Looking to buy property off of the plan

[rarkins]

Hi,

I'm looking to buy one of a number of properties from the plan... In most cases directly from the developer.

I'm after any horror stories, not for my amusement, or any success stories.... basically I want to make sure I've got my bases covered.

In addition can anyone recommend any books, DVDs, ebooks etc for off the plan?

Thanks
Rhys

 

[Kristine..]

Hi Rhys

Welcome to the Forum

Remember one Golden Rule:

Don't buy more than you can afford to buy.

Make sure that all purchases can be paid for within the terms and conditions of the Contract

Be aware that the contract must be declared as a liability in all finance applications made during the term of the contract

Be aware that 'Off The Plan' projects can, and often do, take a lot longer than intended

Property can, and often is, worth less at completion of construction than the purchase price in the contract

Occasionally, property is worth more than the purchase price in the contract



My 2nd Son has just bought a very nice apartment in Melbourne off the plan, due for completion by Christmas, 2010. My elder Son bought off the plan back in 1996 with a 15 month construction time that took 24 months. After all the delays we received seven days notice to settle and financing was a mad scramble.

We would happily buy off the plan again (just have) but it must be planned for and the committment must be kept as a priority ie you may not be able to buy anything else during that period

I have a customer right now who easily serviced for their off the plan purchase last September, but has since been made redundant and settlement is due this month. No job means confirming the loan is now in a very delicate state.

Mke sure you have plenty of money and all your bases covered before you leap off the cliff

Cheers
Kristine

 

[BayView]

I voted no.

But that's just me. I want to be the guy doing the project. "Sell the tickets to the game" as R.K says.

And then keep one or two of the completed ones - cfp from day 1 with lots of lovely depreciation.

Also look at the fittings list; often the final fittings are not the same as what you see in the brochures/display suite.

The clause in the Contract about this might be worded something like; "fittings of an equivalent value" etc. They might look the same but could be cheap cr@p. Be aware.

If you want to further decrease you deposit commitment until completion and settlement, go for a Deposit Bond.

 

[troyhunt]

I've had a lot of success buying off the buyers who bought off the plan! Massive drops in value due to (I suspect) having paid the "shiny and new" premium coupled with slick advertising which has likely fooled novice buyers.

Do yourself a favour and have a critical look at what comparables are selling for (not what they're advertised for) that are a few years old. You'll lose a little depreciation but could save yourself a huge amount in cpaital outlay. Also look at what older properties of comprable configuration (beds, baths, size, proximity) are selling for. That 10 year old 3 story walkup next door to the new highrise selling off the plan will very likely experience significantly greater CG and in 10 years they'll both be "older style" dwellings.

 

[Peter_Tersteeg]

As a rule no, but there are always exceptions.

As suggested, off-the-plan has a 'shinny & new' factor to it which people tend to pay a premium for. This is also sold to people on the basis of massive stamp duty savings and high depreciation.

The problem is that a shinny & new doesn't stay shinny & new (that's why it's called depreciation). Even worse is when there's lots of development going on so there's always a new property coming onto the market. At this point your property is old so it has lower attraction to both tenants and buyers.

An example of an exception would be where a property is in a position where the future supply is limited and the ongoing demand will be high. A waterfront property with limited beach frontage that someone else can't build in front of would be a good example.

My overall feeling of off the plan is that it's speculating in most cases. When I buy I like to have an understanding of where I'll make money. In most cases with an off the plan property, the profit has already been made by the developer.

 

[buzzlightyear]

I voted no. Specific reasons answered in this post today.

I think you'll find on SS, there will be a strong bias to 'No' for this question

 

[moyjos]

I voted no. I had a LOOONG discussion (over a decent red or 6 ) with an RE buddy of mine.

I was looking at buying in a development here in Caloundra and he said NO-but!! (isn't there always a but) Buy the "clearout units" that are left over when the developer really wants out at the end.

