Buying OTP - Canberra

Hi all,

I'm a FHB and I've been reading your very useful advice on buying OTP. I understand that there are a lot of risks involved (e.g. changing financial situation post exchange and under purchase price valuation at settlement).

However, I was wondering whether there could be some differences in the Canberra market which could make OTP a good deal? I'm interested in some level-headed advice from this forum :)

Things I'm considering:

- Property prices expected to continue rising in 2009-10
- The rental market tends to be strong with the influx of students, public servants etc
- The competition is fierce in the FHB territory and a number of open houses I've attended there is not even a question of offering below the asking price, it's a matter of how much more you are prepared to offer. For example a 2 bedroom in Phillip ended up selling for $350K when the asking price was $330K plus (in one day). Buying OTP means you by pass some of the competition.
- I could buy in a small development and in an area where there are no other OTPs.

If I lived in Melbourne or Sydney I probably wouldn't consider OTPs but I'm wondering whether (like everything else) things are different in Canberra??

Appreciate any advice.
Well I'm probably a bit bias - I like OTP. Our PPOR was OTP, as is our IP. The thing is you really need to do your research, I do know people who have been caught out with bank valuations coming in lower then the purchase price (in Canberra here).
You need to know and feel confident about:

- Your finances / ability to get finance. This is a big one. I always look at what my servicability would be like a couple of % rates higher.

- The suburb values and rental rates. Personally, I try to ensure that the price I am paying for OTP is only what it would be worth at this point in time - That way if there is no growth you should be covered (most parts of Canberra you are still going to be getting some growth, but best not to count your chickens before they hatch ;) ). Knowing the market is extremely important. OTP can be a bit of a gamble, you need to make sure you have done everything to tip it in your favour.

- Know the company. Go and see some examples of their work, either at a display village or ask them to veiw some other houses they have built.

- Lastly come on here when you have an idea of what and where you are purchasing and ask for feedback, there are quite alot of Canberra people here with alot of knowledge. CraigB often has great insights and has certainly caused me to reconsider issues a time or two.

This is all on top of all the other DD you need to do of course :)
Good Luck.
I have up until recently been against OTP - with all the associated risks.

However, we are clearly in a rising market and that is where OTP works best.

If you can, as rugrat said, do your other DD and it checks out then I say go for it :)

I have purchased 2 x OTP's in the last 6 months for clients and both are turning out well. But they are from known builders in small infill developments in older established suburbs.
Thanks!! Really appreciate your thoughts.

I can't believe the number of OTP developments at the moment! There's a few agents that seem to specialise in these. I've been given brochures for at least 7-8 in the inner north, inner south and Woden.

The one I particularly like is in the Tuggeranong area. It's a 2 bedroom for about $350K. I did some research and it seems to be about $20K more than existing homes (hard to tell on all homes site as it only tells you the sale prices, not the number of rooms in the house). It's a small development of 6 units and will be built on a hill (so expecting a good aspect). It should also be north facing.

How much more should I pay for a new home, in comparison to an established home? Established homes in the area are about $330K for a 2 bedroom place but I don't think there is any way I could purchase something OTP for that price.
How much more should I pay for a new home, in comparison to an established home? Established homes in the area are about $330K for a 2 bedroom place but I don't think there is any way I could purchase something OTP for that price.

You do pay a premium for buying new. How much more I don't know - that will depend on your area, other stock, etc etc.

Part of buying OTP is that you do give away some CG in the first few years to the developer's bottom line in the premium you pay.

Having said that, one of our OTP purchases was, IMO, priced $10K under market value......ssssssh!
I wouldn't pay anymore for an OTP then I would for a similar established home in the same area. There are HEAPS of OTP oppertunities around Canberra, no need t rush into the first you see. You can get OTP for $330k - you just need to look around a bit.

Check out ALLHOMES and find out what companies offer OTP, Then get in touch with them directly and see what they can do for you (often OTP is not advertised as much). Also ask the REA's what they can do - Independent often have their fingers in a few pies. Then check out other options like and the Crace development, (I think?).
By the way a newbie question I've been meaning to ask:

Can you negotiate the price of OTP properties? It seems that REAs just hand you a price list and expect you to pick the plan you like.

For example, if I know that I am one of the first or last buyers of a unit in a development can I negotiate through the REA?

Cheers :)
Hi harold, and welcome. The idea of OTP buying in a rising market is great, if for example, the development takes 2 years then their are two years of gains until they can be rented, inner burbs, "urban infill" are best, but not the ultimate, as larger unit developments take longer to build,
ask some re agencies, and owners , of them if they know of any thing that is coming up!! they would be taking deposits on stuff before the first sod is turned and this will give you more time to gain capital,
give Andrew Early a call, some here have met him at the last SS meet, he is a freak when it comes to this stuff, 0402344338, give him a call and he might have a list you can choose from, going way back there was o complex in braddon that you could place $1 down now and finance up in 18 months, if you bought 3 or more you got 10% off the lot, crazy opps??
thanks for the kind words RR, :D
Thanks everyone :)

Really useful advice. I'll continue to research the suburb and do my DD.

Unfortunately as a FHB it's probably more important that they finish on time! Otherwise I lose my FHBG. I think the rules are the development must be completed by June 2011 (for the 14K grant).

Will keep you guys posted.
Can you negotiate the price of OTP properties? It seems that REAs just hand you a price list and expect you to pick the plan you like.

You have much higher chance of negotiating on price when you are amongst the last to buy.

If the developer sells cheap at the beginning then the whole development is affected as valuers use comparable sales to value other units in the development. So if there are say 10 units asking for $400K = $4M. If he sells to you at $350K then he just 'lost' $0.5M (10 x $50K).

Not so important as the project nears its end. Additionally, developers will need pre-sales before obtaining construction finance. If the number of pre-sales or the value of pre-sales do not stack up = project does not get off the ground.
Hi all,

I met with another REA today who advised of a development in Bruce. It's a fairly large development - three blocks.

Anyone heard of this? Also interested in any general views on a 1 bed apartment (large) for $350K. I'm worried this is a bit above market value, especially due to the size of the development.

Also I've heard that it's possible for investors to buy apartments in big developments and then rent it back out to Government as public housing stock. Does anyone know more about this type of arrangment?

Cheers :)
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there are a few developments going on in Bruce at the moment - I drive past them all the time. Unfortunately I couldn't tell you anything about them. Bruce isn't a bad suburb though, close to UC, the AIS, CIT, Calvery Hospital, Not far from Belconnen.
bumped into a builder mate, and he is about to do two different developments, 1 in LYONS, and the other in CHIFLEY, they will also sell OTP, ;)