OTP Apartments Newcastle

Hi All,

I'm very new to this forum (only came across it today) but I'm loving the info/advice so far. Myself and my partner (both age 25) have just recently purchased our first property, an apartment OTP in a boutique development (32 apartments) in the Newcastle CBD. It's scheduled for completion in March/April 2016 (the developers are anticipating a 9 month build which I find to be very ambitious, so expecting actual completion in July/August at least). Our plan is to reside in the apartment for 6-12 months after completion than convert to an IP. Apartment is 2 bed + study, 1 bath w/ 2nd separate toilet. Internal living space 90m2 with 25m2 of courtyard. No car spaces.

Firstly, I'd like to share my thought process behind the purchase:
- My partner and I are desperate to get a start in the property market but do not have the savings for a deposit on an established property. Purchasing OTP has enabled us to utilise a deposit bond for part of the deposit, and we are confident in our ability to save the amount required to repay the bond at time of settlement. If we waited to save the deposit we'd be 2-3 years from purchasing.

- Purchasing OTP has allowed us to obtain FHBG of 15k, plus receive full stamp duty exemption (saving of approx 17k)

- Location is excellent - 100m to parks/foreshore and new university development (set to school 4,000 students), 500m to large shopping centre and popular dining strip. If planned light rail line is implemented, 100m to nearest stop.

- Apartment is somewhat 'unique' - Apartment will be located on ground floor along with 3 others that will be 'warehouse' design i.e. timber floors throughout, high ceilings, pendent lighting. I have not seen anything similar to this in the numerous other developments occurring, so I feel this point of difference could add value.

- Newcastle revitalisation - plenty of money to be spent on building infrastructure (light rail, access to foreshore) and generally improving the Newcastle CBD in the next 5 years+

- Developer history - Same developer of this complex has recently restored a heritage building in Newcastle CBD into 1 bed and studio apartments. Development has just reached completion, with one apartment selling for $53k above the OTP purchase price of $285k. Also comparing the artists impressions of that development to the finished article brings promise, the quality seems to be there.

I've read a lot about the main risks of buying OTP (undervalued at time of settlement leading to financing issues, changes in circumstances etc), but I would love any advice about the Newcastle apartment market in general. There is a significant number of apartment complexes in various stages of development of quite significant scale (100+ dwellings). Is there a chance of market saturation in the near future? I'm particularly worried that this may occur if talk of the old rail line being developed rather than turned into green space is true.

Also, judging the value of a car space in Newcastle has been difficult. The whole complex has only 5 spaces available as they are focusing on a 'green' image (large bike storage areas instead). I have been able to find very few similar OTP offerings without car spaces, so comparing the value of the apartment has been hard. It will work fine for us whilst living there, but our concern is how severely it will impact our rental return.

Any thoughts/opinions about any risks I may have missed, and on the Newcastle apartment market in general would be greatly appreciated!

Cheers, Tom
 
I can't comment on the Newcastle market, and I note you are already aware of people's misgivings about OTP purchase, but I like the sound of this:

Apartment is somewhat 'unique' - Apartment will be located on ground floor along with 3 others that will be 'warehouse' design i.e. timber floors throughout, high ceilings, pendent lighting. I have not seen anything similar to this in the numerous other developments occurring, so I feel this point of difference could add value.

Yes, there will be some saturation when everything comes on line (as there will in Sydney), but it's good that you have something a bit unique.
 
I can't comment on the location, but Im interested with the design.

And being 32 in the block that's not too bad for today's standard :), however I'm worried about not having a car-space. I tend to avoid anything without it, as I believed Parking is mandatory for an investment to be a good investment (I could be wrong though)
 
No car space is definitely my main concern. There is a decent amount of on-street parking around the building, and at the time of purchase I thought parking permits were available for about $100 p/a. On closer inspection, the building is right on the edge of a CBD exclusion zone. Addresses on the street behind our building are eligible for the permit, residents on our street address are not.

The only saving grace I see is that due to its close proximity to the new university complex, it may attract international university students who will enjoy having access to everything without the need for a car.
 
Tom, judging from your post you did plenty of research and if you already decided that you want to live in it then no doubt it will also appeal to tenants.

If you are unconditional now it is too late to worry about the car park. By living there for a while you will be in a good position to market its strong points when it comes time to rent it out.

I like that there is some uniqueness to the property, it may not mean more rent, but it may well mean it will rent before others in the property and nearby. It sounds like a pretty decent size for a 2B + 1.5 bathroom.

