Western Sydney OTP

Hi everyone,

Looking for a bit of advice on my situation (I'll be seeking out independent advice from trusted sources as well).

My best friend and I (both early 20s) are working together to purchase real estate. We just put down a $5,000 refundable Expression of Interest for 2bedder/3bedder units (140-unit development) in a western Sydney OTP development from PIA - Property Investment Alliance, settling by October 2014. I know we're both young and naive, so I want to make sure I'm not walking into a landmine.

- I'm seeing a lot of cautions for OTP, but to be honest I'm being enticed by FHOB + Stamp duty exemption + negative gearing for depreciation. Other OTPs in Western Sydney seem to be of equal value to the one we just put in an EoI for. Are the incentives worth it?

- These units are in an area where there are no other units. The whole suburb consists of free-standing houses. In addition, the units themselves are under construction but there's no display unit. How could it be possible to get an accurate independent valuation?

- The location of the place is quite good (built right next to shopping centre + school + hospital + 1 minute away from major arterial road) and the demographics appear to be quite mixed, but there are probably even more better located OTPs in western sydney at the moment in Liverpool and Westmead of similar value. Anyone thinking about those instead?

Thanks for any help/advice - will be reading replies voraciously :)
 
I would only do otp for the fhpg benefits. Otherwise the risk outweighs the return.

The valuation occurs once unit is completed and strata plan number is registered.
 
For FHOG you have to live in it for a certain time, as you don't get this for IP, so no negative gearing. Also how negative will it be one it's an IP?
 
PIA spruik their wares in the norwest market town shopping centre walkway, warning sign #1

140 unit development, warning sign #2

Buying OTP at the peak of the market, warning sign #3

Just my 2c :)
 
PIA spruik their wares in the norwest market town shopping centre walkway, warning sign #1

140 unit development, warning sign #2

Buying OTP at the peak of the market, warning sign #3

Also tries to lease out some of their apartments in Parra and prospective tenants going into a draw to win a Honda Jazz - warning sign #4
 
FHOB is 6 months live-in time but now that you mention it, the depreciation for 6 months wouldn't be counted as well.

Is there any other way to get valuation? It's just that the cooling off period is around 2 weeks from now and so by the time settlement comes, obviously we become committed to the purchase.

We're estimating the place to be negatively geared about $4000/annum (based on current interest rate, rental guarantee of 5% for 3 years, strata/council/other fees).

DaveM, how massive is 140 units? I thought 140 was a relatively small amount for a developer. I agree I'm concerned about warning #3

#1 and #4, that sounds like fairly typical marketing for many other products and I'm pretty sure I saw stalls for lots of other OTPs as well at Westfields Parra and other hubs; is there a particular reason why #1 and #4 are warning signs?

Thanks for all your input so far!
 
FHOB is 6 months live-in time but now that you mention it, the depreciation for 6 months wouldn't be counted as well.

Is there any other way to get valuation? It's just that the cooling off period is around 2 weeks from now and so by the time settlement comes, obviously we become committed to the purchase.

We're estimating the place to be negatively geared about $4000/annum (based on current interest rate, rental guarantee of 5% for 3 years, strata/council/other fees).

DaveM, how massive is 140 units? I thought 140 was a relatively small amount for a developer. I agree I'm concerned about warning #3

#1 and #4, that sounds like fairly typical marketing for many other products and I'm pretty sure I saw stalls for lots of other OTPs as well at Westfields Parra and other hubs; is there a particular reason why #1 and #4 are warning signs?

Thanks for all your input so far!

Would you give me $4000/annum for nothing? Think of negative gearing as icing on the cake, not the main meal.

140 units is a massive amount. For units that hold their value, think more along the lines of 10 - 20 units per block.
 
The thing is, I can't see any other OTPs that are not negatively geared either - our initial plan was to look for properties with close to 6% gross rental yield (although down to 5.7% will still be neutral at this point in time) with decent capital growth, but a lot of advice we've getting from both PIA and others have gone along the lines of neutral-to-positive gearing is impossible in sydney, so we should expect to negatively gear.

I'm also confused because the investing data section on http://www.realestate.com.au/invest shows that there are many areas in Sydney with an average 5.5-6% rental yield, albeit with quite low sample sizes. So are these people saying we should expect negative gearing right, or just cynical/don't know what they're talking about?
 
PIA is only going to tell you what you need to hear so that their properties look good.

