Whether it’s better to buy new or pre-owned property is a frequently asked question.
Accordingly, there are some commonly accepted guidelines: new property includes newly built, off-plan and homes acquired within five years of commissioning, while pre-owned homes and apartments are older than five years or have already changed hands once. They are also referred to as the primary and secondary market property.
In buyer decisions, Tranio research shows that price is the deciding factor and both of these property types have their own financial and construction benefits. New property comes with lower transaction and maintenance costs while pre-owned property is generally cheaper.
However, the answer to this question isn’t quite so black and white, which makes it important to explore all the other pros and cons before making a decision.
New property
New homes come with convenient payment plans (scaled over the construction period for off-plan) as well as lower transaction and maintenance costs. Nowadays, they also comply with strict requirements on the quality of materials, environmental and construction standards.
Developers must also provide guarantees to eliminate defects found after commissioning. The main disadvantages are higher property prices, construction risks and underdeveloped amenities around the location.
1. Installment payments
Deferred and installment payment plans are only possible on new property acquisitions. For instance, buying off-plan property in Spain usually costs €3,000–6,000 to reserve, then 20 percent to 30 percent of the price upon signing the sales agreement and the rest when construction is completed.
An off-plan apartment acquisition in France can also be financed in installments: first, a buyer makes an installment of 35 percent of the total price when the foundation has been laid.
Then, 15 percent is to be paid when the first floor is finished, 15 percent when the last floor has been finalized, 5 percent when the roof has been decked, 5 percent after the internal walls have been put in place and the building has been sealed hermetically, 10 percent after water supply and heating systems have been installed and the remaining 5 percent of the total acquisition cost after construction has been completed.
2. Lower transaction costs
Transactions can be cheaper as the developer often pays the real estate agency’s commission. Other expenses incurred are also lower. In France, for instance, exacts lower tax on properties less than five years old (2 percent to 4 percent of property value) than on pre-owned property (7 percent to 7.7 percent).
In Italy, the registration fee for new property is lower (€200) than for pre-owned homes too (2 percent to 9 percent).
3. Higher quality and more comfort
New homes are commonly of higher quality as developers use “green” materials, new engineering technology and heating or air conditioning systems as well as better insulation materials and techniques.
Not to mention that new residential complexes are better-designed, flats have better layouts and come with more amenities such as private car parks. Turnkey solutions offered by developers also allow buyers to put their own personal touch to the interior and exterior design.
At the same time, the size of houses built is increasing: the average U.S. house was 130 square meters in the 1970s and 250 square meters in 2007, according to the National Association of Home Builders. Many countries are also following this trend.
4. Guarantees on defects
Although the quality of construction is better than for the secondary market, that doesn’t mean defects won’t be found such as paint spots, cracked tiles, plumbing defects, etc. There are about 100 minor defects in average in each new house.
However, they are easily fixed. A 10-year guarantee comes with every new home acquisition in the U.K. and France so owners can get these fixed for free during the term of validity.
In Spain, buyers are also protected by law: minor issues such as design defects are guaranteed for one year after commissioning. Those include broken door handles, defective home appliances, etc., as well as major issues for humidity and insulation issues resulting in mold, electrical or plumbing defects, leaking gas pipes, etc.
There’s a 10-year guarantee to repair structural defects such as foundation problems, cracks in the ceiling and the walls.
5. Lower maintenance costs
Because developers use better materials, new homes are higher quality and eco-friendly, which also contributes to reducing maintenance costs. For instance, new buildings in the European Union are held to strict energy efficiency requirements and are rated in accordance with energy efficiency classes from A to G.
А-class buildings consume the least energy and G-class are the least efficient. Most new property belong to the first category. According to British construction company Barratt, new homes are 55 percent more energy efficient than pre-owned properties and can save up to £1,000 a year in comparison to houses dating back to the Victorian period.
Cons
1. Higher prices
New homes are usually 20 percent more expensive than similar pre-owned properties with the same location, size, number of bedrooms and bathrooms according to Trulia. This is largely due to higher demand for new homes: Trulia’s study found that 41 percent of U.S. homeowners prefer new property while only 21 percent choose pre-owned.
New homes in city centers are especially expensive as there is little vacant land for development. Another advantage is that VAT is included in the price of new property in many countries.
