Saturday, November 28, 2009

Take Care Buying Off the Plan

If you believe the sales agents hired by developers who sell apartments in Brisbane off-the-plan, you can't go wrong. Sign today, but don't pay for a few years. Population growth. Depreciation benefits. Get is early to choose the best apartment. Early buyers will get the best price. There will be a price rise soon, so sign today!

But there are huge risks:
  • the building may never start, and so the deposit is tied up for years
  • the apartment may look different to what you expect, or have a worse view
  • there could be development next door, impacting your view and the location
  • the developer could onsell the development, and so you end up buying from someone other than who you signed with
  • the apartment may be up to 5% smaller than set out in the marketing plans
  • the quality may be different to what you expect.
However, the biggest risk is that you pay the wrong price. You are trying to guess tomorrow's price today. And let me tell you, prices do go down. In addition, you are paying for the developers marketing and sales costs, which is often more than 5% of the the purchase price. So you are 5% behind before you start.

Let's look at some examples of buildings marketed off-the-plan to see how the purchasers did.
Devine is selling Hamilton Harbour like hot cakes. Let's see their track record. Here are some example resales for Charlotte Towers, their most recent Brisbane apartment development. I have looked at typical midlevel apartments:

Apt 2003 - purchased Jan 05 for $444K, resold July 08 for $425K
Apt 2210 - purchased Dec 04 for $333K, resold Jan 09 for $312K
Apt 2302 - purchased March 07 for $483K, resold March 09 for $468K
Apt 2307 - purchased Sept 06 for $497K, resold May 09 for $490K
Apt 2308 - purchased Sept 05 for $501K, resold Feb 09 for $485K
Apt 2410 - purchased Dec 04 for $351K, resold March 08 for $310K
Apt 2608 - purchased Sept 04 for $508K, resold Aug 09 for $492.5K
Apt 2703 - purchased March 06 for $492K, resold Feb 08 for $461K
Apt 2908 - purchased Feb 05 for $508K, resold Nov 08 for $485K

Keep in mind the the purchasers paid stamp duty of between $5,000 and $15,000 and agents fees to sell the apartment of roughly $12,000, then you can see that many of the off-the-plan purchasers lost more than $30,000, after holding for 3 to 5 years.

Another example is FKP's Vue apartments, at 92 Quay Street, Brisbane.
Apt 1106 - purchased Oct 04 for $400K, resold July 07 for $368K
Apt 1205 - purchased Oct 04 for $475K, resold July 07 for $440K
Apt 2008 - purchased Jan 05 for $504K, resold Aug 08 for $480K
Apt 2409 - purchased June 06 for $535K, resold Feb 09 for $445K

So take extreme care building off the plan, as you may end up paying too much for something that you don't like or want.

1 comment:

Davo said...

My wife and I are looking around to buy off the plan as first home owners in Brisbane and have seen some of these overheads you talk about. We enquired about a small 2 bedroom apartment at Hamilton Harbour and the price was really high and marketed to us as the second most expensive suburb of all Brisbane. I really wonder that at approximately 600k for a 2 bedroom apartment, how much we would get back on that when selling.

The question I want to know, is how do you know what is a good investment, what are the signs which give you confidence on a significant ROI? We are currently looking at an apartment in Cannon Hill (The Barracks) and for 400k, it seems more reasonable and less overheads. Any advice for this investment?