New constructions have often much higher acquisition costs than older apartments, even if you were to account for possible renovations. If you are planning on acquiring an apartment in a completely new building, it is recommended to make a conservative assessment of its increase in value. In many locations, investors should even be prepared for a decrease in value. On the other hand, charges for common expenses are often lower due to the fact that the building is new and energy-efficient and only expected to increase some years later.
New constructions are common in growth centers with positive net migration rates, rich with for prospective tenants and buyers. New apartments are often marketed e.g. with their efficient use of space. It is fairly safe to say that new apartments are better in terms of their basic characteristics due to e.g. more stringent building regulations. Theoretically, there should be no repair needs for a while, and even smaller defects are often covered by the defects liability period. However, it is not always possible to avoid e.g. water damage even with certified materials and constructors and safe techniques applied.
New buildings are most often built with allergic and disabled people in mind. Modern amenities not only make life easier but are also likely to save energy and, thus, money. Premises are fitted to handle current technical equipment and inside temperatures remain steady regardless of the season. Balconies and porches are a rule rather than an exception. These are obviously factors that mostly affect the tenant’s comfort and not much else. Nevertheless, success with long-term tenancies requires you to make an effort on making the tenant feel comfortable in your apartment.
One attractive feature of new constructions is housing company debt that may reach even 70% of the apartment’s value. This means that the investor can acquire a new apartment with relatively little capital. What’s more, there currently exists a significant tax benefit: a landlord shareholder may deduct housing company debt instalments from rental income if the shareholder instalments have been entered as income in accounting. However, remember to check how the housing company approaches its accounting. Also keep in mind that even though the constructor might be happy to enter capital expenditure charges as income, the matter will eventually be decided on in the shareholders’ meeting. However, it is quite likely that the housing company will continue with this approach and probably will not start entering capital expenditure charges as funding. More information on entering as income and funding is available here.
You should also pay attention to the capital expenditure charge. It is quite common that for the first few years you only pay interest, making the capital expenditure charge small in the beginning and gradually increasing as instalment payments begin. If you consider buying an apartment from a new building, remember to calculate your investment’s profitability also for the period when instalments kick into gear.
In addition, you should make note of whether the lot the building is owned or rented by the housing company. A rented lot makes your purchase price lower but obviously comes with rental costs for the lot. If the lot is rented, make sure to check what the rental fee is and what the grounds are for future increases. Many new constructions are built on rented lots that come with a purchase option, meaning that a buyer may purchase a share of the rented lot equaling the share of their apartment. After the purchase, the buyer no longer needs to pay their share of the rent for the lot.