Like A New Car- New Construction Condos Can Initially Depreciate
New condos that have never been occupied are a strong draw for many buyers here in Center City and there are premiums to be paid for that novelty/aspect of any particular new condo in town. And there also is a premium for floor height and view in all of our new construction pieces.
If we do see any initial depreciation of a new construction condominium, we generally see that played out in the premiums paid for floor height and any such depreciation usually occurs within the first year or so. Buying a new condo then trying to resale within the first year can result in a somewhat mild “hit” on the value of the condo. Sellers are taking away the shine or appeal of the premium paid for a unit being brand spankin’ new and will often see a drop in value. Though usually not a striking drop in value, but a drop in value none the less. We see this most often in condos where the seller has paid for upgrades that may suit their needs, but don’t always suit the needs or tastes of the buyers that follow. And sometimes the attribute that pulls the value down is the premium paid for floor height. Subsequent buyers come at the building looking for an average sale price of a given type of unit and want to pay based upon that figure. Stronger locations in town, like Rittenhouse Square, have a tendency to be a bit more elastic- they are the first neighborhoods to see a drop in inventory with any influx of buyers to the market. That’s a good thing.
This scenario and resulting depreciation is usually wiped off the books after year one. It is the initial depreciation of a new condo that is loaded towards the front of ownership- like in the first year. Once that hurdle is cleared- the possibility of depreciation lifts as well.
