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  • Common Misconceptions About How to Make Money Buying Off The Plan

  • Common Misconceptions About How to Make Money Buying Off The Plan

    Sydney is not alone in rapid sales of off-the-plan apartment projects, with new unit approvals hitting record levels. The number of new apartments is also rising in Brisbane and Canberra while Melbourne’s supply levels continue to grow almost four years after the city’s property market peaked.
    Buying an apartment that’s yet to be built is a bit like buying a pair of shoes without trying them on. Even so, owner-occupiers and investors are falling over themselves to pay anywhere from half a million dollars – often much more – for apartments yet to be built.

    The trend – driven by record-low interest rates, offshore investment and affordability issues – is shifting ­cityscapes and how people live and invest their money.

    Property commentators and investment specialists are warning punters to pay ­attention to supply levels, location and capital gains potential as more towers crop up.

    Oversupply concerns and a potential interest rate rise may put people off. But for now, developers and agents are cashing in, and buyers are hunting for the next unit boom suburb.

    Last year’s rise in house prices filtered through the apartment market – and there is more growth to come.

    Anybody buying a property over the next 12 months needs to be aware of the growth patterns. Now more than ever, it is important to do substantial research to back up your decisions with data and insight.

    The best returns are expected to be in the inner suburbs – around 4 per cent to 8 per cent in the next five years. But each city’s market is at a different cycle stage and, therefore, offers ­varying growth potential.

    Apartment numbers keep growing around Melbourne’s CBD, sparking ­oversupply concerns as rental yields soften and the vacancy rate increases. But the inner-ring suburbs, which are five to ­10 kilometres from the city centre, still offer among the best returns in the country, ­Residex’s Edwards says. Of particular note are Elwood, St Kilda and Richmond.

    My feeling is that there is an oversupply of property, especially units.

    Demand is currently being propped up by three main factors: property developers are managing their units well; international buyers are supporting new unit sales; and higher public confidence is being driven by factors like good clearance rates at auction.

    Property pundits tip Brisbane as the next city to experience a rise in values and ­investment.

    Interest rate increases need to be accounted for ahead of purchase and settlement.

    The overall negative impact of buying off the plan is that the valuation of the property is unknown until it is complete.

    This makes lending difficult.

    For example, a $500,000 apartment with a 10 per cent deposit from the buyer would require a 90 percent mortgage of $450,000.

    Building apartment projects can take about 18 months to three years. If the market dips in that time and the final valuation comes in at $450,000, the bank’s 90 percent mortgage would be $405,000. The $95,000 shortfall between the mortgage and the original ­purchase price would fall on the buyer.

    Another problem is customers aren’t always sure what value the bank is lending on – the contract price or valuation, whichever is lower.

    Be ready for additional costs, if the valuation falls, then mortgage insurance may become a cost to the loan, which could negate stamp duty savings.

    Buying so far in advance means buying a property in two years’ time at today’s prices, which is both a pro and a con.

    Some off-the-plan buyers celebrate a rise in value between purchase and ­settlement, but with so much supply coming to market, and the potential for volatility in the broader economy, counting on capital gains is ­dangerous.

    The Gold Coast market is still suffering after the apartment glut and market ­downturn after the global financial crisis.

    Off-the-plan apartment buyers who signed contracts before the market slumped found themselves lumped with units worth less than the purchase price.

    The result was a string of mortgagee sales that hit the market towards late 2010 through to 2012, which are still being absorbed.

    Buying in over-supplied pockets becomes a problem if rental demand is overtaken by supply. Returns fall or, worse, the ­property sits vacant. An oversupply also makes it tougher for owners to on-sell their apartment.

    The buoyant established housing market has made detached housing unaffordable for first-home buyers and upgraders ­wanting to live near the centre of their city.

    At the same time, state government stamp duty discounts on new dwellings have made off-the-plan apartments more attractive, so there are more off-the-plan buyers than ever before.

    Additionally, if the development is ­coming to its conclusion, the developer may reduce the prices of some of the apartments to sell, which again reduces the value of your apartment.

    This is why securing the right mortgage terms, and the right location are crucial. Finding emerging areas where demand is likely to increase ahead of supply is the key.

    Many suburbs that were once considered rundown and undesirable have since transformed into property investment hot spot. Clues are cafes and retailers opening in the area, as well as an influx of young residents with reliable incomes.”


    For first-time buyers or investors considering off-the-plan, the process can be daunting. Albert Waldron Director of Awesome Lending Solutions. Offers some pointers.

    • Get out of the mindset that you need to invest in the area you live in. That could limit opportunities to buy in areas experiencing capital growth and rental demand. Remember growth can happen in regional areas as well as urban. Successful investing needs a business mindset.

    • Target areas where new infrastructure is to be built. Suburbs close to where new roads, freeways and public transport are to be constructed will be more attractive to tenants and are a sign of where the population is expected to grow.

    • Identify commercial and social investment areas. Find areas where new shopping centres, hospitals and schools are to be built in the future. This also applies to gentrifying areas where new cafes and shops are opening.

    • Invest in areas with more demand for housing than supply. Look for areas just starting to experience an increase in house prices and with low vacancy rates. A low vacancy rate means you will be more likely to tenant an investment property quickly.

    • Invest in surrounding suburbs. If you miss out on a property in a booming area, consider the suburb next door. In many cases, the surrounding suburbs are likely to become hot spots themselves with time. You can piggyback the success of the existing hot spot while probably paying less for your investment.

    • Speak to investment experts and like-minded investors.

    Pros and Cons
    It’s the million-dollar question for any prospective home buyer – do you put your money into a brand new home or is it better buying an established property?

    Buyers’ agents often steer prospective home owners towards older properties because they have a track record. But many consumers feel they’re buying peace of mind by purchasing new.

    Established properties the same size in the area can be a lot more expensive. Local amenities can sometimes not be anywhere near as advanced than they can be buying in a zone where there is lots of development.

    People make assumptions based on one development that’s been packaged well and that can be dangerous.

    If you have a question or would like to know more about buying off the plan join us at our next seminar or contact me directly, I would love to talk to you info@awesomelendingsolutions.com.au

    Whether you are looking to buy your first home, move home, refinance or invest in property, a mortgage broker can help. Access loans from all the major lenders, get help with paperwork – plus there is no charge for this service.

    Contact us on 1300 761 988 or info@awesomelendingsolutions.com.au