Off the Plan in South Yarra

[Kristine..]

Hi Magnate

I am not a lender and I do not perform valuations

The valuation was done by a Licensed Valuer on behalf of the lender to which my customer has applied for a loan to assist with the purchase of the apartment. She is offering the apartment as security for the loan. The lender orders a valuation of the proposed security to confirm that the property is acceptable under their lending policies - the nature, condition, size etc - and the value of the property to ensure that the loan applied for is within their lending criteria.

Valuers are required to provide recent sales data of comparable property to show how they arrived at their estimate of current market value.

This particular valuation report ran for seven (7) pages and covered not only the security property, but also market conditions, the location and neighbourhood, the land (site), environmental issues, improvements, factors which may reduce the value of the property over the next three years, market volatility, local economy impact, and market segment conditions.

There is significantly more to a valuation than just walking through the place and measuring the bathroom.

Lenders make important lending decisions based on valuations and I have had deals declined due to the condition of the property offered as security for the loan or the local market conditions which may impact on the time to sell the property should the lender foreclose on the loan.

This particular valuation for this particular property was a thorough report and has validated the price paid by the purchaser 14 months ago.

What any property sells for on the open market remains to be seen. In this instance, the purchaser intends to occupy the property so her main concern is getting the loan and fulfilling the contract.

She may own this property for her entire life and never sell or seek to sell. The only valuation she is concerned about is the one on the desk right now. Anything else is hypothetical and she is not going to lose any sleep over what might happen at some indeterminate time in the future.

A lovely, young, professional woman, she made a decision last year and is looking forward to settlement in two weeks. From the photos in the valuers report she chose a beautiful apartment and South Yarra will be a great place to live.

I am sure that by the time she is ready to buy her first investment property in a few years that this apartment will have improved in value.

Happy to provide an update in about 2015 when that day comes

Cheers
Kristine

 

[Melbournian]

i dare wager 10K than a similar old apartment with renovation (ard 12-15K) will outperform that apartment in a few years time. It is of my opinion that OTP apartments do not peform and i attribute that to 10 years of going to inspections and auctions and having bought 15 apartments myself.

Trust me - all the finishings inside aside from miele appliances etc are just a super markup. All could be done for 20% of the markup.

 

[Magnate]

Valuations

Hi Melbournian,

I do agree that there is a mark up, however, i would weigh the pros and cons of buying OTP like this. In South Yarra almost all sales are over auction and it is a minefield - the prices that you pay could be way over what it is worth. Secondly, stamp duty savings. Third, there is a premium for contemporary design, layout and of course the interior finishes. Then, last but not least, the fact that you are paying 12-15 months down the line. I provided a bank guarantee for the 10% deposit - i get interest at 4.5% after tax but i pay much less for bg commission.

You also get time to plan your cashflow etc. there is a premium and an element of risk - but I think there are no free lunches.A lot depends on the builder;s reputation too.

Just my two cents.....

Any thoughts on Forest Hill - South Yarra medium to long term performance. Stonnington has issued several permits.

Cheers,

Magnate

 

[RobW]

Gudday Magnate. I am certainly no expert in South Yarra but we went to many 1brm auctions that exceeded listing prices very strongly. eg so much so that I cant understand how the listing ranges are any use at all. Following a lot of reserach we bought in ILK - its a great location and simply very hard to get into that market. No regrets with decision. The forrest hill area loosk to have good potential - my thoughts only : )

 

[Magnate]

OTP in South Yarra

Thanks Rob for the update. U r right, OTP purchases are a good way to get into that market.

Cheers

 

[Melbournian]

Hi Melbournian,

I do agree that there is a mark up, however, i would weigh the pros and cons of buying OTP like this. In South Yarra almost all sales are over auction and it is a minefield - the prices that you pay could be way over what it is worth. Secondly, stamp duty savings. Third, there is a premium for contemporary design, layout and of course the interior finishes. Then, last but not least, the fact that you are paying 12-15 months down the line. I provided a bank guarantee for the 10% deposit - i get interest at 4.5% after tax but i pay much less for bg commission.

You also get time to plan your cashflow etc. there is a premium and an element of risk - but I think there are no free lunches.A lot depends on the builder;s reputation too.

Just my two cents.....

Any thoughts on Forest Hill - South Yarra medium to long term performance. Stonnington has issued several permits.

Cheers,

Magnate

1st - almost all sale in Sth Yarra are auction? i don't think you have been to that many inspections.

2nd Contemporary design - designers overcharge and think too highly of themselves - Unless you have poliform wardrobes imported from italy - most of may have had some design done in Aus and then manufactured in china. Travelling around the world exposes you to see many things that investors who stay in australia shy themselves. A good example is acoustic underlay - while it cost $10-30 per sqm here. It cost only 50 cents in china (exactly the same ones that are sold here

3rd - if you planning to buy something just because you want to get into the market without a view to profit or capital gain - that's just plain crazy. Proper planning either short or long term will enable you make better decisions. If you can't afford to pay stamp duty and yet want to get into the south yarra market (i know this area too as i have units here) and you're willing to pay a premium on OTP 1-2 years down the track - you're better off buying in a different suburb or lowering your expectations.

