Pros and Cons of New Homes as Property Investments

There are significant benefits of using a new home as a property investment. New homes as property investments eliminate many of the issues that are common to investing in older properties (maintenance and repairs) - but they are not without considerations that can affect returns in the short term. 

Whether you’re a first-time investor or looking to add to your existing portfolio, here’s what you need to know about choosing a new home for investment. 

How does a new home work as an investment property?

Buying a newly built residential property for the purpose of investment works the same way as purchasing an existing property. Investors who purchase a new home for investment can lease out the property (once it is built) to prospective tenants in exchange for a consistent supply of rental income. 

On top of the expected gains from renting out a new home, there are other concessions that a new home can offer over an existing property. Namely, the exemption from payable stamp duty on the value of the home, as well as a period of warranty covering any issues in the first seven years. 

New homes in developing regions also have the potential to appreciate over a long term as the improvements in local infrastructure (e.g. roads) and increased accessibility to amenities (e.g. schools, medical facilities) are put into place.

A new home investment is possible through:

• House and land package – both the property and the land it sits on are purchased together in the same package. The new home’s design can be chosen from a selection of options from different builders, based on personal preferences and investment goals. Some builders offer investors help in finding potential tenants to occupy the home once complete. 

• Building a new home – investment funds will be used to finance the cost of building the new home. Investors work with building designer or architect to shape the future property according to their vision. 
• Off-the-plan properties – similar to house and land packages, but with a lower level of customisation and no requirement for a construction loan. Investors are only required to pay the deposit upfront and the outstanding amount once the property is complete. 

Pros of purchasing a new home build for investment 

Low maintenance costs

New home builds are new, which means little to no maintenance required within the first few years following completion! 

Attractive to tenants

New homes are ideal for tenants – they are easier to keep clean, maintain, and offer new and advanced appliances. The average new home is also more energy efficient than older homes. A recent CSIRO study found that newly built homes featured up to 50% more airtightness compared to homes tested in 2015, which contributes to a lower need for heating or cooling appliances to keep the home comfortable. 

New home builds also typically feature modern home layouts and designs which drive up demand among those looking to rent, offering a higher potential for a favourable rental yield. 

Lower cost of investment 

Investing in a new home build allows buyers to save on the dutiable costs usually associated with buying a property. Stamp duty for a new home build (like with a house and land package) is often only payable on the cost of the land.  

There are also opportunities to claim tax deductions for a new investment property home build. Depending on the value and state of the newly built property, investors can claim depreciation on internal fixtures and fittings down the line, which result in cost savings. 

Opportunity for customisation

A new home build presents a blank slate, giving investors more control and freedom over the type of property they want to have for investment.  

Considerations for investing in a new home build 

Time for construction and tenancy

Building a new house will require a construction period before it can start to deliver returning value. Estimated timelines for new home builds are between 6-12 months, during which the investment will not “perform”. There’s also a consideration for the time it takes to find tenants to occupy the home after it has been completed. 

New home build investments in developing regions

For investors looking to maximise the long-term value of their new home build with significant capital growth, regional and developing areas offer prime potential. New homes in developing communities feature lower initial costs that have a huge potential to grow along with the region.  

Take Townsville, North QLD for instance — since 2020, it has had a consistently low vacancy rate of under 1%, signalling a huge need for new homes. The Townsville Council has been actively pushing for the development of new housing, with over 2,000 additional lots being approved for residential development. Naturally, this presents investors with a unique opportunity to invest in a new home build in the rapidly expanding city.