Buy a house with that sort of yield and put a granny flat on it. Your yield will then be much higher than average.

Unless you are certain that you are buying in an area that is going to explode in popularity I'd be walking away from that deal.
 
To be fair, there were a number of major developments happening around the area that they pointed out, which could indicate significant future growth. But I think I agree, I'm leaning pretty cautiously away from this now.
 
PIA's barina downs road development is what I assume you are referring to, is 1 street from my office. Its a MASSIVE development.

140 units will mean little differentiation between individual units for growth, and with lots of investors there will be regular sales in the complex, having a number for sale at a time can drag down values as it becomes a game of who will drop their pants to get a sale first
 
Hi Dualitii

My advice - keep out of it. 140 units is a lot (you can imagine at least half of those properties hitting the rental market all at once on completion.. terror). Also as DaveM mentioned this is not a good time to buy OTP especially in Sydney.

With some further research you can find a much better deal out there. It's great to hear that the enthusiasm is there to invest in your early 20s but you have to make sure it's not just any odd investment that comes along.

Good luck with it and hope this helps
 
Got to say that I agree with all the warning signs in the above posts. Like someone else mentioned, best to go with a free standing dwelling. Put a granny on if you want to increase the income.
 
With respect, I'm curious if op who is motivated at a young age, and sounds quite intelligent that he is thinking with his heart instead of his head for investment. The brand new shiny apartment, with brand spanking new appliances, the new house smell, not a scratch on anything polished, everything working since it's new, the chance to win a car, glossy brochures

It's a pretty attractive proposition


If it was a ppor, I'd consider it or buy one that's about a year or two old
 
Could you elaborate more on why OTP is more a good time at the moment? I have a good friend that is considering OTP at the moment, and like to provide him with some more info.

2 years ago I bought OTP. My reasonings behind going OTP was to take advantage of the full waiver of stamp duty (purchased at $550k) and $15,000 FHOG. Thirdly my fiance and I wanted to experience living in a brand new place for a period of time as we have never had this experience, in addition to living without the parents etc since our plan is to move back home afterwards. All in all there was monetary and personal benefits to going OTP for us, and feel like its been positive thus far...
 
Warning sign # 5 : All posters thus far are against the idea.

But look I'll buck the trend. If you can afford it and you like the apartment then go for it. I'm not sure where the property is but if its in Sydney it will go up in value and youll always have a tenant. I've been investing for yonks and never been short of a tenant. People ask me all the time if I've got a free property (even today at work) and regrettably I say "no". And I've got some shonky IPs lol.
 
Is it the metro 28 apartments in westmead. If yes, I would stay away from those. They are overpriced by 10% atleast and you would have problems with the bank valuation


Warning sign # 5 : All posters thus far are against the idea.

But look I'll buck the trend. If you can afford it and you like the apartment then go for it. I'm not sure where the property is but if its in Sydney it will go up in value and youll always have a tenant. I've been investing for yonks and never been short of a tenant. People ask me all the time if I've got a free property (even today at work) and regrettably I say "no". And I've got some shonky IPs lol.
 
Hi r3ckless

General consensus on Sydney is that the market is too hot already, especially after the year we had last year. Normally with OTP you want to buy after a correction phase or at the start of an upward cycle in order to generate some growth while construction is happening. Even then most developers would have calculated a bit of your CG into the purchase price (as well as all other benefits that come with it i.e. save on stamp duty but you pay more for the apartment anyway). You can never time the market but after these many years of fast growth esp in Sydney many people fear it is unlikely that the next few years will maintain the same momentum. Hence the 'bad timing' for OFT in Sydney.

However going by the wise words of Warren Buffett - you should always concentrate on 'what' you are buying and not so much on 'when' things will happen. If the 'what' i.e. the apartment your friend is looking at offers them what they are truly after, especially as a PPOR, then sure as over time it will eventually grow in value. It may not grow fast over the next 2,3,5 years but over time it will definitely grow as the population grows, GDP output grows, the economy grows etc. So if it is for personal use or a long term holding period and it suits them then fine. But if your capital is limited and you want to have it grow in the short to mid term then buying OTP right now is probably not the best idea. Especially in a large development.
 
100% agree with the consensus here, run.

* OTP at the peak of the market (with inflated developer margins into the purchase price)
* 140 unit development
* Buy in own names if possible for something free-standing.

Regards,
Nixba
 
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