New Builds vs Existing – What goes up in value faster?

One of the most common questions investors ask is: “Do new builds go up in value as fast as existing properties?”

After all, New Builds aren't new forever.

So, the same way that a brand new car falls in value the moment it drives away from a dealer's parking lot. Surely new builds don’t go up in value at the same rate?

That's what we'll explore in the article.

You'll learn how New Build properties go up in value compared to existing properties.

If you have any questions or thoughts, please leave them in the comments section below.

What is a New Build?

A New Build is a brand-new property purchased from a developer. So you’ll be the first owner.

Generally, it means you only need a 20% deposit. You'll also pay less tax under the 'interest deductibility' rules.

But the day you pay for the property, it becomes an existing property.

Once that happens do they go up in value?

New Builds vs Existing – What goes up in value faster?

There is no clear data to measure the value increase of a New Build compared to an existing property.

This is because New Builds become existing the day the property changes hands.

So, the data is unclear. Don’t worry we’re trying to get some better data.

So instead, let’s look at examples of New Builds to see how they’ve gone compared to the wider market.

Here are 3 case studies:

#1 – A New Build that increased in line with the market

In April 2017 an investor purchased this 4 bedroom, 2 bath, New Build standalone house. It's located in Tauranga and the price was $685k.

The property took 10 months to build and finished in February 2018.

The investor sold the property a few years later due to a change of circumstances.

They got the timing right and sold at the peak of the market (November 2021) for $1,020,000.

Yes, that means they made $335,000 from the property going up in value. They sold the property for 49% more than they bought it for.

That works out to be 9.1% per year.

Over the same period, the average value of properties in Welcome Bay increased by 52.8%.

So this property increased at roughly the same rate as the rest of the market.

#2 – A New Build that did much worse than the rest of the market

But, here’s a New Build that did worse than the market.

One investor purchased Unit 612 in the SugarTree Altro, Auckland.

It was a 1 bed, 1 bath apartment with a car park.

According to Property Guru – a piece of software built by Core Logic – the investor bought it for $641,500. That was back in July 2015.

Since then apartment prices in Auckland have gone up 12.2% in the following 8 years.

That’s not a lot.

If this apartment went up in value in line with the market, it would be worth $720,000 today. The investor would have made about $78,500.

According to Property Guru the property is currently worth $615,000.

But even using this higher amount, this New Build has underperformed the market by $105,000.

Not only that, the apartment is worth $26,500 less than they paid for it. That’s after owning it for 8 years.

This is an extreme example of what can happen with properties. And I’ve chosen it as an extreme example of what can happen if you buy the wrong property.

#3 – A New Build that did better than the market average

In 2017, an investor signed up to pay $525,000 for a dual-key apartment in Wellington.

A dual-key apartment is where you have two apartments in one property.

In this case, there was a 1-bedroom apartment and a studio apartment.

The developer expected the build to take 2 years. But construction lingered during Covid-19 lockdowns. It ended up taking 4 years in total.

By the time the property was settled (4 years after signing), it was worth $840,000.

And the investor had made $315,000 just while the property was being built.

At the peak of the market (late 2021), this home was worth up to $1,000,000.

But, since then Wellington house prices have fallen in a big way. Wellington City property prices are down 24.4%. Apartment prices are down 27% from the peak.

Today the property is worth $725,000 according to OneRoof. This means the investor's property has increased in value by 38%.

But, Wellington City prices have gone up 28% since the investor bought the apartment. Apartment values across the city have only increased 6%.

If this property followed prices for all of Wellington City it would be worth $672,000. If it followed apartment values in the city it would be worth just $557,000.

So this property has gone up by at least an extra $53,000 compared to an average property at the same price.

Do New Builds go up in value faster than existing properties?

New Builds comes with a range of benefits:

• They require lower deposits through the LVR exemptions,
• They pay less tax through interest deductibility and the bright line test,
• And they are exempt from the potential debt-to-income ratios

These three case studies show that the amount of capital growth you get depends on the property you buy.

Some New Builds will go up at the same rate as existing properties. Some will do better. Some will do worse.

That’s why you’ve got to buy the right property, in the right location, at the right time.

This is the same if you were to buy an existing property.

This is why, here at Opes Partners, we focus so much time on trying to find quality deals in the right locations.