- April 24, 2024
- Posted by: legaleseblogger
- Category: Related News
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## Understanding Property Appreciation
In the realm of property ownership, it is commonly acknowledged that land appreciates in value over time, while the actual structure built on it tends to depreciate gradually. This distinction is crucial to consider when making long-term investment decisions in the real estate market.
## Strategic Investment in New Build Townhouses
There is a growing trend among prospective homeowners to invest in new build townhouses as a means of entering the property market and establishing a foothold. The strategy often involves leveraging the equity gained on these properties to eventually transition to a more desirable “Forever” home.
However, it is worth noting that new build townhouses typically offer limited land space, with a significant portion of the property being occupied by the depreciating building structure. This raises questions about the potential for appreciation compared to traditional standalone houses with larger yards, which are often seen as more desirable long-term investments.
## Making Informed Real Estate Decisions
In light of these considerations, individuals may need to reevaluate their approach to property ownership and weigh the benefits of getting “on the ladder” versus patiently building towards their dream home. This is particularly relevant when factoring in the high costs associated with real estate transactions, which can significantly impact overall investment returns.
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****** just grabbed a
There was a study in major cities (Auckland/Wellington/Christchurch) someone linked in yesterdays post.
While stand-alone houses had the greatest capital appreciation over the last couple of decades out of houses, townhouses, and apartments, the difference between houses and townhouses was very marginal.
So I think a townhouse is still a decent way of getting on the ladder.
If I could find the right townhouse, I’d happily live in one a long time. They are a great first home, generally being newer than the average unit and with lower maintenance costs. They tend to keep their value a lot better than apartments and if they have a strong residents association or body corp, you can have more control over antisocial behaviours nearby.
Sadly I can’t walk distances from badly designed car parks or climb stairs, or I’d happily be living in one in a decent complex.
The other upside is, if you can get a new townhouse cheaper than a standalone house, then the whole time you are living in that townhouse you are paying your mortgage off and not someone else’s.
Combined with being a new build so should be little to no maintenance costs for the first few years, and have modern insulation etc so it will be warmer/dryer/healthier as well as more energy efficient (typically smaller area to heat/cool).
All this gives you security of your costs/living situation until you are ready/able to take the next step to the house you want (if you decide you still want a house after living there of course).
Looked at buying a 3 bed apartment in city fringe Auckland in 2013. Was warned it wouldn’t appreciate. It was selling for $325K. Sold in 2021 for $750K.
Location will be a factor, not just land.
Interesting comment. For those of us from the UK originally (I have been in Nz quite a long time now and have kiwi citizenship) the first step on housing over there was to buy a terraced house. Nice and cheap, low maintenance etc . I have relatives across there who have been happy to stay in their terrace and have paid off their mortgage a long time ago and have had a fairly stress free time in regards to housing costs. I think in NZ we collectively have been a little (that may be an understatement!) obsessed with ‘must have land, must get a bigger house with more land, must buy a rental’ ladder thinking. I have a modest house and no way do I want to spend more time than I already do either carrying out or arranging maintenance. I think a townhouse does have advantages in this regard like a terraced house
I brought a townhouse ‘off the plans’ in 2021. Developers were communicative, it was completed within schedule (14 months) , I received 10k from KO, it’s warm and have spent exactly $0 on maintenance in 3 years of ownership. It’s small, but comfortable and will make a good rental later on.
I would say that in general stand alone with more land may potentially appreciate better. But you could have to spend more in maintenance and repairs. Lawn and garden as well.
For a townhouse to “get on the ladder” could be less cost with maintenance and repairs. Additionally a townhouse may have better potential as an investment/rental in the future when you move on to another dwelling (if you don’t sell). Possibly better location, lower maintenance etc, a renter will probably care less emotionally about land, lawns and such.
The land appreciates, but what do you appreciate?
They both have their pro’s and con’s.
In Christchurch, some completed new builds are going for 100K less than what I paid at the peak (last one available in a development of 7, etc). There could be some relative bargains out there in this market.
Absolutely, our first place was a townhouse. Sold after 2 years for 15% profit.
Its a great place to start.
I believe you’re right, the land will appreciate less. Meanwhile, interest rates are very high so you’d be paying more in interest and other costs than if you were renting.
You can’t take studies from the last 10 years of very low interest, super high land value growth and apply them today.
