What makes the best investment - a new build or an existing property? Let’s break down some of the pros and cons.

New builds

1. Tax benefits: New builds previously had significant tax advantages. However, this no longer applies now that two-year brightline has been reinstated, and existing properties have full interest deductibility restored from April 1, 2025.
2. Higher initial costs: Purchase prices of new builds are on average 6 per cent higher than existing properties. This can result in lower rental returns which negatively impacts your cash flow, and your ability to obtain lending.
3. Delayed/reduced income: If purchasing off the plan, you may face delays in construction that can affect your surplus cash flow, especially if you have a construction loan with progress payments, rather than a turn-key contract (where you pay a small deposit on unconditional date and balance of purchase price on settlement). If the property is part of a larger development (eg a new apartment building) you could be competing with many other property investors when looking for tenants, so it could take longer than usual to find your first tenant, and/or a rent reduction at the beginning of a tenancy.
4. Reduced ability to add value: You can’t add value to a new build by renovating it, so you will be relying on capital growth and debt reduction to create equity. Most new builds are also on smaller sections. Since most of the value of a property is in the land, new builds may not have as much capital growth over the long term as existing properties.
5. Exempt from RBNZ restrictions: New builds only require a 20 per cent deposit, compared to the 30 per cent required for existing properties as an investment. They are also exempt from debt-to-income (DTI) restrictions (although this is unlikely to affect your borrowing capacity until interest rates reduce further).
6. Maintenance costs: New builds may have fewer maintenance issues in the first few years, however, the building code does not require that the property meets healthy homes standards for tenancies.
7. No asbestos: Properties built prior to 2000 may contain asbestos. Therefore, with new builds you will not need an asbestos management plan for any future renovations.
8. Builder warranties: Many new builds come with a 10-year builder’s warranty, which can offer some peace of mind.
9. Developer liquidations: This is a significant concern in the current economic climate. In this scenario, you may lose some/all of the money you have already invested in the purchase.

Existing properties

1. Lower purchase price: You can potentially purchase the property below its current market value, especially with motivated vendors. This enables you to ‘make your money when you buy’ instead of waiting for capital growth.
2. Established locations: This can make it easier to determine the market rent and the market value of the property.
3. Opportunity to add value: Existing properties can allow investors to increase value and/or rental income, instead of relying purely on capital growth and rent increases. A newly renovated property can also reduce your repairs and maintenance costs for the first few years after the renovation, as per a new build.
4. Immediate income: Rental income can begin as soon as you take ownership (if you take on an existing tenant, or if you are able to find a tenant to move in upon settlement date).
5. Maintenance costs: Issues like outdated wiring, plumbing, or roofing can be costly to fix, and in many cases do not add value to the property. This can be checked during your due diligence prior to purchase.
6. Compliance costs Some older homes may need upgrades to meet the Healthy Homes Standards, although this can also apply to new builds.

Final thoughts

Not all properties make good investments, and although you might be able to borrow enough to purchase a property, that doesn’t mean it will be a good investment for you. It is important to note that there are many companies with significant vested financial interest dedicated to selling new builds, many of whom use high-pressure sales tactics. If you want to learn more about property investment before making a decision, join me online for one of our upcoming free events. ν

Property Apprentice is the market leader in property investment advice. It is run by experienced coaches and financial advisers to give you the best support possible, to help you realise your goal of financial freedom. Visit propertyapprentice.co.nz, email info@propertyapprentice.co.nz or call 09 575 7736