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Off-the-plan apartment values plunge

I know they’re popular amongst investors, but steer clear of “off the plan” apartments.

I’ve already warned about this when I wrote about everything investors need to know about buying off the plan.market update house

Concerns include negative equity in  new apartments, an excessive proportion of tenants, a potential glut in apartment stock and a growing belief that  many new apartments are too small and not well enough designed.

The big one is negative equity

home-price-downAccording to a recent report in the Australian Financial Review, values of new apartments in Melbourne and Sydney are falling by as much as 20 per cent between placing a deposit and settlement on off-the-plan units and it takes between six and 10 years for the price to return to what was ­originally paid.

The article quotes valuers as saying the values of more than 40 per cent of apartments bought in our biggest cities are below the sale price at the time of completion, with ­two-bedroom apartments priced between $500,000 and $700,000 the worst hit.

“It’s a tragedy,” said WBP chief executive Greville Pabst. “Some investors are losing their deposit because they can’t settle, or they have to make up the funding shortfall. Those considering these types of properties as investments should seek details on rental performance and history of capital growth.”

I understand why investors buy “off the plan.”

Many buyers want to lock in a price today  and hope to enjoy future capital growth by purchasing now on a low initial outlay.

The problem is they’re not buying at “today’s price” – they’re paying a  premium.

Others are chasing the tax savings, such as reductions in stamp duty and claiming depreciation on investment properties.

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Sure it all sounds good – but not if you’re paying a huge premium for this.

And with an oversupply of new apartments, particularly in Perth, Brisbane’s CBD and parts of ­Melbourne’s CBD rental growth will be minimal.

So don’t be lured by the glossy brochures and fancy promises.

The landscape is littered with investors who’ve purchased properties off the plan a number of years ago and who are yet to see any type of profit.



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Michael is a director of Metropole Property Strategists who help their clients grow, protect and pass on their wealth through independent, unbiased property advice and advocacy. He's once again been voted Australia's leading property investment adviser and his opinions are regularly featured in the media. Visit Metropole.com.au


'Off-the-plan apartment values plunge' have 2 comments

  1. Avatar for Property Update

    December 22, 2014 @ 8:53 am Helen

    A friend purchased a property in Melbourne’s CBD about 5 years ago. It was recently valued at what she paid for it. Needless to say she was shocked and disappointed!

    Reply

    • Avatar for Property Update

      December 22, 2014 @ 9:21 am Michael Yardney

      Helen

      This doesn’t surprise me – yesterday we caught up with friends who moved to Docklands 10 years ago. There proeprty has not gone up in value over the last 10 years!

      Reply


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