Buying in St Kilda Melbourne

[Fisher]

Hi,

What do you guys think of buying of the plan in Melbourne at the moment, St Kilda in particular? There are a lot of developments starting right now. This one for example:
http://stkapartments.com.au/

Would appreciate any feedback.

Thanks.

 

[Giuseppe]

Hi Fisher,

Man, I would NEVER buy off the plan....pretty much anywhere. You would be paying the developers capital growth for several years and their contracts are hard to get out of; they are heavily slanted in their favour. A realestate agent friend of mine bought off the plan in Prahran and he regrets it. He knows the developers personally and they gave him no out.
If I were you, I'd buy something classic...Art Deco, etc. as period apartments and houses are rare.
Sorry to come on strong about this. I live in St Kilda, btw. Good luck.

Giuseppe

 

[Fisher]

Thanks for your reply. If I go ahead, I would negotiate hard to get a low price, because the completion date is more than two years away. I will do all the due diligence and research. I have a friend who bought in Melbourne around 8 years ago and kept if for 5 years. He did not get much capital gain and basically lost money through negative gearing. It could be a wrong cycle in price growth though.

What can you tell about the area? How is the rental market. I heard there are a lot of evictions of not paying tenants in Melbourne.

As for buying of the plan, I am thinking of using a deposit bond, which is much cheaper than paying interest on a 10% deposit. Also it allows a very low stamp duty. Why are you so strongly opposed to buying of the plan? If bought during a good time it can give some capital growth by the time it is completed.

My only concern is the oversupply of units in Melbourne. I am not sure if this is a thing of the past or still going.

 

[cimbom]

Why not buy something that's available now and start collecting rent immediately?

 

[Fisher]

Why not buy something that's available now and start collecting rent immediately?

Extra stamp duty, only have to put 10% now and fix the price for two+ years. Get some capital gain over the two years without the holding costs.

It looks like the Sydney market is steaming hot. Melbourne will follow soon, IMHO.

 

[cimbom]

What's the price of the apartment compared to existing ones? There is usually a premium attached to buying new and the "shine" disappears as soon as a newer development is built.

 

[Fisher]

What's the price of the apartment compared to existing ones? There is usually a premium attached to buying new and the "shine" disappears as soon as a newer development is built.

One 1b/1b + car space the asking price is between 380-450 depending on the level. The one I am looking at is on level 4. They are asking 435k.

I am thinking of negotiating on that price. Not sure how much can I get.

The new ones have a lot of deductions with them. The price will drop/freeze for few years, but it will be positive or near neutral for that period. Therefore low holding costs.

2Giuseppe: do you think it is a fair price? What sort of rental return can I get for it?

 

[Jake Milne]

I've personally bought one OTP property for my portfolio... This year I paid in excess of $8,000 in body corporate fees which has eaten up half of my rental income... OTP's are notorious for headaches.

I'd bet you a lot of money you'll not be able to negotiate the sale price down. The best you'll do is get a rebate of some sort.

By the way this is on St Kilda Road... probably the worst street in Melbourne to buy a new OTP property... there are already hundreds of newer apartments on this street.

With that said $435,000 isn't too bad for a 1 bedder that's bigger than 50sqm in a boutique block... I'm presuming there'll be more than 30 apartments in this one though and

 

[Giuseppe]

Fisher,

Regarding the $435K, it's hard to say whether that's a good price. My personal rule of thumb is to keep away from OTP apartments. There are tons of new developments happening all over the inner city. I have never had an issue with tenants in St Kilda since I started investing in 1997. Not one; nor defaults on rent. I guess the key is to have a good property manager. Jake is right...the body corp fees for these new developments are horrendously high. Be careful.

 

[Giuseppe]

Fisher,

Regards to rent... $350?? Maybe a little more. But you're up against many other apartments. You'd better off buying an Art Deco 1 bedder, furnishing it nicely and doing a corporate short term rental. I have a friend who has a studio apt on Queens Rd getting $100 per night...averaging $500 per week during the course of the year. Not bad, eh?

 

[Fisher]

I've personally bought one OTP property for my portfolio... This year I paid in excess of $8,000 in body corporate fees which has eaten up half of my rental income... OTP's are notorious for headaches.

I'd bet you a lot of money you'll not be able to negotiate the sale price down. The best you'll do is get a rebate of some sort.

By the way this is on St Kilda Road... probably the worst street in Melbourne to buy a new OTP property... there are already hundreds of newer apartments on this street.

With that said $435,000 isn't too bad for a 1 bedder that's bigger than 50sqm in a boutique block... I'm presuming there'll be more than 30 apartments in this one though and

Getting 20k of rebate is the same as negotiating the price down isn't it?

What about the price in a big building, like 150 appartments with library, gym and pool? How a boutique block compares price wise?

 

[pieman]

Have owned plenty of flats in at Kilda/ Elwood and 1 off the plan. I wouldn't buy on st kilda rd in a pink fit, that's not st kilda. I purchased otp in 99 and was lick to catch the rising tide - I got lucky, but purchased a top end apartment overlooking lunapark. Hard to replace.
As others have said, deco in Elwood where the rooms are big and there's no pool or lifts. Low body corp and a flat twice as big as that and has the ability to have value added.
Good luck

 

[Fisher]

Fisher,

Regards to rent... $350?? Maybe a little more. But you're up against many other apartments. You'd better off buying an Art Deco 1 bedder, furnishing it nicely and doing a corporate short term rental. I have a friend who has a studio apt on Queens Rd getting $100 per night...averaging $500 per week during the course of the year. Not bad, eh?

Hi Giuseppe,

Thanks for your input. The developer claims the rental potential is between 420-450 perhaps due to the pool/gym stuff. Or may be just exaggerating.

Doing a short term rental is hard if you live in another city, but will think about what you said.

May I ask, who is your property manager?

 

[S.T]

Thanks for your input. The developer claims the rental potential is between 420-450 perhaps due to the pool/gym stuff. Or may be just exaggerating.

I bet the pool and gym cost you more than $50 per week in owners corporation fees...

What are the OC fees by the way? Have you asked that question yet? As others have mentioned, OC fees are one of the most important and costly parts of buying OTP.

 

[Jake Milne]

I bet the pool and gym cost you more than $50 per week in owners corporation fees...

What are the OC fees by the way? Have you asked that question yet? As others have mentioned, OC fees are one of the most important and costly parts of buying OTP.

OC fees will not be established until there is an OC to determine maintenance scheduling.

 

[Jake Milne]

Getting 20k of rebate is the same as negotiating the price down isn't it?

What about the price in a big building, like 150 appartments with library, gym and pool? How a boutique block compares price wise?

Not really... If you pay $435k and a bank valuer thinks it's worth $415k you have to fork out the extra $20,000 yourself to settle and then you'll get the $20k rebate back after.

Vals coming in short on main roads in OTP's is common and many a newbie buyer gets caught out with rebate schemes that are solely designed to protect the developer's over inflated pricing.

PS - Finance clauses do not cover vals 2 years later...