Because a tenanted dwelling is generally priced on the income it produces rather than on what it cost to build. Once an SDA property has participants in it and is earning, buyers value it the way they value any income producing asset: by the return they get on the price they pay.
The Short Version of the Arithmetic
A dwelling built for around $700,000 that now houses two participants might produce in the order of $150,000 a year.
A buyer paying $1.5 million for that income is receiving roughly a 10% return. If that is the return buyers in this market expect, then $1.5 million is what the asset is worth, regardless of the fact it cost $700,000 to build.
The gap between the two numbers is not a markup. It is the difference between cost based pricing and yield based pricing.
What the Higher Price Is Buying
The premium reflects risk that has already been removed:
- Income starts immediately. There is no build period and no gap between completion and the first tenancy.
- Occupancy is proven. Filling an SDA dwelling is the difficult part of the process, and it is already done.
- The income is a record, not a forecast. You can see what the dwelling actually earns.
- There is no construction or certification risk. The asset exists and is operating.
The Trade Off
Paying yield based value means a higher entry price for the same physical building. Building new means a lower entry price, control over the design category and location, a builder’s warranty, a full depreciation runway, and the tax treatment that new build property retains under the 2026 reform, but you carry the build period and the initial tenanting risk to get there.
This is general information only and not financial, tax or legal advice. Figures are illustrative and not a reliable indicator of future performance. Speak to a licensed adviser about your circumstances.
For the full comparison, read our article: Buying a Fully Occupied SDA Property: Why It Costs More Than a New Build.