Is "off the plan" dearer?

[jorgon]

As a foreigner I can only buy off the plan, or at least previously unoccupied property. But currently I get the impression that new build is selling at a premium, in Brisbane at least.

If this is happening, as far as I can tell the reasons for it are:-

Land prices currently high
Construction costs currently high
Demand from foreign investors like me because we cannot purchase an existing unit (although 50% only of the development can be sold to foreigners)
An expectation that by the time the development is finished the resale value will have increased
A higher rental can be achieved for a new unit
There are lower maintenance costs on a new unit

I can't think of any more reasons but would be interested to know if any members can think of any more.

Does anyone think this premium exists and if so, what alternatives would I have as a foreign purchaser?

 

[depreciator]

I think many people still think that when they're buying off the plan they are getting a bargain, or they are buying wholesale. Seminar presenters and people who flog property at Expos like people to think that. Those days are long over. When OTP selling started here years ago, I think people who took the punt did get a bargain. Now, the future value is factored into the selling price.
Scott

 

[The Y-man]

Does anyone think this premium exists...

Yes, and not just in Brisbane.

I recall a figure of around 30% mark up (to cover developer profits, marketing, etc etc )?

Cheers,

The Y-man

 

[The Y-man]

....what alternatives would I have as a foreign purchaser?

I believe many established properties are being sold to families of students who have come over on a student visa, and have gone on to apply for, and successfully receive, a PR.

Once they have a PR, the parents (or relatives) have the ability to buy into the Australian market (indirectly).

Cheers,

The Y-man

 

[khangu]

Couldn't you just compare the price of an off-the-plan unit, with a comparable new unit that is available now?

Looking at the Brisbane inner city area market - albeit briefly, there does not seem to be much of a price difference.

 

[Kiwi Investor]

Yes a very valid point Khangu, it's all a matter of comparison, not forgetting also that most larger developers need around 50% of a project sold before finance is approved.

Most developers use a 'hypothetical development' cost/valuation method to see if a project is going to be viable.

 

[alexlee]

Land prices currently high
Construction costs currently high

Which explains why current prices are high, but does that mean they will keep going up?

Demand from foreign investors like me because we cannot purchase an existing unit (although 50% only of the development can be sold to foreigners)

Which means at least half the building will be rented out. That increases rent and tear, which increases repairs. Also, values cannot be supported solely by investors (since they can just sell and run when the market cools). Value is best supported by owner occupiers, who will take care of the property more.

An expectation that by the time the development is finished the resale value will have increased

Obviously everyone thinks that. Which doesn't necessarily mean it will happen, especially if everyone is just looking to flip. Look at Sydney.

A higher rental can be achieved for a new unit

Probably, but if you're paying more for it in the first place, that's not necessarily a good thing. Paying $350k for a new place renting $350pw isn't necessarily better than paying $250k for an old place renting $250pw.

There are lower maintenance costs on a new unit

Not necessarily. While the appliances etc have 12 month warranties (usually), with those things they either break in the first couple of years, or they don't break for 20. Also things like waterproofing (painful personal experience here), soundproofing issues, etc aren't obvious when brand new. After a few years, for example, you can be pretty certain there are no waterproofing issues.

Also new big city blocks tend to have lots of facilities that are expensive to maintain (body corp).

My own view, if you had to buy new would be to buy a unit / townhouse in a small development (6 pack for a unit, <10 or so townhouses) with no facilities (especially no lifts, gyms, pool, etc). Long term, those would be much cheaper to maintain.
Alex

 

[jorgon]

Thanks all for your replies.

Couldn't you just compare the price of an off-the-plan unit, with a comparable new unit that is available now? Looking at the Brisbane inner city area market - albeit briefly, there does not seem to be much of a price difference.

At first I found comparison quite difficult because of the lack of detailed information available on-line. Also I'm thinking of buying in what is obviously an expensive area (South Bank Brisbane). Judging from the development in that area there must be a building height restriction too. So the prices do not compare well with the multitude of apartments available in the tower blocks in the CBD. Having looked at this again, though, and doing the best I can on available information, I believe that if there is a mark-up it is not that great, maybe 10%.
The marketing blurb for the tower blocks in the CBD all describe the view and of course the Brisbane view is greatly impressive. I don't think the property I am interested in will have much of a view since it is low-rise and away from the river, but personally I would not want to live in a tower block in the CBD.

 

[alexlee]

If you can buy anywhere, how about a new small development in the inner city? It doesn't HAVE to be CBD........

 

[jorgon]

how about a new small development in the inner city

Yes, South Bank.
Er.. that is "inner city" isn't it?

 

[alexlee]

I mean, say, 5-10km from the CBD. Personally, I don't like high rise apartments: I think they have high maintenance costs (especially with elevators, etc) and above-average wear and tear because there are more renters. On the other hand, a small development (say, <10 units or townhouses) would have lower body corp costs and more owner occupiers.
Alex

 

[khangu]

I believe that if there is a mark-up it is not that great, maybe 10%.

Personally, I think the Southbank area has a lot of great things going for it. Namely the Southbank parklands, and close to all the 'cultural' attractions such as the performance art centre, state library etc.

It is also close to the rail lines and a short walk to the city and QUT - but is not (a good thing IMO) in the city itself.

Do note though, that the Southbank precinct is leased from the Govt, and therefore any units you buy will be on a leasehold basis AFAIK, which is 999 years. In terms of practicality, it means bugger all, but that is a minor point of difference to all other units you may have bought anywhere else. At least this way, development in the area is more controlled than the adhoc approach that applies everywhere else.