You've heard me say it before but now the stats prove my point.
Off the plan apartments make terrible investments!
Analysis by BIS Oxford Economics reports that of the apartments sold off the plan during the past eight years:
- Two out of three Melbourne apartments have made no price gains, or have lost money upon resale. And this is despite a record immigration and a significant property boom.
- In Brisbane about half these apartments bought off the plan are selling at a loss, or at no profit.
- In Sydney it is about one in four apartments bought since 2015 are selling at a loss, or at no profit.
In other words, more investors in off the plan high rise apartments have lost money than have made money.
And of course there are all those investors sitting on the apartments which are continuing to fall in value, but they haven't crystallised their loss yet.
In 2018, 98,000 apartments were completed across the country and 65,000 in NSW alone, according to ABS figures and the situation is only likely to worsen considering the pipeline of projects still being completed.
Today with falling property values a large portion of these off the plan apartments are completed they are valuing in at less than contract price at a time when nervous lenders are demanding a bigger deposit from buyers.
This double whammy will result in more off the plan investors having difficulty settling their purchases leading to rising defaults on settlements and major discounting by investors trying to get out of their purchases and developers trying to move their stock.
According to RiskWise, Brisbane's inner-city apartment market has about 10,000 more homes in the pipeline than it should have, suggesting the city is expected to face more defaults on settlement.
There is no doubt that all those off-the-plan residential property developments have redrawn the skylines of our capital cities and many parts of inner and middle suburbia over the past decade.
The spread of high-rise living out of our CBDs to adjacent suburbs as well as into outer lying suburban strips has been remarkable.
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- Also read:Sydney property market forecast for 2024
- Also read:Boom to bust: What makes property prices rise and fall
- Also read:This week’s Australian Property Market Update – Latest Data, State by State November 28th, 2023
- Many of the tiny inner-city apartments built during the boom of the past decade are unlikely to meet the needs of Generation Y as they grow older. Sure more and more of us want to live in apartments - but not ones that are so small and ones that lack amenity
- Poor construction techniques, particularly the use of inflammable cladding, will devalue many apartment blocks. The high profile structural problems of the Opal Tower is likely to be only one of many stories of building defects
Angie Zigomanis, associate director for BIS, was reported in the Australian Financial Review as saying:
“The removal of negative gearing benefits from established dwellings and quarantining it to new dwellings will further reduce the value of established dwelling related to new dwellings and is likely to exacerbate resale losses."
“This has resulted in more limited upside in price growth for the first resale.”
As signs point to softer growth conditions for Australian property over the coming months, independent professional advice and careful consideration will be as important as ever in navigating Australia’s varied market conditions.
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