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

New and existing properties go up in value at a similar rate.

That be a surprise to some Kiwis. Many believe that new properties (like cars) lose value after they are built.

So you might think, “If I buy a brand-new property today, it won't be worth as much tomorrow because it's no longer new.”

I wanted to see if that was true.

Just before we get into it, you need to know that here at Opes Partners, we recommend New Builds to investors. That’s how we make money.

So there’s an incentive for me to be biassed and say that New Builds go up in value faster.

But I’m not going to do that. Firstly, because it's not the truth. Secondly, because we got the data from CoreLogic. They've got their podcast and will call us out if we lie about what the data says.

So, I’m going to present the data in an honest and balanced way. That way, you can make an informed investment decision about what’s right for you.

New vs existing: What goes up in value fastest?

Here’s a graph that compares how fast New Builds went up in value compared to existing properties.

This compares every property that was a New Build in 2008 with every property that was an existing property in that same year. This is for Auckland City.

The first thing you notice is how similar the two lines are.

Existing properties pretty much go up and down in value at roughly the same rate as new ones.

What's important to see is that in 2009 (year one), New Build properties increased in value by 6.4%.

We don’t see New Builds immediately decrease in value. There’s no evidence of "the car effect".

Of course, there are times when existing properties go up in value faster. In the 12 months to 2011, existing properties went up by 5.6%. Compared to the New Builds, which went up by 1.8%.

Other times, we see the opposite. In the 12 months to September 2014, New Builds went up 11.6%, compared to existing properties at 6.6%.

When you average it out, existing properties beat New Builds by about 0.6% per year in this example.

That means that if existing properties were increasing by 8% per year, New Builds went up by 7.4% per year.

There's very little in it.

Some people would say, "Case closed. We have the answer." However, the data above comes from just one city and just one year. So we need to look at other years and cities, too.

What about in Christchurch?

Here’s how new and existing properties compare in Christchurch. Again, this is every New Build in 2008 vs properties that were existing in 2008.

We see a similar trend where New Builds and existing properties basically go up at a similar rate.

But in this case, New Builds went up faster. They won by about 0.2% a year.

Again, there are times when existing properties are going up slightly faster. That was in mid-2013. Other times, New Builds went up in value faster.

How is this “new” data?

The trouble with comparing new properties versus existing is that New Builds don’t stay ‘new’ in most data sets. A New Build in 2008 is an existing property in 2009.

So, most data providers didn’t have what we needed.

For this data, CoreLogic looked at all the properties that were newly built in 2008. Then, they tracked their value every month (even if sold) and noted the annual change in value.

So, even if a property has had multiple owners since 2008, it doesn't matter. The team managed to track it as a New Build or existing property.

This means we can compare all the properties that were new in one year with all the properties that were existing in that same year.

What is this data missing?

No data set is perfect …

Because I love to be transparent, let’s talk about what this data isn’t taking into account.

#1 – Location

Location matters. We know that property prices in some suburbs increase in value faster than others.

Let’s say a whole heap of New Build houses were built on the outskirts of the city.

Does this data tell us about the growth of New Builds? Or does it tell us more about which suburbs they were built in?

Maybe if you bought a New Build in an inner city, you might get more capital growth.

#2 – Renovations

A big difference between New Builds and existing ones is the ability to renovate. You can renovate an existing property to increase its value.

However, this data only looks at the value change in the properties.

Let’s say you bought a $500k property that you renovated and sold for $600k.

In this data, that would look like $100k in capital growth. Even though it isn’t.

So this means that the data for existing properties is biased upward. Some of the increases in value for existing properties will come from renovations, not natural market movements.

#3 – Maintenance costs

Existing properties have more maintenance costs than a New Build.

A New Build might have $500 for maintenance a year. An older property might need $1000 - $1500 in maintenance per year.

If we’re talking really old properties, you should keep at least $3000 a year aside.

So, in some cases, existing properties might go up in value slightly faster (0.6%). But if you’ve got to pay a bit more maintenance, you might not be any better off.

#4 – Government regulations

Government rules and regulations will have an impact on property portfolios.

For example, debt-to-income ratios (DTIs) are about to come in (July 2024). These new rules will make it easier to invest in New Builds rather than existing properties.

Loan-to-value ratios (LVRs) say investors need a 35% deposit to buy an existing property. But New Builds are exempt – you only need a 20% deposit.

So with New Builds you can buy more properties and get a similar capital growth rate. For some people, that will make them a better investment.

Is this what I was expecting?

Nick from CoreLogic looked at this data and said to me: "I'm not sure this data shows what you want."

He thought we wouldn’t want the data unless we thought New Builds would "win". That way, I could tell everyone to buy New Builds. After all, that’d be better for our business here at Opes.

But that’s not why I got this data.

Honestly, it showed me exactly what I'd thought for a long time. I was just never able to prove it. New Builds and existing properties go up at a similar rate.

Properties don’t go up in value because they are New or Existing. Other things matter –

• Whether the property is in an undervalued area
• How many bedrooms the property has
• Which suburb the property is in
• What your tenants are looking for in your area

So focus more on those things rather than whether a property is a New Build or existing property.

What should I buy – a New Build or an existing property?

In terms of capital growth, there is a small difference in favour of existing property.

If the capital growth is the same or similar, then the decision is not about what goes up in value faster. It’s about the right investment for you.

If you’re the type of person who wants a more hands-off investment, then New Builds could be the right fit for you.

But if renovation is more your cup of tea, then you’ll stick with existing.

The truth is, yeah, there is a little bit of a difference. But probably much, much, much smaller than people think.