Property investors beware: off-the-plan purchases
This type of investment has always been fraught with danger and in recent times has become even more so.
We now have the triple whammy effect of an over-supply of off-the-plan apartments, falling off-the-plan property values and the fallout from APRA changes.
Melbourne is particularly at risk. For a start it has too many off-the-plan apartments and not the available rental population to make this type of investment worth-while. In addition the value of generic off-the-plan high rise, fringe house and land packages has fallen by 10% – 15% in some pockets of the city, and now with APRA changes beginning to bite and the big four banks requiring a 20% deposit, those with off-the-plan contracts will have to stump up additional cash to settle.
The problem with off-the-plan is that there is a significant lag-time between purchasers making the initial deposit and settling on the property which can be anything up to 2-3 years.
What this means for investors, who say, put down a 10% deposit on a $1 million dollar apartment, they will now need an additional $100,000 to settle.
Sadly among those hardest hit will be those close to retirement who have purchased off-the-plan properties via their self-managed super funds.
My advice to these people – in fact any investor who currently holds off-the-plan contracts in Melbourne (and Sydney to a lesser degree) and is yet to settle: seek out the immediate advice of qualified property investment advisors.
Find out how much additional cash you will need to come up with in order to settle. If you are unable to settle, investigate on-selling the property before negative sentiment really kicks in. However, if on-selling is not an option, seek legal advice.
That said, it is important Australians are not be put off investing in property. There is significant money to be made, provided it is done properly and you receive right advice.
My key property investment recommendations are:
- Avoid off-the-plan. It is and will always be the riskiest way to invest in property.
- Avoid markets heavily driven by investors and focus instead on areas where home buyers dominate, such as Brisbane where 70% of the market is made up of home buyers.
- Avoid markets that are oversupplied with dwellings targeted at investors. This is especially relevant in Melbourne where off the plan apartments are dominated by investors. However this is not the case in Sydney.
Finally don’t rely on your gut feelings, project marketers or real estate agents. Seek out the best independent advice you can find.