I think if your financial position was the only factor, continuing to rent until you can buy the house you want is the better option.
With an older house you spend more on maintenance with these new houses you lose to depreciation, pick your poison. I’ll say it again and again what matters is the price you pay relative to what you are buying. Your tradeoff is also how large your mortgage should be.
If williams corporation are forced to mark their units to market and then go broke you may start seeing good prices on these townhouses so that the rent vs own equation looks good.
Similarly the NZ banks would also likely be in negative equity if they were forced to present realistic statements of their financial position.
older townhouse works too, they usually have bit of land like 300sqm and don’t even share a wall.
They’re always going to be attractive to investors somewhat since they comply to the healthy home standards and are easy to rent out – very appealing to young renters since they are warm and low maintenance, especially if they are close to CBD. Not everyone wants a huge backyard
My partner and I bought a townhouse (off the plans) as a first home with the full on intention of it being somewhere we lived for 5-6 years, so we could build equity.
We recently moved into a standalone house which is likely to be our forever home.
We made 8% per annum on the purchase and sale of our townhouse.
There are a lot of things we didn’t know about, but by being actively involved in the Body Corporate we are now better positioned (i.e. developing a long term maintenance plan) for our own house.
Our view is that we knew were not moving into a house like our parents currently have, it would be a journey to get there over time.
It worked for us. Mileage may vary for other people though.
Generally houses with land appreciates more than townhouses. But it is all relative: location, quality of the house, size, etc. At the moment it is a buyers’ market so if you buy a good property at competitive price it is a good step on the property ladder whatever you decide to buy.
I went from a standalone on the shore to a terrace house in Remuera. Both are freehold with no body corp, I think there are other factors than standalone vs. townhouse.
there are some other incentives to buy a new townhouse. Our power bill is barely over 140 bucks a month for 3 people. there is also very little maintenance needed.
Townhouses could be a good way to get started, and can work for some people but does depend on how much cash you have. It is also highly dependent on the location.
However, just be wary of people saying their townhouse went up 50% prior to 2021 and that it was all good mate. I know of people that have made 30% capital gains on leaky monolithic cladding builds, yet I wouldn’t recommend buying one of those.
The fact of the matter is, if you purchased any property in NZ prior to Covid (other than an earthquake prone or leaky apartment) you could probably have the IQ of a rock and have made great capital gains.
Taking Auckland for example, you would have to be paying $720-800k for a city fringe townhouse. I will happily eat my words to see 2 bedroom townhouses in Panmure selling for $1m in the next 5 years (5% PA over 5 years) for example. There is a huge difference between something starting at $500k vs something starting at $800k relatively to incomes.
No, town houses are fine.
Yes, improvement is a depreciating asset.
However, when you sell your property ie townhouse, you sell it as a land+home package.
Historically, property has always appreciated in value long-term.
So it’s entirely possible that you have bought a townhouse pre-covid, held it long enough to see some capital gain during QE.
You may have also changed to a higher paying job, given that every sector was crying for labour during lockdown.
Then, fast-forward to now, when the market has really plummeted, scoop up some huge discounts from mortgagee sale, or developer near bust.
So you have found a new and bigger property you are keen to buy. Banks are will now willing to lend you more because you now earn more, can take on boarders for the new house, and rent out the old. Your old house is also worth more as a security.
Your task now is to manage your cash flow from tenancy and not being made redundant, knowing that in a few years time, market will pick up again. It’s then up to you to cash in on your old house, or holding it continuously in your investment profile.
Basically this is what has happened to us.
Location trumps everything, while extra space is always preferred, if it’s smaller yet in a more desirable locations the value will reflect this
Yes this worked for my wife and I. Having a mortgage is like forced saving. Once you have enough equity, make the move to a property with land
Market was convinced in 2021 that they were a fantastic idea, and that’s mostly right. Fast forward a couple years and the market is flooded with new builds purchased at 2021 prices. I’ve learned a few things since then, made some mistakes and learned from them. There’s good deals to be had, but it can be an expensive lesson
Better to own home, rather than paying someone elses home.
Terrible idea to buy something ‘just to get on the ladder’ in a falling market
Pick a good LOCATION… more land is always a plus but not always a necessity for smaller capital growth.
Think places that are close to a reputable school, town centre, parks, reserves, health clinics, train station, easy access to major roads, out of tsunami zone, location elevated in height, up and proximity to business hubs.