I kept an eye on what he said and he is right They sell off the last few MUCH cheaper tha the original "plan" price. This would drag down the value of the whole block, so the original buyers now have a unit that paid more than market value for.

 

[NonResident]

yes, but ...

Plenty of good advise above... Our experience below:

Being overseas investors without residency we were initially restricted under the FIRB regulations to either off-the-plan or house+land. We bought several of each and so far I can say that the 2004/2005 off-the-plan purchases have done well, but not spectacular later purchases did not do great in terms of capital appreciation, but I am in there for the long term and believe that what we have bought will do well.

In some cases we did manage to buy the last unit in the complex and either got a significant discount compared to the advertised rate (e.g. $330k instead of $375k in 2004 in fortitude valley or an extra car park which rents out very nicely on the edge of the Brisbane CBD).

Now that we do have residency I would not likely buy off the plan again largely because I can see that the best deals are often in existing stock where people need to exit or others don't see the value. However, I am glad we did buy off the plan as that got us started and those 10 IPs will pave the way for further investment in existing stock.

 

[Philip Thomas]

Make sure you do your homework thoroughly if you are considering buying off the plan

If you are considering buying off the plan in this market make sure you do your homework thoroughly. This includes answering the following:

1. What are comparable unit prices & price trends,
2. What comparable rental prices & demand trends,
3. What other competing product proposed & under construction are within the property’s zone of influence or target demographic,
4. What is the number of units within the development that will be competing for buyers / renters on completion,
5. What is the size of discount you will get for early commitment compared with completed product in the area,
6. What is the financial capacity & security of the builder & the developer,
7. What is the start date, how long is construction & when is permissible occupation & are they on track,
8. Who is the builder & developer & what sort of track record to they have for competing projects of this size on time & within budget,
9. Has the developer got independent professional project management team on board to drive the development & construction process to completion,
10. what is the standard of product that this builder & developer has done in the past,
11. How unique is the development, its position & access to amenities.

You have to be very clear what the benefits are in buying off the plan in this current market, then assess if these benefits disappear if you wait until the development is complete.

Philip

 

[rarkins]

Hi again

Wow, this really is an active forum, thanks for all the advice.

Do you guys know a good list of current off the plan developments?

I'm not restricting my search to any one particular state, so any suggested lists or websites would be much appreciated.

Cheers

 

[Pushka]

We did, just under 2 years ago. We bought for the long term with potential thought of moving into it in about 5 years from now. My thoughts:

1. It was exciting seeing it grow, and imagining what it would look like (hardly an investment perspective!)
2. Everything was brand new, so excellent depreciation at full value
3. The developer made us settle well before the overall development had finished - we had the Builders Labourers Union people telling us to get off the property! Their flags flying from the buildings etc etc When we told them we had already settled they got really angry; made us wear hard hats in the area, and we had to prove to them each time we visited that we had actually settled - there was a guard at the gate!
4. This early settlement of course meant that getting a tenant in was basically impossible until the grounds were in a safe condition
5. Everything is tilted at the developer's timing not yours
6. Dont believe anything they tell you about % of apartments sold
7. Expect the price to drop for around 3 years after you settle - again not a real issue unless you plan/need to sell within that time
8. You could probably pick up some bargains immediately prior to/just after settlement
9. Expect a lot of people trying to find tenants at the same time.

But, even with all these caveats -
we have only had the property untenanted for the two months after settlement, during which time we were waiting for window treatments to be installed. We rent it out furnished - so all the appliances and furniture are new; therefore no issues with maintenance stuff just yet, although the downlights have fused.

Thats a start, will get back with some more later

 

[troyhunt]

1. Expect the price to drop for around 3 years after you settle - again not a real issue unless you plan/need to sell within that time
2. You could probably pick up some bargains immediately prior to/just after settlement

To your first point, how on earth is the investment dropping in price for several years "not a real issue"? Why would you purchase with the full expectation of the price going down further in the near future? Regardless of intention to sell or not, I'd rather wait a little and pick it up at the reduced future price or purchase somewhere I expected to move forward in both the near and far future.

