse though – you will find the guarantee has conditions attached to it including a requirement that you use a particular property management company. Any requirement that limits your control will limit the current and future value of your property.
- New properties require less maintenance =in many cases, new properties can have more issues for owners to deal with, particularly in relation to poor quality materials and building practices. Just ask any property lawyer about the extensive issues they see coming across their desks. Don’t believe me? Check out this story regarding the issues new property buyers deal with. Trouble in Property Paradise.
The things they don’t tell you
- Zero to meagre capital (price) growth – as soon as you buy your ‘new’ property, it’s no longer ‘new’ and will therefore be in a different re-sale market when you want to sell. It won’t attract the grants and incentives that you may have used to make your purchase, so anyone considering the area will want to buy in at a lower purchase price.
- Zero ability to add value – new properties are usually built on such tiny blocks there will be no opportunity to add value or change the use. Ever.
- Rare capital growth – capital growth in new areas is rare because builders will continue to add new properties to the area, and those are the properties people will buy. Basically, the supply of properties can always meet or exceed the number of people wanting to buy in the area, so prices for newly constructed properties will remain low.
- Rental demand will be limited – firstly, your new property will appeal to only a small sector of the market, and secondly, because there’s lots of properties just like yours in the area, you will need to compete to attract the tenant. So . .no rent rises for you.
- Community and transport infrastructure will be non-existent – if you’re early into a new development, you will be waiting for shops, schools, medical centres and transport to reach you. Sure, you’ll be told the infrastructure is coming . . but it will more than likely be at the tail end of a development. There’s a significant number of developments currently being sold stating that a new rail line will be coming, but just a kilometre away are established suburbs with the train already running. Just a quick google search will show you the real story.
- End results may look nothing like they have promised – sure you might be able to walk through a display home . .but unless you’re buying that property – not just the floor plan, you have no idea what yours will look like until it has been built.
- Your funds will be tied up until the property is finished – you’ll be told this will give you more time to save, but if your property decreases in value – like so many people have been experienced in the past – then you’ll be tied to a contract that will sink you before you even get a key. If you buy an established property, you will start generating equity immediately and could mean you can buy your next property within 12 months.
- You can still use depreciation if you buy an existing property – often the new property floggers will show you the difference in depreciation between new and existing properties. You can still depreciate items – such as a granny flat or renovation materials – on an existing property and you’ll probably end up with a better equity position after the works.
The reality
Any property purchase should be made with your eyes open. It’s important to validate any claims that have been made, particularly if a property is being promoted to you as a ‘great deal’. Never let anyone pressure you into making a decision on the spot and always ensure you have any contracts reviewed by an independent solicitor prior to signing any documents.
Doubts? Email me with your questions and I’ll be happy to help. There’s no doubt you will have multiple ways to validate any advice I give you.
About the author
Debra Beck-Mewing is the Editor of the Property Portfolio Magazine and CEO of The Property Frontline. She has more than 20 years’ experience in buying property Australia-wide and has extensive experience in helping buyers use a range of strategies including renovating, granny flats, sub-division and development. Debra is a skilled property strategist, and a master in identifying tailored opportunities, homes and sourcing properties that have multiple uses. She is a Qualified Property Investment Advisor, licensed real estate agent and also holds a Bachelor of Commerce and Master of Business. As a passionate advocate for increasing transparency in the property and wealth industries, Debra is a popular speaker on these topics. She is also an author, podcast host, and participates on numerous committees including the Property Owners’ Association.
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Disclaimer – This information is of a general nature only and does not constitute professional advice. We strongly recommend you seek your own professional advice in relation to your particular circumstances.
