New House & Land Packages – Misconception?

great question. you need to look at a h&l proposal and compare it to existing stock to see if it is value for money. yes new properties may go backwards in price a little for a couple of years, but if you have made an upfront immediate capital gain on completion then you need to consider the 2 in context. in a rising market such as WA where you would probably be looking (if you can find a package available somewhere) then it is unlikely that it will retreat and the cap growth will continue forwards anyway. there is IMO too many variables to answer this question simply. I reckon if you make an immdeiate cap gain then it must be good. after that you are at the mercy of the markets. so if you are in a good market you will be fine, with a house that has higher depcn write offs and hopefully less maintenance.

of course the prob with h&l is that you are exposed to the buildign delays and with trade shortages as they are you may be better off just buying somehting off the plan and let someone else deal with the headaches. when you go to settle you may have enough equity to not have to put any cash into the deal.

INVESTMENT SALES * RENTAL SOLUTIONS * STRATA MANAGEMENT

Hi swampy30,

You are allowed to claim depreciation on a dwelling. The percentage rates are the same, generally speaking, but the gross dollar figures that you can claim are higher for new builds as, obviously, the physical components that make up the house are newer and therefore a larger percentage of what you pay for the title deed that the house sits upon.

There is a good reason why the Govt allows you to claim depreciation on the materials that go into making the house a house. It recognises that the components are depreciating…i.e. going DOWN in value. They allow you to claim this as they assume that one day down the track you are going to have to fork out and buy a new gadget to replace the old gadget that’s worn out.

It’s also the reason you need to give the claimable depreciation back via CGT if you sell the place and you’ve been claiming it, ‘cos you didn’t replace the ‘stuff’, and inside palmed it off to the next investor….or at least that’s my understanding of it…not 100% on that bit ??

This is pretty basic stuff and probably everyone is going….yeah…errr….derrr, but sometimes the fundamentals get tangled up with the high tech stuff.

The stuff that’s going UP is the dirt underneath. To my way of thinking, the greater percentage you can pour into this stuff, viz. better location or more of the stuff, tempered by still earning a decent income from the title, the better you are.

Hope that helped ??

Speaking from experience areas of expansion that are all basically H & L
stall in the years following development.

May perform strongly during the build and shortly after but during the next cycle stall.

Cherrybrook in Sydney NW was a premium H & L area in 80’s. Since early 90’s many of those same houses have not doubled in price (actually very few have ). Think same for Illawaong / Menai
in South.

Will be same for Kellyville, with some houses (less than 4 yr old ) now on the market for below replacement cost.

Yep premium for that wood and glue smell, but adjusts later.

We all have to start somewhere mate. Guys in Capricorn (lucky devils) have got on at ground level, banking on this WA market continuing to do well in the next couple of years so when it comes time to settle next year, land will already be worth what they paid for + profits. Decision is yours whether you want to take that risk like purchasing OTP. However note that these guys are NOT first time investors so they must have all done their due diligence. If I lived in Perth, would’ve driven up there to reserve one too but you have to weigh it up yourself: building costs would be higher this time next year plus another 6-8 months to build or maybe longer with no rent to support and if the WA market stalls in 07, you will be left with very little equity to make up for it. The Capricorn development is unique in that the developers won’t allow you to flip the block so investors will have to be in it till house is built.

From what GMH454 is saying, the stalling could easily occur in WA too. Thise who have made $ are those who got in early and took a punt on the estate doing well in future. Most of these older estates have been around for a few years but it wasn’t until the last couple of years that prices have gone crazy as land becomes scarce.

So in answering your question of what the risks are – at this current cycle, plentiful. Land is getting very expensive and so are building costs. Rents will barely cover your holding costs even after depreciation benefits. So you want this market to keep powering along if you were to take on a H&L project. Research the estate as theres no shortage of land in WA. At the end of the day, you’ll just have to take a punt like the rest of us. Good luck.

Hi,
The posts above contain lots of good stuff. I’ll add:

1. H&L packs have a much lower stamp duty as you only pay for the land component.
eg: I bought a H&L for a combined $260k and saved about $13k in stamp duty because the land was only $87k
2. On the otherhand, while maintenance costs are basically nill there are a whole slew of extra “hidden” costs: driveway cross-over, landscaping, holding costs during build, letterbox, numbers for your letterbox, cleaner for before tenents move in etc…

It can be a bit of a gamble in that if you get in really early (pre-release) you can take the initial surge of cap gain when the estate takes off in later stages or… it may not take off and you have to wait 10-15 years before the area is sufficiently developed to be attaractive as an established house.

The house I mentioned above was bought with a 10-15 year timescale in mind while also buying in pre-release. Time will tell how good an investment it is.
Surrey.

“Research the estate as theres no shortage of land in WA”

Hi asdf… I thought about this comment as I was walking down the beach tonight without a soul around me. I was thinking that beachfront land really isn’t scarce in Oz, after all there’s millions of miles of the stuff in this country. The key thing is – how much of it is accessable and serviced ready to build on? WA is a vast state, but love nor money won’t find you a titled block at present, nor the foreseeable future.

INVESTMENT SALES * RENTAL SOLUTIONS * STRATA MANAGEMENT