|
NEWS - PLANNING
Plenty of problems for the unwary
12/5/2001
Buying off the plan might allow you to pick up a brand new apartment built to your taste, while deferring stamp duty and benefiting from returns created by capital appreciation.
But there are pitfalls. Builders go broke, rental markets sag and prices fall. The dream apartment you bought looks nothing like the picture you were shown. Is it worth taking the risk?
LandMark White senior valuer Shaun Ferrin says that like any other property investment, returns depend on normal property fundamentals.
"You'd like to find something that has the facilities you want, is in a good location, preferably with views, and is not in an area that's going to have 10 other developments in 12 months' time competing with it," he says.
Originally driven by demand from the Asia Pacific region, off-the-plan buying boomed in Australia in the early 1980s.
The recent surge in the property market has triggered a rise in off-the-plan sales with Australia's largest residential project marketers, Colliers Jardine, selling a record $1 billion worth of such apartments last financial year.
Not surprisingly, Colliers Jardine NSW director John Thomas is enthusiastic about off-the-plan buying. He says you can get a home at today's prices and increase equity in an apartment, which, hopefully, has increased in value by the time it is built.
But the local market is moving into new territory. High rental vacancy rates, fears of a recession and rising unemployment mean the outlook is less attractive.
LandMark White's Ferrin warns there may not be much capital appreciation over the next 12 months. "Across the market there has been a slowdown in buyers. In some areas properties that would have sold before September quite quickly are staying on the market longer than expected."
A spokesman for the National Real Estate Institute agrees there's uncertainty in the market.
"It's difficult to determine what will happen to the property market in the coming years. The true repercussions of the September 11 terrorist attacks will not show themselves until January next year," he says.
There are other advantages in buying off the plan. Early buyers can pick up units at a slightly discounted price as smaller developers work to meet pre-sale targets to satisfy their funding requirements. But beware developers who are relying on unit sales to ensure their survival. Too few sales and the developer could collapse before the building is complete.
Off-the-plan buyers get a greater choice of available units and have more flexibility with specifications and finishes, says Brendan Crotty, managing director of Australand.
Then there are the disadvantages. Some who buy off the plan find promised rental rates have fallen or end up with a finished product not up to their initial expectations.
The managing director of Deposit Bonds Australia, Diana Blain, warns that some developers have been known to intentionally delay completion of apartments until after the originally set date, making your contract void and allowing them to sell at an increased price to another purchaser.
She also warns that potential investors should be wary of financial institutions that encourage people to take out deposit bonds on pre-sale apartments that they won't be able to afford on completion.
"There are a lot of wealth creation schemes that are putting out information that is incorrect. They are encouraging people with, say, $40 000 to take out deposit bonds on $1 million worth of property," she says.
Colliers Jardine's Thomas advises buyers to make sure they have investigated the track record of the developer and recommends checking out the site to get a reasonable idea of value. He says there are basic questions that all purchasers should ask: on ceiling heights, acoustic ratings and solar access.
"If you go along and someone says here's a pre-purchase opportunity for this, we'll guarantee you rent, we'll guarantee you finance, you can be almost certain that the rent will be set too high", he says. "You need to decide that rent yourself or get someone professional to tell you what it is.
"You should always be focused on buying units direct from the major agencies that are building them, from the source. Then you can check out the display suites, go out and look at the site, make sure the views are there and not get caught out buying into an ordinary product where someone's putting up a thousand units that are all the same."
|
|
|
