Investing - new units vs. second hand?

17 Feb 2012

Second hand properties are still generally much cheaper than new ones, but new units remain a good option for many investors.

However, buyers are now aware that, measured on an average square metre basis, it is now between 20 to 25% cheaper to buy a “second hand” home rather than a new one, says Steward.

Tough economic times have tough consequences – and this is particularly evident with new residential developments, says Lanice Steward, managing director of Anne Porter Knight Frank.

“Cape developers have to be praised for the way in which, using every possible trick, they have kept their prices down.” 

However, buyers are now aware that, measured on an average square metre basis, it is now between 20 to 25% cheaper to buy a “second hand” home rather than a new one, says Steward.

Nevertheless, she says the flow of new developments to the market, although down some 60 to 70% on the highs of 2007, has by no means dried up – and for many buy-to-let investors and retirees, this is the only type of property they will consider.

Steward says she has on several occasions advised buyers to opt for a new project, especially if they are looking for a higher level of security, are not averse to reducing their living space and are disinclined to tackle the repaint or refurbishment work which are part and parcel of any home purchase if the house is over four or five years old.

Some people, she says “quite understandably” are nervous of the potentially high repair costs of an older home, but will happily pay a premium for a new unit, especially if it comes with five to ten year guarantees.

Another factor that works in favour of new units, says Steward, is that, surprisingly, they almost always buck the trend by appreciating 5 to 10% in value as soon as the scheme nears completion.  This happens only rarely in second hand homes, she notes.

“Schemes such as Rawsons’ Rondebosch Oaks or Asrin’s Melkbosch Village have all shown an ability to raise prices as soon as the supply begins to run short.”

Steward disagrees “fundamentally” with Erwin Rode, the economist who she says recently advised a wait-and-see approach to home purchasing on the grounds that a re-evaluation period is setting in (during which house price rises will be nominal and will not match inflation). "With prices and interest rates at today’s levels it is nothing less than illogical to delay buying – whatever type of home you are aiming for.” 

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