When it comes to McMansions, we Aussies tend to love a Big Mac.
According to Commonwealth Securities, the typical size of a new Australian home hit 215 square metres in 2009; up 10 per cent in a decade. Sydney came in at a whopping 263 square metres. Indeed, according to the same research, we have the biggest houses in the world.
The love of very modern homes and sizable homes is to be expected. We humans can’t help but treat our homes as a status symbol and the larger and more shinier a home is, generally speaking, the better we feel about ourselves.
However are McMansions a good investment? Do the houses actually outperform the rest of the housing market, or do they just give their owners bad stomach pains?
According to SQM Research the answer is generally not good news though there were some exceptions. Resale values of McMansions tend to record underperformance against the local median house price by 11% over a five year period. So in other words, if a suburb’s median house price rises by 30% over five years, the resale gain of a McMansion in the area will be 19% on average.
Just to be clear that is buying one of these homes new and then being the first owner to resell it back into the market.
Now in all this the initial asking price is key. In our research we found examples of where the resale values did perform in line or sometimes did even better than the suburb’s average growth rate. And that was because the original asking price was mostly in line or at just a modest premium compared to the rest of the market.
I have a friend of a friend who purchased a new McMansion in North Western Sydney approximately six years ago. Earlier last year they listed their property for sale. It’s still on the market today with its priced reduced.
The problem they are finding is that the grossly small land size, compared to the house is putting off many families who want their kids to have somewhere to play outside. And on top of that, they are also dealing with other families who only want to buy new McMansions, not second hand ones. Despite their efforts, the house simply doesn’t look as shiny and new any more.
Buying new McMansions can very much be like buying a new car or boat. They look great and they smell great and so they can initially make you feel good. However in the first few years of their life, they can depreciate quickly relative to other house values; especially if the bulk of the initial purchase price was made of depreciable fixtures and fittings that suffer wear and tear.
And especially if the property was overvalued compared to the rest of the market to begin with.