Is there such thing as free 10% deposit for a couple of years?????

M

manlybeach

I was planning to buy an apartment in North Shore area (not yet developed but will be finished in 2013 or so) but there's an interesting thing I heard and I don't know if it is too good to be true.

Normally, when you buy an offplan property, I assume you would pay a 10% deposit and then pay the remaining amount when the property is ready to hand in a couple of years later or whenever it is finished right?

Now here's the thing. I went to the display unit today and I was interested in a 2 bedroom apartment. I was going to think about it anyways but the salesman told me a few things which made me seriously consider to take action asap but before I do so, I'd like to hear a couple of comments from you guys

1) The apartment has not yet been finished until late 2013 but he said that I could pay the 10% deposit when it has been finalised. I was a bit confused at first but what he meant was, provided I am interested, I don't pay the 10%deposit cash right now. All I need to do is to sign a contract as well as get the letter of fixed term deposit from the bank showing that I have this amount and it cannot be used until 2013. Therefore, whatever interest, I earn will totally be mine. And I pay the 10% deposit as well as the remaining balance in a couple of years later. Sounds great right?

2) Within 2 years, if I decided to withdraw the sale, I could let the salesman know and he will find another buyer and replace my position. Therefore, I could also pass the 10% deposit to another buyer since I didn't really use the cash to secure the property. And if in the end of the completion, if I originally purchase the property for $600,000 and I want to sell for $680,000, I could do it before the handover provided I also find a buyer in advance. Wow, does it sound good to be true?

3) If in the end of 2013 and is completed, I would expect the price will increase. (NB: But how do you determine how much will the price increase to compared to offplan?)


From what the salesman told me, it seems like I have nothing to lose if I was to proceed because I am not using any cash until the end of the handover and also, I can also pass the ball to other buyers anytime without really losing the deposit etc. But on the other hand, I find it too good to be true. Am I missing anything here?

Your answer will be appreciated
 
The possibility you have to consider is: what if it's worth LESS than what you contracted for in 2 years or at completion?
 
the key here is IF you can find a buyer to pass over the 10% discount, which is very difficult if the market goes south in the next couple of years

think about it, if there really is nothing to lose, why wouldn't the salesman buy it himself?
 
And what if you want to pull out within 2 years and a replacement buyer can not be found for the same amount you are paying?

There is still a lot of new development happening on the north shore along the highway, so supply for new apartments in 2 years time will still be pretty high.

How do the prices compare against other units already for sale?

Why do you want to buy off the plan?

What other new developments are going up in the same area that will be completed in the next 2 years?

Don't sign for 10% unless you plan on going through with it. Due to supply my guess is that off the plan units on the north shore will be relatively flat for a couple of years. Take a drive from Wahroonga to Roseville and count the number of new blocks in progress or already for sale.
 
FelixL said:
the key here is IF you can find a buyer to pass over the 10% discount, which is very difficult if the market goes south in the next couple of years

think about it, if there really is nothing to lose, why wouldn't the salesman buy it himself?
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Because the salesman would need to freeze the fixed term deposit each apartment for each sale just to show that he has that 10% amount to pay for at the end of completion rather than actually paying it
 
alexlee said:
The possibility you have to consider is: what if it's worth LESS than what you contracted for in 2 years or at completion?
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I think it is very unlikely.

It is situated in Chatswood and if you know the suburb, it is in pretty high demand not like in Pacific Highway in the north shore area like Roseville, Hornsby, Linfield etc, no?
 
BuildingBlocks said:
And what if you want to pull out within 2 years and a replacement buyer can not be found for the same amount you are paying?

There is still a lot of new development happening on the north shore along the highway, so supply for new apartments in 2 years time will still be pretty high.

How do the prices compare against other units already for sale?

Why do you want to buy off the plan?

What other new developments are going up in the same area that will be completed in the next 2 years?

Don't sign for 10% unless you plan on going through with it. Due to supply my guess is that off the plan units on the north shore will be relatively flat for a couple of years. Take a drive from Wahroonga to Roseville and count the number of new blocks in progress or already for sale.
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Like in my previous message, it is situated in the heart of Chatswood.

The reason to buy off plan is to make profit so t hat when the completion is done, the price will be driven up unless I think it too simple?

The supply in Chatswood is quite limited in terms of offplan, I think. Because alot of the new ones are sold out quickly.

I don't know if my reasons sounds logical enough to make the risk to purchase to make profit after the completion is done?
 
manlybeach said:
I think it is very unlikely.

It is situated in Chatswood and if you know the suburb, it is in pretty high demand not like in Pacific Highway in the north shore area like Roseville, Hornsby, Linfield etc, no?
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What does high demand have to do with whether the bank will value it at or above your contract price?

You might well be right. But can you handle the downside if you're wrong? There's a reason why purchase contracts usually have cooling off periods or subject to finance clauses. For off the plan, what if the developer has built the next 3 years worth of price increases into your purchase price already, and when you have to settle, the valuation is 10% below your contract price? Do you have a backup plan?
 
manlybeach said:
Like in my previous message, it is situated in the heart of Chatswood.

The reason to buy off plan is to make profit so t hat when the completion is done, the price will be driven up unless I think it too simple?

The supply in Chatswood is quite limited in terms of offplan, I think. Because alot of the new ones are sold out quickly.

I don't know if my reasons sounds logical enough to make the risk to purchase to make profit after the completion is done?
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Granted Chatswood is different to the ones along the highway. However, do a lot of comparisons against stock available today and cover yourself with a cash reserve in case prices don't go up.

If the resale was guaranteed in a few years time for even 5% more then everyone would be buying them. There is always a risk.
 
For my own interest, can you give a bit of general detail and I might have a quick look for comparable properties in chatswood.

