Studio investment at upper west side in melbourne

[kandinsky]

Hi, this is my first post. Need opinion on the mentioned development. I recently booked but have not signed contract for a 36sm studio for aud300k which includes stamp duty, a 5k furniture package n rental guarantee of 6.5% for first year.

I need to know if it is better to pay off the unit outright or take a loan? As a foreigner I heard that rental income tax is 28%, would taking a loan significantly reduce the tax or it is negligible?

As I have not signed the contract , I appreciate any positive or negative comments on whether I should go ahead with the deal. My unit is in tower 1 at mid floor.

Thanks

 

[cimbom]

I would avoid it. A 38sqm apartment is a very poor investment IMO and you will have a lot of trouble reselling it in the future, not to mention that you will have to put down quite a big deposit as banks are not very fond of studios.

 

[kandinsky]

Assuming I do not intend to resell , would it make a good long term rental investment ? The unit can be configured into a one bedroom

 

[Melbournian]

avoid it - it's suicidal.

 

[kandinsky]

How is that suicidal? Would like to hear your reasoning ? I have the means to pay off the unit so won't be forced to auction off the unit

 

[Aaron_C]

How is that suicidal? Would like to hear your reasoning ? I have the means to pay off the unit so won't be forced to auction off the unit

Even if you can afford to pay cash for it - why would you want to sink your cash into an asset that loses money? All money has a cost. I understand you're a foreigner so your options are limited to new things but surely there are far better new things out there that will actually go up in value. Anything under 40 sqm is fatal - Bank of Melbourne (the lender most likely to lend to you) has reached their quota on that particular building so you can forget about finance.

 

[kandinsky]

Is 301k a good price for the unit? All i have heard so far from forumers is that this is a money losing asset, how is that so when this property is sitting on prime cbd land? I am here to hear your reasoning if you have any to share. Hsbc n Anz are potential lenders n I am hsbc premier customer

Even if you can afford to pay cash for it - why would you want to sink your cash into an asset that loses money? All money has a cost. I understand you're a foreigner so your options are limited to new things but surely there are far better new things out there that will actually go up in value. Anything under 40 sqm is fatal - Bank of Melbourne (the lender most likely to lend to you) has reached their quota on that particular building so you can forget about finance.

 

[Aaron_C]

Personally I think it's a bad investment. ANZ maybe can lend but max LVR is probably 50-60%. HSBC I don't know their policy specifically but if anything it'll be more restrictive than ANZ. If you're set on buying it then do so, your choice. Just don't think that because the apartment is in the CBD therefore it is a good buy.

 

[cimbom]

If you can afford it, the minimum you should get is 2 bedrooms and over 75sqm (exc balcony). I think apartments that size are pretty hard to find in the CBD and can be pricey but it would be a much better investment IMO.

 

[vaughan]

...rental guarantee of 6.5% for first year.

Rental guarantee? Is it residential or service apartments?

Realise that 6.5% is not much rent return... and for not very long. What you are not figuring into the equation is the strata fees that you need to pay (on top of everything else like interest, rates, water, insurance, property management fees) that go towards paying for the building's lifts, gym, garden maintenance, security and so on. These strata fees can be a significant percentage of the rent.

Also you haven't stated your purpose for buying: to live in, or to make money?

 

[kandinsky]

Why do Australian banks discriminate against small sizes of units , something I don't understand. A 36sm to 40sm unit in the cbd in my country easily cost aud900-1 million n banks have no issue financing. In fact it makes little sense for cbd ptys to go bigger as space within the confines of Spencer, La trobe, flinders n spring st is so limited when Melbourne will see a population explosion

 

[kandinsky]

I am buying for rental yield

Rental guarantee? Is it residential or service apartments?

Realise that 6.5% is not much rent return... and for not very long. What you are not figuring into the equation is the strata fees that you need to pay (on top of everything else like interest, rates, water, insurance, property management fees) that go towards paying for the building's lifts, gym, garden maintenance, security and so on. These strata fees can be a significant percentage of the rent.

Also you haven't stated your purpose for buying: to live in, or to make money?

 

[Aaron_C]

Why do Australian banks discriminate against small sizes of units , something I don't understand. A 36sm to 40sm unit in the cbd in my country easily cost aud900-1 million n banks have no issue financing. In fact it makes little sense for cbd ptys to go bigger as space within the confines of Spencer, La trobe, flinders n spring st is so limited when Melbourne will see a population explosion

Several reasons:
1) Australians culturally are yet to fully accept apartment living as a way of life. It's getting more popular, but still a long way to go. Besides, even if people are happy with apartment living, 38 sqm is TINY. Don't forget Australia is a big place, Singapore is only a fraction the size so it is less of an issue.
2) If you default on the loan, it is hard to sell the unit to a buyer because of reason 1 where most people don't like small units.
3) Lots of units in that complex mean that the banks have high concentration risk of apartments on their books so if the entire lot goes up in smoke, they are stuffed.