Did you check to see what it should rent for vs the acquisition price? This "gross yield" figure is one indicator of investment performance.

As to the question of saturation, rest assured that property markets are more complex than macro supply/demand metrics. They are an indicator only. A quality property with something to differentiate it should rent well and grow in value. The main issue with OTP apartments in my view is that too many of them are the same small boxes and can't be differentiated on. It sounds like you have avoided this problem - well done!

I'd recommend speaking to a tax professional to ensure your finances are setup with your future goal in mind to ensure you get full deductibility. Also, check your settlement period, which is typically 14 days (including weekends). Get a good broker on your team and make sure all your documentation is in order.

Good luck Tom.
Trev
 
I think I might know the block you're talking about, I idly wandered into a sales office a few months ago. It does look interesting. I wouldn't buy OTP apartment in Newcastle atm, there's an incredible amount being built / sold I would definitely worry about over supply so agree with the others it's great you have a point of difference. If it's the one I'm thinking of, it's also quite close to the new legal precinct. If it were me, I'd be doing everything possible to cater to that market rather than students. Car parking could definitely be an issue, it might even be worth finding out if any of the spaces aren't being used and looking at the cost of subleasing, not sure if it would be worth it but can't hurt to investigate.

To look at current / previous rentals in the area, you can try these sites:

http://www.onthehouse.com.au/

That one has a filter for bedrooms, car spaces etc so it should be relatively easy to see the rent difference.

http://house.ksou.cn/rent.php

Not as easy to use but sometimes they have properties that onthehouse doesn't
 
There is a paid multi-story parking station about 100m away. A permanently reserved park there will set you back $3,000 p/a. Worth looking into a sub-lease, but can't see it costing much less than that which is unlikely to improve rental return.

With 4,000 business and law students soon to be studying half a block away, i'm counting on some wealthy international students willing to pay a premium for the convenience of a fully furnished apartment and no need for a car.

Did you check to see what it should rent for vs the acquisition price? This "gross yield" figure is one indicator of investment performance.

Purchase price was $495k, anticipating rental return of $550, so gross rental yield of 5.78%

I like that there is some uniqueness to the property

My concern with this is that we have been oversold the uniqueness of the property. For example, we have no guarantee in the contract on the ceiling height, quality of timber flooring etc. I've bought this property based on a promise of added 'volume' in comparison to other apartments within this building and other similar developments. Should I try to speak to the architect to get a better idea of what exactly his vision is?
 
What are you basing the rental return on?

Using onthehouse (thanks serendip), along with discussions with agents, but as I said very few similar properties without car spaces. Also very few fully furnished options which I plan to offer.

I'm anticipating an increase in rental demand initially. University development scheduled for completion in 2017, around the time we plan to move out and let the apartment. Although influx of new developments could influence this.
 
It looks like you are having some regrets and are seeking re-assurances from here, as most of your posts are trying to raise a negative point and than raise another positive point to argue it back...

I'll suggest instead of worry what's going to happen why not focus on how can you make your place stand out amongst the rest?

Maybe start doing some research to see if you can add an extra room? post up your floor plan and some of us here maybe able to give you some suggestions.
 
It looks like you are having some regrets and are seeking re-assurances from here

No regrets, although that may change at time of completion as is the risk involved in OTP purchases. I'll cross that bridge when I come to it. Re-assurance is always welcome when making your first big investment decision, but not what I'm seeking. Just looking for any insight/observations/experiences people may have about the Newcastle market and with OTP purchases in general.

post up your floor plan and some of us here maybe able to give you some suggestions.

Apartment G02. Have thought there may be an opportunity to make a small 3rd bedroom to the right of the entrance to the apartment.
 

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No regrets, although that may change at time of completion as is the risk involved in OTP purchases. I'll cross that bridge when I come to it. Re-assurance is always welcome when making your first big investment decision, but not what I'm seeking. Just looking for any insight/observations/experiences people may have about the Newcastle market and with OTP purchases in general.



Apartment G02. Have thought there may be an opportunity to make a small 3rd bedroom to the right of the entrance to the apartment.

Yup that seems possible, I've had friends that converted a 2 bed unit into a 3 bed unit with a tiny living room, as long as you met the regulations of the minimum lighting requirements and all that. (from memory you need to have a window for a 3rd bedroom, in your case it will have a big enough window).
 
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