How many bed, bath, car spots and is it a high rise with gym, pool etc?

What is the rough price (within say 10k).
 
A couple of other things to think about:

1. Developers dont sell units due to be built in 2013 at 2011 prices - they sell them at 2013 prices in 2011. Dont expect any real growth in your unit (i.e. 600k -> 680k as you claim)

2. Why dont you provide some details about the unit (bedrooms, bathrooms, floor size, level of quality finish etc) - we can check the price

3. If its too good to be true - it usually is.

4. This is a quote from a well known property person just last month about buying off the plan:

Developers don't always get high pre-sales because of reasonable prices. Good marketing and high commissions to financial planners often get a high number of pre sales as well, and the added effect that the development looks popular and as if it's selling out, and so people then rush in so they don't miss out!

I'd really like to see the empirical evidence of instant values gains upon settlement occurring at times other than those when property everywhere in the same area is also growing - in my experience, at the only times I have seen property grow in value from the off the plan price, all other property around it grew too by at least as much, or more. I've seen far more examples of surrounding, non off- the- plan property either staying stable or growing in the face of the off- the- plan counter parts not meeting its forecast with actual values, and many worth much less than is being paid for it.
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BuildingBlocks said:
For my own interest, can you give a bit of general detail and I might have a quick look for comparable properties in chatswood.

How many bed, bath, car spots and is it a high rise with gym, pool etc?

What is the rough price (within say 10k).
Click to expand...

Yeah, sure not a problem, that would be appreciated thanks.

It is a 2 bedroom apartment, 81m size (excluding 6m balcony so its 75m internal). The apartment has 1 bedroom ensuite and has 1 car spot and it is situated in 18th Floor which also has gym, pool etc.

It is called Metro Residence in Chatswood situated next to the railway station so I guess this is very high demand and the price is around $800K for all the things I said above.

So I am not sure whether ti is worth investing due to the high demand and price increase in the next couple of years

And to answer the very previous message. Yes I have a backup plan. I can afford to lose it if it is 10% less value than what I have purchased but from what I see is unlikely unless I am wrong.

Hope these info will help to compare the properties in Chatswood and thanks in advance
 
Yes you can buy off the plan without stumping up the deposit as cash - you can use a deposit bond. Costs about 1% of the deposit amount upwards depending on the term.

Is it sensible to buy off the plan when the market outlook is so flat or generally contracting.... well I certainly wouldnt.
 
I'm seeing a lot of 2bed units for around $700k (i.e. http://www.realestate.com.au/property-unit-nsw-chatswood-107201229)

And a number of 3bed units for around $800k.

I'm not convinced your going to get the right valuation when the place is done. I'm almost certain you wont see any immediate growth.

[/QUOTE]So I am not sure whether ti is worth investing due to the high demand and price increase in the next couple of years [/QUOTE]
What high demand, what price increase? That sounds like something a sales guy would tell you?

What is the vacancy rates in Chatswood? What is the past 1, 3 and 5 year growth? Is that growth sustainable for the next 1,3 and 5 years? What are the growth drivers? Who is driving that growth? How much construction is in chatswood? Will there be an influx of units in the next 12-48 months? Is this an investment or OO? What is the rental yield? Why not just buy a unit already done? Why not buy a house? Why buy a 2 bedroom unit, would a 1 or 3 bedroom be more suitable to your target market?
 
Just running off 10mins spent on Domain, here is why I think it is a risk:

- High rise 2 bedders (a couple of years old) starting in the high 600s.

- Possibly comparable off the plan places from mid 700.

- Off the plan 3 bedders starting from $795.

Those first example 2 bedders (assuming they were comparable) are going to need to see somewhere around 15% growth in 2 years to hit $800k.

I don't mean to sway you one way or another, however you just need to be aware of the real risk of a valuation coming in less than expected in 2 years time :)

Have a search on Domain and check out the off the plan 3 bedders on there for 795k and see if they are comparable. If you could pick up one of those for similar to what you are paying for a 2 bed you would be better placed, but still not guaranteed.
 
manlybeach said:
2) Within 2 years, if I decided to withdraw the sale, I could let the salesman know and he will find another buyer and replace my position. Therefore, I could also pass the 10% deposit to another buyer since I didn't really use the cash to secure the property. And if in the end of the completion, if I originally purchase the property for $600,000 and I want to sell for $680,000, I could do it before the handover provided I also find a buyer in advance. Wow, does it sound good to be true? that is what the agent says, the contract will say you have not relied on anything the agent says and that u have bought the property and u are legally obliged to settle, u can only offload it when prices go up so selling it is not an escape option against a down market, (part 2) the agent would charge you a selling fee if it did go up and if that buyer pulled the pin then u r legally responsible again to settle

3) If in the end of 2013 and is completed, I would expect the price will increase. (NB: But how do you determine how much will the price increase to compared to offplan?)

(my experience says 10% increase in price before completion, 30% value less at settlement and 60% at purchase price) saw one recently purchase price $415k, val at end after 3 year $330k ouch! I would also say that (purely from what i have seen) of the one's that value lower the vast majority r bought by Australians of Asian heritage. Dont forget if it drops in value and u cant settle developer not only gets ur 10% but also the difference between what u paid and what they sell it for plus costs, thats ugly!

From what the salesman told me, it seems like I have nothing to lose if I was to proceed because I am not using any cash until the end of the handover and also, I can also pass the ball to other buyers anytime without really losing the deposit etc. But on the other hand, I find it too good to be true. Am I missing anything here? u have a lot to lose, u would be signing a binding contract, if we cant talk u out of it go and see a conveyancer and ask them to explain the obligations, to rely on the verbal offerings of an agent who is working for his commission and the developer is madness

Your answer will be appreciated
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see above for responses
 
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