Off the plan properties

[adam73021]

I'm looking at an OTP property which is in the 3rd (last) stage of being built, the first stage hasn't begun yet so there may be a considerable amount of time before the 3rd stage begins, but I'm wanting to get in early as this suburb was identified as a medium - long term growth area.

Being somewhat new to OTP I've been doing a fair bit of reading. Is there anything that could be included in the terms where if say after x amount of time if there's been no progress that the buyer can void the purchase and walk away with the deposit? What are the key things to look out for with OTP's which may cause problems? I'm hearing horror stories of people being "gazumped" with OTP purchases, when an how does this occur?

Thanks,

 

[nhg]

I'm looking at an OTP property which is in the 3rd (last) stage of being built, the first stage hasn't begun yet so there may be a considerable amount of time before the 3rd stage begins, but I'm wanting to get in early as this suburb was identified as a medium - long term growth area.

by who?

Being somewhat new to OTP I've been doing a fair bit of reading. Is there anything that could be included in the terms where if say after x amount of time if there's been no progress that the buyer can void the purchase and walk away with the deposit? What are the key things to look out for with OTP's which may cause problems? I'm hearing horror stories of people being "gazumped" with OTP purchases, when an how does this occur?

Thanks,

The building is made to profit the developer. From what I've heard, there is more of a chance the clause will state if the property price sky rockets, they can cancel you're deposit and sell to someone else.

In the current economic climate, OTP is not a good purchase IMO. Then again, I don't know enough about the property to make a judgement call.

 

[The Y-man]

Gazumping and delayed finishes are the least of your issues IMHO....

The single biggest risk I see (and some here can personally attest to this) is that your bank valuation for the loan does not come up to what you have agreed to pay on the contract.

Therefore, make sure you have a good cash buffer in place.

i.e. purchase price is $500k, but bank valuation only comes in at $400k.
They will lend you 80% of $400k - i.e. $320k. To complete the deal, you need to front up with $180k cash to make up the short fall.

As a rule of thumb, I suggest having at least 30% deposit on hand in case the val's don't come in at what you expect, and they don't lend to the LVR you expect.

Is this a "live in" or "rent out" proposal?

The Y-man

 

[The Y-man]

Also, allow a doubling of any owners corp/ body corp fees estimated during the sales.

Make sure you do a thorough inspection IN PERSON on completion as there may be many things missing/broken/incorrect spec.

The Y-man

 

[adam73021]

Thanks for the reply guys,

nhg, - there were a few sources (i'll dig through my emails).

The building is made to profit the developer. From what I've heard, there is more of a chance the clause will state if the property price sky rockets, they can cancel you're deposit and sell to someone else.

Doesn't this defeat the whole purpose of buying off the plan in the first instance?

The Y-man - It will be a rent out property initially but my goal is to eventually live in it one day (at least at this stage).

Is there a guide to estimating what the stamp duty will possibly be on an OTP property?

 

[TMNT]

Doesn't this defeat the whole purpose of buying off the plan in the first instance?

thats the sales talk you are falling for, if you think that off the plan is a tool that allows buyers to make huge benefits in terms of capital growth, then you have fallen for the sales talk, if it was so lucrative wouldnt the developer just hold all his stock (neglecting the need for presales for finance aspect)

 

[cimbom]

We purchased OTP in Canberra in 2011 and only just got our deposit back a few months ago (after continually annoying the selling agents ). I would not advise buying OTP unless it is a ~20% saving off buying a comparable property now. It's not worth the trouble IMO

 

[Tano]

Here are some notes i made on OTP

Buying off the plan Advantages

• Only small deposit required (High leverage)
• Next years property at todays prices
• Deferred settlement
• Might be sold at small discount for builder to show strong presales

Buying off the plan Disadvantages

• Company can go bankrupt
• Selling price is sometimes inflated (marketing costs and sales commissions)
• Sales usually occur during the end of the property cycle when prices are booming so prices could fall at settlement
• Lenders could tighten lending conditions due to the over supply of new properties

 

[cimbom]

Oh and another funny example. Prior to buying our OTP apartment, we were looking at another development. The selling agent was exclaiming that we'd be able to get the apartment revalued/resold at 500k upon completion (it was selling for 430k). We didn't go ahead as we thought it was overpriced.