As for the confines of the CBD, that may be the case. However, the market is the market and if people don't want to buy it, then they will simply go elsewhere. Purchasers have choices, why choose your 38 sqm apartment over something with about 20 sqm more room?

 

[kandinsky]

I think there are only 80 units in uws that are studios. Even the one bedders go for less than 50sm from what i know. For aud300k ptys, u mean Australians can default? You guys are among the highest earners in the region coz ur min wage is aud18, unheard of in Singapore

Several reasons:
1) Australians culturally are yet to fully accept apartment living as a way of life. It's getting more popular, but still a long way to go. Besides, even if people are happy with apartment living, 38 sqm is TINY. Don't forget Australia is a big place, Singapore is only a fraction the size so it is less of an issue.
2) If you default on the loan, it is hard to sell the unit to a buyer because of reason 1 where most people don't like small units.
3) Lots of units in that complex mean that the banks have high concentration risk of apartments on their books so if the entire lot goes up in smoke, they are stuffed.

As for the confines of the CBD, that may be the case. However, the market is the market and if people don't want to buy it, then they will simply go elsewhere. Purchasers have choices, why choose your 38 sqm apartment over something with about 20 sqm more room?

 

[Aaron_C]

I think there are only 80 units in uws that are studios. Even the obe bedders go for less than 50sm from what i know. For aud300k ptys, u mean Australians can default? You guys are among the highest earners in the region coz ur min wage is aud18, unheard of in Singapore

Most of them won't default but banks always look at worst case scenario (as they have to). This has nothing to do with our incomes.

The developer sells apartments under 50 sqm so they can squeeze more in (for profit). Duh. I'd do the same if I were them. If you are looking for people here to say that it's a good investment I don't think you will, I avoid the CBD like the plague in any case due to simple supply/demand.

 

[kandinsky]

For 300k aud, what is a good developer project you would recommend ? If I drop uws, I will lose aud 5k, really got to think about what you said.

In any case, is the per sm price ($8360/sm) of the unit I booked fair value for a cbd pty ?

Most of them won't default but banks always look at worst case scenario (as they have to). This has nothing to do with our incomes.

The developer sells apartments under 50 sqm so they can squeeze more in (for profit). Duh. I'd do the same if I were them. If you are looking for people here to say that it's a good investment I don't think you will, I avoid the CBD like the plague in any case due to simple supply/demand.

 

[cimbom]

You will lose far more than 5k if you go through with it. Consider it an expensive learning opportunity

 

[kandinsky]

You mean the value of the pty will drop to aud7000/sm or less? What do u mean by lose far more? If the pty is continually being tenanted out at 380/wk, would it still be considered a loss? I have yet to hear from anyone if 8360/sm is fair value for uws location.

You will lose far more than 5k if you go through with it. Consider it an expensive learning opportunity

 

[Aaron_C]

Hi,

I am not in the business of recommending any particular property/development. I can give you my views but that's just my personal opinion. It's fine to talk about $ per sqm but the key to making money in Australian real estate is the quality of the asset, not the price.

If we compare the scales, a 38 sqm CBD apartment with no car park rates as one of the lowest quality. This is reflected in the banks' reluctance to lend on it. Contrast this with say any normal house/townhouse/apartment in the suburbs. Banks go up to 95% on these properties because they are considered top quality. Access to credit has a massive impact on prices as most people aren't like you and have cash ready to buy something outright. Think about it.

 

[kandinsky]

So is 8360/sm good or fair value for a cbd pty? A one bedroom in Sydney sells at 10k/sm presumably with no carpark lots, how do these two places compare.

Hi,

I am not in the business of recommending any particular property/development. I can give you my views but that's just my personal opinion. It's fine to talk about $ per sqm but the key to making money in Australian real estate is the quality of the asset, not the price.

If we compare the scales, a 38 sqm CBD apartment with no car park rates as one of the lowest quality. This is reflected in the banks' reluctance to lend on it. Contrast this with say any normal house/townhouse/apartment in the suburbs. Banks go up to 95% on these properties because they are considered top quality. Access to credit has a massive impact on prices as most people aren't like you and have cash ready to buy something outright. Think about it.