Builder inflating prices ?

[Elmer Liu]

Was talking to a builder today about the project they are doing. block of 16 units in one of the mel western suburbs. They told me with the ones they have already sold off the plan, the bank valuation came back at $30,000 more than the price their customers paid..

Asking price: $299,000
Bank valuation: $330,000

The purchase price on the contract is $330,000, and they gave $30,000 back to the buyer as cash rebate. They told me if I were to buy two, this would be $60,000 instant equity, which I don't necessarily disagree, however I don't think this self inflated market price of $330,000 will sustain in the long run. I mean , what if one of the owners decided to sell one of the units at the 'original' price that he/she paid ? i.e. $299,000 and that all of sudden kills the market ?
Other than that, the fundamentals look ok, it's in an established area, not many vacant lands around, it's close to all amenities.

I am fairly new into property investment, and would like to have your thoughts on this ?

 

[Propertunity]

...the ones they have already sold off the plan, the bank valuation came back at $30,000 more than the price their customers paid..

Often developers will "sell" a unit or 2 to themselves, or one of their entities, that does not look like their own company name, to establish a benchmark valuation. This will cost them stamp duty but they consider it worthwhile to get a high val for the rest of the units.

The purchase price on the contract is $330,000, and they gave $30,000 back to the buyer as cash rebate.

If this is not declared to your lender, then it is financial fraud.

I am fairly new into property investment, and would like to have your thoughts on this ?

Don't be a sucker, or pigeon....

 

[Elmer Liu]

Often developers will "sell" a unit or 2 to themselves, or one of their entities, that does not look like their own company name, to establish a benchmark valuation. This will cost them stamp duty but they consider it worthwhile to get a high val for the rest of the units.

If this is not declared to your lender, then it is financial fraud.

Don't be a sucker, or pigeon....

Appreciate your feedback on this.. I knew it wouldn't be as easy as it sounds.. Just had a look at the houses surrounding this site and none of them was sold anywhere near $330,000.
What I dont get is if the builder sell one of the units to themselves, how do they
convince the bank to value it at the specific amount they wanted ? i.e. $330,000 ? considering the fact that there is nothing else nearby that's sold at this price.

 

[Scott No Mates]

The valuer looks at comparable sales, if this one sale is out of line they would disregard it especially if it's way off the mark. Sales below market can be disregarded too eg. distressed sale, related party transactions etc.

 

[Elmer Liu]

The valuer looks at comparable sales, if this one sale is out of line they would disregard it especially if it's way off the mark. Sales below market can be disregarded too eg. distressed sale, related party transactions etc.

They showed me the valuation from homeside for one unit they 'sold'.. $330,000.. That's why I was confused. If the valuer looked around and didnt see any comparable sales worth $330,000, how did he/she come to the conclusion that this unit is worth $330,000 ? unless it's genuinely superior to other stocks on the market ? To be fair, the comparable sales I found are all old houses.