The development is now almost complete and there are many similar apartments that are listed for sale online for below this original purchase price and remain unsold after many months. Almost a year in some cases. Tread very carefully

 

[TMNT]

Here are some notes i made on OTP

Buying off the plan Advantages

• Only small deposit required (High leverage)
• Next years property at todays prices
• Deferred settlement
• Might be sold at small discount for builder to show strong presales

Buying off the plan Disadvantages

• Company can go bankrupt
• Selling price is ALWAYS inflated (marketing costs and sales commissions)
• Sales usually occur during the end of the property cycle when prices are booming so prices could fall at settlement
• Lenders could tighten lending conditions due to the over supply of new properties

...........

 

[nhg]

Very little you can do to add value to the property. and by that I mean... nil.

 

[marg4000]

In OTP contracts there are often clauses that if the building is not finished by a certain date the developer refunds all deposits.

There have been court cases where the developer has deliberately failed to complete a building at a time of rapidly rising prices, then simply refunded the deposits paid to OTP b uyers and on-selling the units for significantly increased prices.

There are also other court cases where values have fallen considerably and purchasers have tried every avenue to rescind the contract.

Buyer beware
Marg

 

[The Y-man]

The 2 year delay when we bought our OTP was a huge releif - gave us time to build up some buffer in case the valuation went bad.

The Y-man

 

[rchad]

Off the plan

Gazumping and delayed finishes are the least of your issues IMHO....

The single biggest risk I see (and some here can personally attest to this) is that your bank valuation for the loan does not come up to what you have agreed to pay on the contract.

Therefore, make sure you have a good cash buffer in place.

i.e. purchase price is $500k, but bank valuation only comes in at $400k.
They will lend you 80% of $400k - i.e. $320k. To complete the deal, you need to front up with $180k cash to make up the short fall.

As a rule of thumb, I suggest having at least 30% deposit on hand in case the val's don't come in at what you expect, and they don't lend to the LVR you expect.



Is this a "live in" or "rent out" proposal?

The Y-man

Great advice; another bit of helpful advice is to NEVER believe the rent appraisals given - always inflated - do your numbers on 10 - 15% less and check the 'for rents' in the area on realestate.com when undertaking due diligence

 

[rchad]

Off the plan

Gazumping and delayed finishes are the least of your issues IMHO....

The single biggest risk I see (and some here can personally attest to this) is that your bank valuation for the loan does not come up to what you have agreed to pay on the contract.

Therefore, make sure you have a good cash buffer in place.

i.e. purchase price is $500k, but bank valuation only comes in at $400k.
They will lend you 80% of $400k - i.e. $320k. To complete the deal, you need to front up with $180k cash to make up the short fall.

As a rule of thumb, I suggest having at least 30% deposit on hand in case the val's don't come in at what you expect, and they don't lend to the LVR you expect.

Is this a "live in" or "rent out" proposal?

The Y-man

SPOT ON - I can attest that many investors who bought off the plan with Hamilton Harbour found that their end valuations fell short of their contract price due to nervous banks and very conservative valuations; many investors did not have sufficient savings/buffer to draw on to pay the shortfall at settlement

 

[adam73021]

Thanks for the responses, great replies.

Given this will be my first property and I won't be claiming what's left of the FHOG, how would I go about calculating stamp duty on a $500k OTP purchase?

 

[Peter_Tersteeg]

For a $500k purchase you need to know what the property value is when you sign the contract. It may be that the property is $200k land and $300 building.

You then simply use the land value for your stamp duty calculations.

The builder will provide you with a declaration to state what the actual breakdown is.

 

[imbi3]

The other issue to think of is, how sure are you to obtain finance when it is time to settle? Business could be slow, people could lose jobs, changing bank appetite etc