If you’re thinking about off-the-plan property and want to avoid buying into a lemon, this property commentator claims these are the questions you need to ask.
Numerous developments are being constructed around the Brisbane CBD, and property commentator and CEO of Suburbanite Anna Porter has said this can lead to values declining by up to 20 per cent on their purchase price due to mass oversupplies being created stemming from these developments.
“We hear of the success stories from years gone by throughout Sydney and Melbourne metro, where people have made hundreds of thousands of dollars between exchange and settlement. But we rarely hear of the scenarios where it has all gone wrong and people have lost their deposits,” Ms Porter warned.
“This happens all too often but is rarely spoken about.
“Someone who purchased an off-the-plan unit for $600,000 would probably fetch around $500,000 in the oversupplied sectors by the time it is completed. Same goes for the rent which would also be down by as much as 30 per cent in some of the oversupplied markets of Brisbane, and soon to follow are Melbourne, Sydney and South East [Queensland], with these markets starting to turn a corner.”
If you are going to jump into an off-the-plan property, Ms Porter said that these are the questions you need to be asking:
1. Are there any signs of value recovery on the horizon for the market?
2. Is there still a potential for oversupply to reduce property values?
3. Can you afford the possibility of a vacant property for three to four months during periods of oversupply?
4. Can you get better value for your money elsewhere?
5. If your goal is to see capital returns, can you cope with long-term oversupply problems?
In Ms Porter’s view, the best option for off-the-plan property is to on-sell it before settlement and before oversupply really kicks in, but a lot of developers will not allow this in their contracts, as they do not want to be undercut on price and makes it harder for them to maintain values on the rest of the properties they are selling.
“When you enter an off-the-plan contract, ensure that you have the capacity to on-sell before settlement if you can,” Ms Porter said.
“My best advice is to be very cautious when buying off the plan, as there is a lot of hidden risk. Make sure you get quality legal advice and understand that the market may not always go up in value, so be prepared for the worst.”