The facts are clear…almost every property buyers I know who has bought an off the plan property has paid a premium for it.
This is one of the many reasons I am not a big fan of investing in this type of real estate, but I know that many investors, tempted by inflated promises of yields or with rental guarantees or depreciation benefits, will sink their money into them.
The premium paid for a brand new development can be up to 10 per cent, so if you do decide to head down this track — and I definitely would not recommend it — I urge you to at least take some time to find out the true value of what you are buying.
Which leads us to a tricky question.
How does one even value off the plan apartments?
Some of these projects won’t be complete for a few years and we all know how much the property market can move in that space of time.
Here are some things to consider:
1. Other developments
Take some time to look into the price of comparable established apartment developments so that you can gauge whether the money they are asking for the apartment is worth it or inflated.
The closer the comparison apartment to yours (say a street or two away) the more accurate your valuation will be.
We want to compare like with like, after all.
There is no point comparing the sale price of an apartment that does not come with the facilities that yours will offer, such as gym, car space and lift.
These all add considerably to the price of the apartment so try and find a comparison apartment that matches the one you are thinking of buying as closely as possible.
Developers charge a high price for a new development because they need you to help them cover their up-front costs and you need to ensure this is not more than what was paid for similar apartments around the corner.
2. What are the mod cons?
Not all apartments in the same building are created equally.
Some will have better views, a nicer aspect or simply be much larger.
It would come as no surprise to many of you, I am sure, to know that penthouse apartments and others with the best views are often the first to go.
If the apartment is quieter than others in the development or has a centrally located car space then it is probably worth a bit more, too.
3. Look at the suburb
Parts of Brisbane and Melbourne have a large apartment glut at the moment, and if you are buying within the development-heavy areas of the CBD then you are throwing your money away.
Off the plan apartments in tightly held, established suburbs in small complexes will perform better.
In fact, the smaller the complex the better.
Simple supply and demand.
If you buy in a large complex there is every chance that when you go to rent or sell you will be competing with one of your neighbours who have the same idea in mind.
Furthermore, if the development is close to, but not on top of, public transport and within easy reach of amenities, such as supermarkets, it will be worth more than those apartments lacking these crucial components.
4. Call in the professionals
Off the plan sales are tricky affairs and the contracts are very often tipped in the favour of the developer.
To get a true sense of the value of a purchase, I would engage a solicitor who is well versed in this area and will be able to alert you to any red flags in the contract that could affect your hip pocket (and the value of the property).
I suspect some investors will be unable to settle in Melbourne over the next 12 months as so many apartments are brought to market and bank valuations come in 10 and 15 per cent lower than purchase prices.
APRA’s tighter lending rules to investors will not help in these instances either.
So, use this information by all means to gain an understanding of the value of an off the plan purchase, and then avoid them like the plague!
SUBSCRIBE & DON'T MISS A SINGLE EPISODE OF MICHAEL YARDNEY'S PODCAST
Hear Michael & a select panel of guest experts discuss property investment, success & money related topics. Subscribe now, whether you're on an Apple or Android handset.
NEED HELP LISTENING TO MICHAEL YARDNEY'S PODCAST FROM YOUR PHONE OR TABLET?
We have created easy to follow instructions for you whether you're on iPhone / iPad or an Android device.
PREFER TO SUBSCRIBE VIA EMAIL?
Join Michael Yardney's inner circle of daily subscribers and get into the head of Australia's best property investment advisor and a wide team of leading property researchers and commentators.