What drives property prices up and down?
Often investors ask: “Why are some properties cheaper than others?” That’s especially the case when two properties seem similar.
Here are the main factors that drive the cost of your New Build, up and down:
Auckland property prices are higher than in other parts of the country. The average Auckland property is about 50% higher than the average Christchurch property.
Similarly, properties in small towns will be cheaper than those in a main city.
It can be tempting to look for the cheapest property possible, but you don’t want to buy an investment in the roughest part of town. You want to attract a tenant who will look after your property so that it has the chance to go up in value over time.
2. Reputation and size of developer
As developers become larger and more well-known, they start charging more. For example, an established developer with a big team may sell a 2-bed townhouse for $650k, but a smaller developer with fewer staff might charge $550k.
You won’t automatically get more rent if you pay a higher price for a “brand-name” developer. And the value of your investment won’t necessarily go up in value faster.
That’s why we tend to prefer smaller developers with lower costs here at Opes. This means the investors we work with get a sharper price.
3. Different build contracts
Sometimes you’ll see a property on Trade Me and think, “Bargain!” It might be a 4-bed standalone in Rolleston.
But you might not realise that the builder is using a different type of contract. It’s called a “progressive payments” contract.
These have hidden costs. For instance, the property might not come with curtains or even a driveway! You’ll also likely need to pay extra interest to the bank.
These extras can total $50k or more.
The alternative is a “turnkey contract”. These types of contracts have a higher purchase price on the contract, but they come with fewer hidden costs and lower risks. This can mean they end up cheaper.
This is why all properties we recommend at Opes Partners are “turnkey” contracts. That means fewer hidden costs and less risk.