Buying a block of land is not the same as buying an iPhone

Perth is now going through a residential building boom due to very low interest rates and a flood of young buyers moving from the rental marketing into the new homes.

This trend is underlined by recent home lending figures which show the number of homeowners aged 30 or under has jumped 60 per cent since 2008. Also, almost 50 per cent of Western Australia’s first home buyers are aged 30 or under compared to a rate of just 31 per cent some six years ago. The data shows that one in five homebuyers are now aged 25 or under.

This huge number of young people deciding to build a new home is a great vote of confidence in the WA property market.

However, younger first home buyers do need to undertake careful research before building their first home, particularly in regard to the selection of the block they want to build on.

Buying a block of land is not like buying an iPhone or new car based on emotional reasons, because it is a huge long-term financial commitment. If you choose correctly it can set you on the path to significant wealth creation; if you choose wrongly then the outcome could be financially disappointing.

First home buyers have to therefore exercise caution when buying a new block of land because of the wide choice of building lots that are now available.

An important point that first home buyers should consider is that land appreciates in value while the value of actual home structure depreciates. Therefore buyers should choose a block that will offer the greatest potential for capital growth.

When considering the long-term capital growth potential of a building block, homebuyers should take into account the scarcity factor of the block.

If the location of the block is in an area where developers can easily replicate the housing development in a nearby area for the same cost price, then the potential for capital growth is limited.

However, if the lot is near a river, the ocean and a major urban centre with good social infrastructure with limited building land, then the potential for capital growth is much higher.

Ultimately, it is this location factor which will determine the longer-term capital growth of the block.

The specific location of a block in new housing development is very important because blocks that are located on a quiet street or opposite a park or school will appreciate in value at a much greater rate.

The quality of the housing estate is also important. Homebuyers now want to live in estates which are planned to a very high quality with parklands, walkways and an impressive entrance.

The size of the block is also significant since block sizes are now getting smaller and you should determine the value of the block by comparing the square metre size of similarly located blocks in similar developments.

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Shane Kempton

Shane Kempton

Shane Kempton is the chief executive of Professionals Real Estate. He is an experienced, well-respected real estate identity and chief executive committed to effective development of teams. His reputation is built on honesty, integrity, confidentiality and ethics, all highly valued traits of this influential leader.

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