Price gap between new homes and existing houses expected to narrow

The price gap between new dwellings and existing properties is forecast to narrow as tax rules become less favourable for new developments.

A CoreLogic NZ report indicates new builds were about 6 percent more expensive than existing properties – in line with past norms – but there could be a shift in demand as tax incentives dry up.

New-builds had an edge over existing dwellings in recent years with an exemption from bank lending restrictions, which permitted buyers to get a mortgage with just 10 percent down, compared with 20 percent for owner occupiers or 35 percent for investors.

Investors were also able to claim 100 percent mortgage interest deductions against their rental income.

In addition, the shorter brightline test for new-builds was five years, versus 10 years for existing properties.

CoreLogic NZ chief property economist Kelvin Davidson said the new-build’s advantage could start to erode in the next year or two, given tax changes and the downturn in the construction sector.

“For a start, like in 2009-2011, with building work slowing and construction costs now much flatter, there’s likely to be less heat in new-build pricing,” Davidson said.

He said anything that reduced demand for new build development was a broader concern for the housing market.

“The bigger point is that we simply need more of them in future, to cater for population growth and to try to keep a lid on housing (un)affordability.”

But Davidson said there were a number of other reasons why the price gap in new-build market was likely to shrink over the next couple of years.

“There also appear to be some difficulties for developers in securing pre-sales for their new-build projects at present, possibly hinting at some near-term discounting.

“Meanwhile, more listings coming to the market may also mean that prospective house buyers can already find what they want among the existing stock, and not need to go down the path of buying or building a new property.”

He said there will still continue to be demand for new houses, which offer such things as superior quality insulation and lower maintenance costs.

According to the news on Radio New Zealand

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