4th - builder's reputation - have you seen some of the new complexes build? u serious?

5th - Many mortgage brokers hype up new developments - as well as marketers - as they received commissions for this ranging from 2-6K. If they can afford to pay this out- how much do you really think the place is worth?. How do i know this? coz i personally recommended one OTP to a relative of mine (coz he was an overseas investor which did not have FIRB) and i got the payment.

i'm not having a go at anyone - i just tell it how it is based on my real life experiences which many would not have gone through.

 

[Melbournian]

agree with u south yarra is great without a doubt or question it is a blue chip suburb undeniable. - however just OTP is a bit risky that's all.

 

[zed_kid]

OTP isn’t evil, it works for some people due to stamp duty concessions and lower % of deposit required, but these are all priced into the final sale price + a couple years of CG and that sucks big time but OTP is not a rort. It does boggle the mind that OTP in aus is more expensive than established, I mean investors carry most of the risk and pay a premium for the pleasure... pretty lame system

P.S. Apartment in South Yarra = always tenanted at a premium price therefore good IP

 

[eeew]

...
It does boggle the mind that OTP in aus is more expensive than established, I mean investors carry most of the risk and pay a premium for the pleasure... pretty lame system ....

i agree. I understand the newness part and thus high depreciation etc...but if you are looking at CG, then depreciation benefits and tax savings aint gonna do it. Look at the risk. just not worth it in my opinion. Still need a place to stay whilst its being built; so you are paying 10% of the opt + rent at your current place on the hope that the new building will be done upto spec and quality promised on time...

The best way to get financial indpendance from property is through cg- buying low and selling high. Just my opinion, a tiny new place thats asking a high price ( and is high risk to begin with) does not have much potential upswing, in the near and med terms. Who knows at that period...

Im not knocking OPT- it works for rich folks, folks especially overseas who plan to send their kids to aus universities a couple of years out, and a way to diversify your assets ( provided of course that the 10% of price ( usually 60-100k) or whatever they are asking for is only a minor part of your wealth. If its not minor, then put your money elsewhere.)...I believe in property, but believe in lcoation, size, and utility, and quality. OPT's usually have the location part, they dont have the size, and not the utility either.They usually are of high quality though. 2 out of the 4 aint enuff for me to part with 60-100k initially.

 

[Melbournian]

i'm not saying OTP is evil - i myself did purchase one many many years ago when the prices were not super high. However - with the current prices at what it is now - and the average wage earner earning what he or she is - servicing the loan while maintaining sanity and lifestyle is going to be difficult. things that were applicable in the past may not work now.

that being said if you're freaking super rich and buying the OTP to occupy and have lifestyle - yeah why not? but if you trying to squeeze some capital gain or make some money - through investing, there are better ways to do that. Unless you're on like 150-200K a year - trying to reap benefits of negative gearing but then again if you were on that salary package - you would have the decency to save a decent deposit to buy a proper place.

 

[Josh Routh]

Due to the large amount of High Rise Projects popping up all over South Yarra including but not limited to ILK, Tresor, SXY2, Claremont, LILI, Capitol, Longford and a few others I cant remember at the moment, your chances of capital gains over the next 2 or so years are slim to none. However should you decide to rent the apartment out instead, rest assure you will recieve a good rental return (provided you choose a good agent).

 

[buzzlightyear]

Due to the large amount of High Rise Projects popping up all over South Yarra including but not limited to ILK, Tresor, SXY2, Claremont, LILI, Capitol, Longford and a few others I cant remember at the moment, your chances of capital gains over the next 2 or so years are slim to none. However should you decide to rent the apartment out instead, rest assure you will recieve a good rental return (provided you choose a good agent).

Really? Why would the picture of rental return be any rosier than capital gains? And what's a good rental return?

 

[turk]

Due to the large amount of High Rise Projects popping up all over South Yarra including but not limited to ILK, Tresor, SXY2, Claremont, LILI, Capitol, Longford and a few others I cant remember at the moment, your chances of capital gains over the next 2 or so years are slim to none. However should you decide to rent the apartment out instead, rest assure you will recieve a good rental return (provided you choose a good agent).

Hi Josh

As a property consultant what would you consider to be a good rental return,
4%/5%/6% or 6%+?

What chance the rental market may also suffer due to the large number of high rise projects?

Cheers

Pete

 

[Melbournian]

there are far better ways to invest than OTP in south yarra to chase a yield.

Even putting a trade on a CFD in the last 2-3 days could have made anything btw 15-40K

 

[RobW]

yes agree but not to forget the buildings need to be completed (and started for that matter) there is no supply for re sale or rent until the keys are handed over - many of those listed cant see that far ?

 

[Melbournian]

well - maybe there is a clause u can exit the contract. i know someone who did that on the zen apartments in the city.

There is no denying those apartments are going to get build once they sell a certain percentage. It's only a matter of time.