Buying off-plan or existing property less than five years old in France is subject to 20 percent VAT. In Italy, buyers have to pay VAT at 4 percent to 22 percent depending on the property type and purpose.
2. Higher risks
Buying off-plan entails higher risks. Land and property rights or construction permits can be registered incorrectly.
Experts recommend taking out a mortgage because banks conduct thorough due diligence on the developer, documentation and contracts such as the term of commissioning (for pending construction) and validity of the construction permit or property rights (if the building has already been erected).
Another risk is the suspension or delay of the project as companies finance their projects with the funds derived from sales of pending construction and loans, so if there are not enough sales, companies can run out of the funds and suspend construction.
3. Location
The planning of central districts in large cities is usually so compact that new buildings are rare and it’s easier for development projects to obtain a permit for construction on the outskirts or outside the city.
However, building outside the urban area means that schools, hospitals and shopping centers are not necessarily within the vicinity and the area might be lacking decent transport infrastructure.
New owners might find themselves making many trips to the town center during the first years after commissioning. George Kachmazov, managing partner at Tranio, recommends: “Buying in large residential complexes is a good guarantee because infrastructure usually develops there too at the same time with restaurants, shops, transport, schools, kindergartens and so on.”
Pre-owned property
The main advantages of a pre-owned property are lower prices, established infrastructure and the rapid execution of sales transactions. The risks include low-quality or antiquated fittings and fixtures, higher maintenance costs and potential restrictions on renovation.
Pros
1. Lower prices
Pre-owned properties, excluding prime or historic real estate, are usually cheaper. For instance, two flats were for sale in a British retirement home in 2014. One was new and cost €172,000 and the other was similar but pre-owned and cost €140,000, which is a price difference of €32,000.
Pre-owned homes are cheaper because there is no VAT but also because they are less popular with buyers. It’s also easier to negotiate a deal with the owner rather than a property developer.
3. Quicker transactions
It takes about 30-45 days on average to close a sale — much quicker than the 1 to 1.5 years to build a home. Generally, once the buyer has chosen the property, they sign a preliminary agreement, conduct due diligence, sign the final contract and register the property with local authorities.
4. Well-established locations
Secondary market homes in towns and cities are usually located in well-established districts with mature infrastructure equipped with all the necessary amenities: schools, hospitals, shops, restaurants and bars.
Most property for sale in prestigious downtown neighborhoods of big cities is pre-owned. Homes in the countryside often come with gardens, grounds and ample parking. New homes are harder to find in the country due to strict zoning laws.
Cons
1. Lower quality
Roofs and glass units in virtually any house will need to be replaced, and utilities have to maintained and replaced over time. Houses built a few decades ago or more were also designed in accordance with obsolete standards and regulations.
2. Higher maintenance and repair costs
Pre-owned properties are not as environmentally friendly or energy efficient and historical buildings are particularly expensive to maintain: a Welsh family paid about £5,000 per year for an ancient six-bedroom house with a monthly bill of £200 for electricity.
Not to mention that repairs on old houses can sometimes amount to half the cost of the house: the life of a heating tank in the U.S. is 20 years and central air conditioning system 15 years — it costs $4,000 and $5,000 respectively to replace them.
Moreover, these expenses are not always worth it as generally sellers can only add one-third of the repair costs to house price, so if the owner installs a swimming pool worth €30,000, they still can’t add more than €8,000 onto the sale price.
3. Renovation restrictions
There are more restrictions for renovations on secondary market property, particularly on landmark or historic buildings such as castles and buildings in historic parts of cities. These restrictions can even prohibit replacing windows and doors (replacing wood by PVC windows is prohibited near historic landmarks in France) and even the paint color of external fixtures.
It is common for any change to the exterior of a historic building to get approval from the local authorities first.
What to remember
The choice between new and pre-owned property is not often a question of choice but mainly a cost. Buyer choices can also be determined by destination as some locations will have an abundance of either primary or secondary market properties.
In any case, research additional costs and include a thorough analysis of the building’s heating, plumbing and electric systems before making a final decision.
Yulia Kozhevnikova is a real estate expert and journalist at Tranio. You can follow Yulia on Google+.