How Regulations Affect Profit
Frankly, you build an investment property for a profit. Whether you sell it or keep it in a rental portfolio, you want to avoid costs that don’t give you a return for your hard earned money. Generally, prospective purchasers or tenants don’t care whether the floor slab thickness is 85mm or 100mm or whether the house has been upgraded so that its more energy efficient than the one next door. They are looking for value and this value is normally tangible; something they see and touch, Caesarstone kitchen benchtops, a 900mm wide oven etc…
Constant legislation changes ultimately add cost and red tape to a new build and we will look at a recent example. The new National Construction Code (NCC) 1 May 2019, included a number of changes, however the one that has the biggest cost impact on a new build relates to energy efficiency.
There are a number of methods that can be used to assess a new build for energy compliance, these include the 6 star method and also a verification method using a reference building. Using the reference building method, the new build is assessed against a similar building; if the heating and cooling loads are equal to or less than the reference building then the new build complies. The verification method generally avoids the need to include cavity wall insulation to the house. However, often the 6 star method requires cavity wall insulation to all or part of the house. Cavity wall insulation would increase the house cost by $1,000.00 to $2,000.00, depending on the extent and house size.
While the new NCC retains the option to assess a house against the verification method, the changes mean that no-one will use this method anymore and will have to revert to the 6 star method for energy assessments. This means that, generally cavity wall insulation will now have to be included to some extent to all new builds. Also if the house has poor orientation (often dictated by the block), is a double storey home, or has lots of glass there is the potential of more costs to upgrade it to meet the minimum 6 star rating energy requirement.
The good news… whilst the new NCC is now in place, it is deferred by 12 months in Western Australia, which means that we don’t need to meet these new requirements until next year. As long as you have obtained a building permit prior to the 30 April, 2020, we can use the previous standards; which means a more cost effective build and better return on your investment.