OTP market

Hi guys,

Do you think the OTP market is dead? And if so, what will come of all those developments going up around the inner city? Do you think that there is likely to be a price adjustment down?

And what of all those people that bought with deposit bonds? If we are to believe everything the papers are saying of late, one would have to think that there will be some good buys just around the corner.

Anyone have a view on all this? Im sure we all do :)

Julie
 
OTP

OTP

my thoughts are no. Many off the plan buyers.. They will search for the cheapest.
I think time will take care of the OTP buys.
I put up a thread about (ettalong beach) Wednesday. 102 OTP units. Four days & all sold. My research showed that 70% of the buyers are paying cash!

Depends on the quality of dev..
But we will still see OTP going on... But if demand,,,, is not there ,,,,,, the price will be less. That will take care of any problems.

ocean
 
hrmmm Im sure the deposit bond companies would love to have the vendor flick the OTP on to someone else even if it is at a discounted price... as this avoids costly legal action for them

wonder how their privacy policies stack up ? whether they would be able to release/on sell information regarding when deposit bonds are about to expire, could be some useful information.
 
XBenX:

Wouldn't one assume that deposit bonds would usually be arranged to provide the deposit until construction finishes. Wouldn't it then be a simpler matter to find out when particular developments are getting close to settlement rather than needing to find this info out from the insurance companies?
 
Sure - but how do you know which are owner occupiers, which are investors that funded the deposit without a deposit bond, which are investors w/ deposit bonds who will complete.....

and once you've sorted this out how do you know how to contact the soon to be owner ? (there are ways to do this, but mostly this info isnt easy to come by or free
 
otp

There are always good opportunities to purchase quality property off the plan.

Like any purchase you need to do your research to make sure your purchase will be a good one.

Look for properties that will appeal to owner occupiers as well as investors. Think if you were a tenant what would appeal to you over another development. Is the project new public transport, shops, does it have view ect.

Deposit bonds are an excellent way of purchasing with little money down, if a 3 year deposit bond costs $5,000 and in 3 years your appartment has increased in value by $50,000, thats a pretty good return on investment.

Always remember the number one rule when buying off the plan, only purchase what you can afford to settle today, purchasing property you cannot afford and hoping you can on sell prior to settlement is a dangerous stratergy.


Nigel Kibel
The Investment Institute
 
Re: otp

Originally posted by nkibel
Deposit bonds are an excellent way of purchasing with little money down, if a 3 year deposit bond costs $5,000 and in 3 years your appartment has increased in value by $50,000, thats a pretty good return on investment.

Or lose $50K if the market goes the other way

Originally posted by nkibel


Nigel Kibel
The Investment Institute

Congrats on being honest and declaring your interest - its great you do that - if only more people would
 
xbenx

Thanks

At the Institute we run property investment courses, I run those courses. The reason that I have started posting again is so that I can apply my knowledge to this forum.

I am happy to state how I am as I do not have anything to hide.

I agree that there is always a danger of property reducing in value dueing the time that you purchase to the time you settle however once agian that comes down to doing your research and be comfortable with what you are buying.

Nigel Kibel
The Investment Institute
 
Hi Nigel

OTP is an interesting thing.

Its like the person that says I couldnt possibly do that XYZ uni course because it will take 4 years. Ill be 4 years older then....... but they will be four years older even if they dont do it.

Whether you make a purchase with a bond today for a settlement on 18 months time, or whether you settle today the effects of the market will be the same. The market may go up or it may go down. Leverage can work for you or against you.

The major fear I have is in a rising rate market is that a long term settlement may not be able to be completed because finance can no longer be qualified for.

Given that some 3 year rates are currently at sub 6 % levels the likelyhood of a sudden panic attack by the RBA is unlikley. Still I like my cleints to have a nice buffer in hand if they are going for a long settlement, be that OTP or option-based.

ta

rolf
 
Rolf:

I think if we were speaking about the sharemarket I would totally agree with you, because pricing is transparent and a margin call can happen on any given day.

But buying property OTP in 3 years or today has different dynamics in my opinion.

If you buy today $500K and finance is approved, bank lends $400K and you put in $100K. If property drops by 10% ($50K), the bank has already put in $400K and so long as serviceability is not an issue, the bank never asks (nor seems to care) about the current valuation.

Take same $500K property OTP for 3-year settlement, and by settlement is now valued at $450K. Bank will only lend $360K, so you now have to come up with $140K.

In each case your property is valued the same, and you have lost the same amount in equity ($50K), but in the latter case you have had to tip in an extra $40K (ie. the majority of the loss) whereas in the former case it's a paper figure.

So, I would say that buying any property is subject to the risk that the market may fall, and therefore your equity diminishes. But buying OTP includes the added risk that the market may fall, and you have to fund the fall from your own pocket.
 
Hi Kev

Fair comment.

2 points.

Rarely will a major lender do a val in TODAY's climate, at sub 500 k in major cities. But yep, with a change in the market there is some risk there, especially in a 3 year settlement.

In legal terms, the same margin call issue applies on most settled loan. Most mortgage contracts have clauses of default related to value of security. This is more a potential issue for LOCs than for term loans, but even there, if the lenders quality of security is diminished they can call the thing in. Havent heard of it happen, so the legal and real positions are obviously different.

Ta

Rolf
 
Rarely will a major lender do a val in TODAY's climate, at sub 500 k in major cities. But yep, with a change in the market there is some risk there, especially in a 3 year settlement.

Can you explain this - I don't understand what you're saying...
 
Not always. I bought OTP in March 02 for $380K, finance approved in November at 80% LVR based on $400K valuation. The actual market value based on pre-completion resales is $415. I asked the bank to value it at $410, but they only agreed to $400. Small difference, but the good thing is that they didn't stick to purchase price and were willing to use a valuation.

Lotana
 
Hiya

Many lenders have a no val policy for property below 400-750 k where there is an "on market transaction".

This means that a valuation is NOT done and the market price is determined by the contract price, with contracts up to 2 and 3 years old.

There are instances where you dont want that to be the case.

One recent one bed settlement near CBD in Syd was purchased at 205 and financed at settlement with a 205 loan (<=80 % LVR some 12 months later). Almost all lenders and some mortgage insurers can be persuaded to lend at up to 100 % of the original OTP price IF there is good resale data.

Ta

Rolf
 
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