Melbourne apartments

From: Felicity W.

A share trader I highly respect has recently been researching property as an investment, specifically Melbourne apartments, and I found his following comments VERY interesting, couldn't resist sharing them!
Keep smiling
Felicity :cool:

As far as inner city melbourne apartments goes - at the moment, based on figures my secretaries have harvested this last week, there looks to be an oversupply aready. Within a 7 klm radius of Bourke St there are 2360 finished apartments already for sale. This does not include Docklands. Another 4200 approx apartments are planned for construction/completion with 24 months and already 1800 are available off the plan. At the moment about 200 apartments are selling a month(55% 1 bedroom, 23% 2 Bedroom - the remainder 3+ bedroom or uniques) and 65% of those are to Investors.

At Docklands there are plans for another 1600 or so apartments, 600 have already been sold. My interpretation of these figures is that most of the apartment sales are by investors because ordinary people can't afford these apartments. Most of the marketting has been pitched at Investors rather than owner occuppiers. Lisa and Kylie who have both been down there fact finding say that many of these apartments are designed to look good but don't have very much utility in there design for actually living in. This is a trend I've noticed myself in newer apartment buildings.

In one case the girls were shown through a 3 bedroom 700k apartment and did the usual things like take photos and walk around with mobile phones describing the place as they went (to me). They inspected the bathroom/ laundry area and indignantly proclaimed that two woman couldn't live together in this apartment because of the design of the bathroom. Upon finishing their little routine the marketting agent began engaging them in negotiations at a price $55,000 under the advertised price. So was he anxious for a sale? Thats a big knock down!

The marketting agents also refused in nearly every case to let the girls fax the structural plans and working drawings so an independant architect could peruse them and check then for sound transmission, ceiling type, and general design snags. When detailled enquiries were made about underfloor sound proofing and the window tinting, the agent rang a "technical" consultant, who it turned out didn't know the difference between a "glaze bonded" window tint and a integral tint. (Bonded tints are better, stronger and don't give any trouble, also reduce noise by 30%). He also didn't know what if any underfloor sound proofing had been done.

The girls used this line of enquiry at several complexes only to be met with blank expressions and ignorance on the part of the agent as to the specifications of the building they were selling. When the apartment came with parking spaces, agents were very reluctant to show then the spaces - reason - the average width was 1.5 metres and length 4.8 metres (a ford falcon is 1.58 wide and 5.8 long) - hope everyones got a small car!

Another little ploy the dynamic duo uncovered on the part of the developers on many Melbourne complexes is the Reserved Apartments Quota. These are apartments shown on the plans, but are not for sale - yet! All up there may be another 500 apartments "hidden" from available figures. Generally reserved apartments are potentially higher value areas that the developers start marketting once the complex is finished. This strategy has in the past, and in other areas, caused earlier apartment investors grief especially if they decide to on-sell shortly after completion.

All up my general outlook for Melbourne Apartments is a bit glum in terms of capital gains, but at present, rental return is satisfactory - 80% of apartments being leased and occuppied within a month at about 4 - 5% yield.

The type of apartments we are looking at are the uniques - apartments located near, or right next to, universities, film studios, corporate headquarters, or with extra special locations and views. These are easier to rent for higher amounts and hold value better.

So we're still looking but my general impression is that there's something a bit dodgy about melbourne apartments at the moment. The girls reported back that their impression was that most had been made simply to flog them to investors, with only a partial regard to livability.
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Reply: 1
From: Always Learning

Very interesting!
How can they get away with planning approvals for car parking that is too small for your "average" car, even my little civic is about 1700cm wide, couldn't drive into the parking! Thus "end-users" would need the Smart cars! ( Personally I doubt that the 1.5M wide car parking is the actual case, I feel that this must be some mistake, at 2.5M wide my civic could drive into the park but I would have a slimming experience opening driver and passenger doors!)

BTW For those speculators who purchased with a deposit bond, then cannot settle? What is their legal obligation? is it just limited to the value of the deposit bond? or can the developer make a legal claim them for more? Lets say a speculator buy a unit for 500K, using a deposit bond for 50K. If they cannot settle then I would expect they would need to cough up the 50K, but what if the apartment then fire-sale's for 350K? Can the developer present a legal argument that they have "lost" 150K?
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Reply: 1.1
From: Jas

On 6/20/02 3:52:00 PM, Always Learning wrote:
>Very interesting!
>How can they get away with
>planning approvals for car
>parking that is too small for
>your "average" car, even my
>little civic is about 1700cm
>wide, couldn't drive into the
>parking! Thus "end-users"
>would need the Smart cars!

Two words “Interstate Investors” . This could be why they are advertising Melbourne apartments in Brisbane and vice versa.

>BTW For those speculators who
>purchased with a deposit bond,
>then cannot settle? What is
>their legal obligation? is it
>just limited to the value of
>the deposit bond? or can the
>developer make a legal claim
>them for more?

The bond gives the vendor security that can be converted to cash in the event the purchaser does not proceed with settlement of the property. But when you sign the deposit bond, you also sign an indemnity. That gives the provider of the bond a legal right to recover the amount of the bond from the purchaser in the event of default under the contract.

Lets say a
>speculator buy a unit for
>500K, using a deposit bond for
>50K. If they cannot settle
>then I would expect they would
>need to cough up the 50K, but
>what if the apartment then
>fire-sale's for 350K? Can the
>developer present a legal
>argument that they have "lost"

There are two separate things here. Firstly, you have signed a contract with the vendor stating you will settle. Secondly, you have signed another contract (and indemnity) with the deposit bond provider.

For some reason, you don’t settle. The deposit bond provider hands over a deposit to the vendor. Using your example, this would be $50k. The provider then comes after you for the $50k as per the indemnity.

Meanwhile, the vendor makes a sale at $350k. They also have the $50k from your deposit bond provider, so they come after you for $100k.

All up, you have two different organisations/people after you for a grand total of $150k.

If there’s a dispute about something, and settlement doesn’t happen because of the dispute, the deposit bond provider is still obligated to pay the deposit to the vendor. Again, they come after you for the money.
Then you get to negotiate with the vendor for it back.


When facing a difficult task, act as though it's impossible to fail. If you're going after moby dick, take the tartar sauce
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Reply: 1.1.1
From: Always Learning

Anybody care to put an guessitmate on the % of OTP apartments purchased with deposit bonds? And how what % of these would be speculators/punters be holding multiple deposit bonds? What % of these wont be able to settle since prices appear to be stagnating (and thus onselling for a profit is not likely)? Unfortunately for these punters 2003 may be the year of bankruptcy.
Always Learning, after careful analysis of his navel lint not makes a prediction: "that this OTP unit oversupply and resulting negative media attention notably with the stupid few % of speculators will turn the lemming tide of positive public opinion against property investment"
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Reply: 1.1.2
From: The Wife

I just have to tell you what was said to me on the Gold Coast a little while back.

I was looking at a block of new units, the car parks were so small, that I questioned the agent showing me if ANY type of car would fit there at all. He laughed and said "My dear, this is the gold coast, everyone here rides motor scooters, nobody will have a car"

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From: Jas

> From: "The Wife" <>

Hey TW,

> I was looking at a block of new units, the car parks were so small,
that I
> questioned the agent showing me if ANY type of car would fit there at
> He laughed and said "My dear, this is the gold coast, everyone here
> motor scooters, nobody will have a car"

HAHAHA! I love seeing a professional at work!

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