To your second point above, it sounds like based on your post the real bargain is the place purchased off the plan sold several years later after it has dropped in value! This seems to be the broader concensus in this thread.

Is this correct of have I misread?

 

[Pushka]

To your first point, how on earth is the investment dropping in price for several years "not a real issue"? Why would you purchase with the full expectation of the price going down further in the near future? Regardless of intention to sell or not, I'd rather wait a little and pick it up at the reduced future price or purchase somewhere I expected to move forward in both the near and far future.

To your second point above, it sounds like based on your post the real bargain is the place purchased off the plan sold several years later after it has dropped in value! This seems to be the broader concensus in this thread.

Is this correct of have I misread?

It isnt an issue for us - we dont plan to sell, we got the exact apartment we wanted and none like ours (waterfront with marina view) have gone back on the market, although others have, so its like shares - if you dont sell when the market is down you dont make a loss. If you just want to buy an apartment, without specific requirements, then wait until after others have settled to buy. We wanted a waterfront apartment with a great view of a marina - there was only four available in apartment form in the whole development.

In 10 years time, when we do sell after we have lived in it for a while, if the price falls a little while it was an IP it will be a great investment. We will need to get it revalued before we move in, and therefore most of the capital gains will be after we live in it, which means we will be paying much less capital gains when we do sell. This scenario (buy as an IP then PPOR) is most likely not the norm, but it works for us.

 

[troyhunt]

Ok sure, there's an emotional element involved in this particular case and that changes the economics compared to a pure financial view.

 

[Pushka]

Ok sure, there's an emotional element involved in this particular case and that changes the economics compared to a pure financial view.

Yep. We committed the major crime in property investment! But financially, it will work out well for us too. We hope that most of the gains will occur once we live in it.

 

[Property Meister]

Im actually against buying off the plan overall, but what about this?

Young couple/Single person with ok job and enough deposit, looking for a place to live in, and moe out of home

looking for a 2bedder in a nice suburb, say would cost about $400-$450k

so you get the $26-$30k or so FHOG
PLUS
$20k or so stamp duty , thats close to $50k in freebies,

so thats 10%+ of the price

surely for someone in this position, OTp would be ok????

 

[troyhunt]

Im actually against buying off the plan overall, but what about this?

Young couple/Single person with ok job and enough deposit, looking for a place to live in, and moe out of home

looking for a 2bedder in a nice suburb, say would cost about $400-$450k

so you get the $26-$30k or so FHOG
PLUS
$20k or so stamp duty , thats close to $50k in freebies,

so thats 10%+ of the price

surely for someone in this position, OTp would be ok????

I think they're two seperate issues; one is that there is government incentive to purchade a first home, the other is that off the plan properties are often not the wisest financial decision. Personally, I'd rather take that $50k of freebies and put it into something I have a little more confidence in CG wise.

 

[troyhunt]

Just doing some research and found some great illustrations for this thread:

1. Bought new in Dec 06 for $388k, now listed for $329k
2. Bought new in Jun 07 for $691k, now listed for $590k
3. Bought new in Feb 08 for $610k, now listed for $550k

You could argue that this covers a period of declining CG in this particular area but the list of properties reselling for less than the last sale is almost entirely populated by apartments bought new within the last few years. Resales of older stock are faring significantly better.

 

[Sailesh Channan]

Buying units requires careful research. The majority of units do initially depreciate until they reflect the value of second hand units in the market place. This usually happens because there is very little that differentiates one development complex from another. This is why I have generally been against units.

However, over the years I have seen certain units perform really well. The defining characteristic has been that they have something unique about the complex. These features could be unique views, location or concept.

For example: as a builder (DE Homes) we have just won a tender to construct 100 townhouses in a golf course setting.

 

[rarkins]

Hi,

Thanks for all the input. Someone also private messaged me about www.buy-off-the-plan.com.au, has anyone come across this?

Thanks
Matt