off-the-plan purchase mystery

[jsoe]

My partner and I have been looking for a reasonable off-the-plan units around Sydney, but have been blown away by how expensive they are! I'm talking 45% more expensive than existing well-kept units.
Ok, as a buyer, the point of buying off-the-plan is to buy a brand new unit at today's price, may be at a higher price coz everything's brand new.
And I've heard developers say they don't take into account capital growth (within construciton period of say 1 or 2 years, as they don't play reading the crystal ball game).
Then why are those off-the-plan units ridiculously expensive? I'm talking our 2 bedroom unit's current value is equivalent to these off-the-plan's 1 bedroom unit, which hasn't even built yet! And they're in the same local council area. How could there be such big difference?
Dear Mr. Developer, please help me get my mind right. Thanks heaps.

 

[mary&mat]

Hi jsoe,

Is it b/c the apartment complex has lots of lifts, a pool, anything at all like that?

I believe they have a pretty high inbuilt profit margin for the developer too.

There are threads on this site that explain why OTP are not always the best investment.

Regards,
M&M

 

[Aaron Sice]

generall OTP is NOT today's price. it's more likely the projected sale price at handover.

 

[sash]

Run forest run....

Yes...they are severely overpriced....be careful as when you come to settle the bank may not value it at the same value.

If you must buy boutique developments.....

My partner and I have been looking for a reasonable off-the-plan units around Sydney, but have been blown away by how expensive they are! I'm talking 45% more expensive than existing well-kept units.
Ok, as a buyer, the point of buying off-the-plan is to buy a brand new unit at today's price, may be at a higher price coz everything's brand new.
And I've heard developers say they don't take into account capital growth (within construciton period of say 1 or 2 years, as they don't play reading the crystal ball game).
Then why are those off-the-plan units ridiculously expensive? I'm talking our 2 bedroom unit's current value is equivalent to these off-the-plan's 1 bedroom unit, which hasn't even built yet! And they're in the same local council area. How could there be such big difference?
Dear Mr. Developer, please help me get my mind right. Thanks heaps.

 

[The Y-man]

Dear Mr. Developer, please help me get my mind right. Thanks heaps.

Which do you think is in the market to make a profit? An ordinary owner of an existing unit, or a developer that does this as a business?

You'd want to build in at least 30% fat into the figures. You need to also consider the exisisting ones have had some depreciaiton.

In places where you get a stamp duty exemption, you would also jack the price up by this amount - as the buyer will think they are getting a saving.

The Y-man

 

[jsoe]

hi mary&mat,
there's no fancy pancy panthouse in these OTPs we're looking at. They have lifts coz they've got more than 3 levels. That's what's confusing me.

hi Aaron Sice, so developers DO play crystal ball games. But as far as I understand, they won't use that future price for their feasibility test, will they? Or do they? It makes it so risky for OTP buyers when we have to finanace it at the completion/settlement date, and the bank doesn't value it as high.

So, why do people buy OTPs at all?

 

[alexlee]

So, why do people buy OTPs at all?

'Cuz new apartments are shiny.......

 

[lizzie]

was having a chuckle the other day about an advert in the paper regarding a boutique block in newcastle that has settled. the advert is selling the unsold-off-the-plan appartments at a 25% discount of the original price.

wouldn't that make you really peeved if you'd bought off the plan as your property just lost 25%!

buying off the plan is a gamble that the market will be significantly stronger in 1-2 years time. a vividly recall when docklands (melb) settled - lotsa people went to the wall on that one when they couldn't settle due to low bank valuations, and they lost their deposits - or sold at a large loss.

 

[The Y-man]

So, why do people buy OTPs at all?

Because they get sucked in by the slick advertising.... and also as Alex said, they are nice, new and shiny (which is fine if you are going to live in it)

The Y-man

 

[mary&mat]

So, why do people buy OTPs at all?

Personally, I believe it's cos they got suckered and possibly because they haven't taken the time to ask the sort of questions you are asking.

Oh yeah, I second alexlee's 'shiny' comment....why do people buy plasmas, cars etc they can't afford or don't actually need...keeping up appearances!

I'd sink my money into something already established that I can value add to & create my own profits

Best of luck with your OTP research!

Regards,
M&M

 

[Aaron Sice]

you said it yourself, they're comparitively overvalued.

why WOULD you buy?

i know of OTP houses that are selling for 10% UNDER market value.

 

[rugrat]

I like OTP. But my number one rule is: Don't pay more then what the place would be worth if it were built today. If you cann't find any selling for todays prices, then don't buy.

 

[depreciator]

Then why are those off-the-plan units ridiculously expensive?

They're that price because people are paying it. Simple as that. The developers would have got a feel for what the market might bear before lobbing a price out there.

There was a story in the paper (SMH) last week about how quickly OTP sales are going in some developments in Sydney.

 

[Lamingtons]

Are these OTP buyers in capital cities from overseas?
I see them marketing Melbourne CBD apartments (yes you MICM) to Singaporeans all the time.

 

[Marty McDonald]

Stamp duty exemption for all sub $600k off plan purchases in nsw. Woulnt touch with a barge poll many will get burned

 

[jsoe]

thanks guys, we really gotta rethink our strategy altogether. that NSW stamp duty exemption sparked our interest in newly built and OTP units. And the scenario of just coughing up 10% deposit and without having to settle for 2 years or so was quite attractive (hoping for some capital gains for ourselves).

We were trying to be creative and cheeky to approach developers directly and getting some of those at a cheaper price (before those fancy marketing ads were made up, etc.). 1 developer referred us to the real estate agent which shouted out BIG overpriced selling prices, and another didn't even bother replying. a little naive, aren't we? but it's a pleasure to listen to different views.

On a second thought, I think I wanna be a developer myself!

 

[depreciator]

That stamp duty exemption sparked the interest of a lot of people. That's why the sales have been strong for developers - especially in the sub $600K level. Some developers are having a good run right now, but it's not always the case.

 

[Tony3008]

Are these OTP buyers in capital cities from overseas?
I see them marketing Melbourne CBD apartments (yes you MICM) to Singaporeans all the time.

Yes, they used to come to London about five times a year - I fell for the bait twice while living there. I don't whether they still do since the collapse in sterling v. the Aussie dollar (from 2.30 to 1.61 in the last two years) and the fall in UK house prices will make Melbourne property look expensive to UK eyes.

Of course if you settled on a Central Equity property as a UK buyer 2+ years ago, are still there and sell now you'll make 30% on the currency change. Conversely (and this is a big OTP foreign buyer risk) if you paid your deposit two years ago and now need to settle, your UK salary v. AUD borrowing equation will be a lot more challenging.

T.

 

[Graemsay]

Just to add a bit about the UK market. When we had the downturn here, it was the new build apartments that really suffered.

A huge number of new residential developments went up during the housing boom here, and were largely being sold to property investors. As with the examples given above, the asking prices were optimistic, and generally led to two outcomes:

1. Their values plummeted, inflicting a large capital loss on their owners.
2. The developer forced the purchaser of an OTP unit to complete, going to court if necessary to enforce the contract.

That said, I've heard anecdotes that you can get a great deal on a new build if you're willing to purchase one of the last properties on a development. The developer will want to shut down their sales office (as its costing them), so will be willing to cut a deal.

And discounts for multiple purchases were on offer in the UK...

Does the NSW stamp duty exemption apply to buying a building plot, and developing that?