© Property Professor articles — www.thepropertyprofessor.net.au.
Reproduced with permission.
If you want to buy an off-the-plan apartment and make it your home, this could be a great strategy so far as lifestyle is concerned.
These apartments are often located close to the CBD, employment nodes and facilities such as cafes, restaurants, theatres, etc. However, in regards to investment, it is not necessarily a good capital growth strategy.
There are a number of reasons for this:
Off the plan apartments are sold with a developer’s profit margin built into the price; you’re paying a premium.
A large proportion of your money is paying for the building and associated works e.g. lifts, swimming pools, etc which depreciate in value over time. It is only a small proportion of your money which is invested in the appreciating component of the property which is the land.
Many off-the-plan apartments are sold for less than what they were originally purchased.
To test my last point, I randomly selected a relatively new block of apartments built in my home town of Adelaide. The apartments are in the prime suburb of North Adelaide. This suburb is similar in nature to Paddington (Sydney) and Carlton (Melbourne).
There were a total of 12 apartments that were originally bought off-the-plan/brand new and sold again in the last couple of years. Only one owner sold at a reasonable profit. The majority of owners lost significant amounts of money. The average drop in value was $268,112! This is during a time period when property prices in Adelaide have actually grown noticeably.
I have researched the capital growth of off-the-plan apartments around the country and the story is similar; many apartments are sold for less than what they were originally purchased, especially in the first 4 or 5 years from construction. I know this one case doesn’t conclusively prove my point. All I wish to do is highlight the fact that you need to be very cautious and do your own research when purchasing any property, especially off-the-plan apartments.
If you are interested in buying an off-the-plan apartment to live in you should consider the following points:
- At least one car park
- Functional balcony (if not on the ground floor). You should be able to fit a small table, two chairs and possibly a BBQ.
- High quality fittings and finishes.
- Quiet location
- Views which can’t be built out.
- Read the contract carefully
If you are a first home buyer, there are many incentives available to you, depending on the value of the apartment and which state/territory you live in.
In my home state of South Australia, you could be eligible for:
- First Home Bonus Grant – $8,000
- First Home Owners Grant – $7,000
- Stamp duty savings – $16,330 (if the off-the-plan apartment is valued at $400,000 or less).
The incentives can be even greater if you are buying in New South Wales:
- First Home Owner Grant (New Homes) Scheme – $15,000 (value less than $650,000)
- Full stamp duty concession if the property is less than $550,000 (saving of $20,195)
- Partial stamp duty concession between $550,000 and $650,000
- If you are a first home buyer buying an off-the-plan apartment in Sydney, you could potentially save over $35,000
These incentives can greatly assist the first home buyer looking to get their foot onto the first rung of the property ladder.
Written by Peter Koulizos, university lecturer, author and buyers advocate. Reproduced with permission from news.com.au.