The opportunity is, buy off the plan today, invest just a few thousand, don’t pay a cent more until completion at the end of 2007 when ‘who knows’ how much the luxury apartment might be worth?
Has anyone had experience with this type of arrangement? Perth market still surging ahead with no real end in sight…
Should this type of deal be pursued at all. Normal due diligence should apply I know, such as undertsanding what the apartment would be worth in todays terms. BUt given that the developer has probably factored in some rising building costs and buffer, this could still be a good way to leverage a small outlay on a large $$ amount.
Any thoughts? [handlebars]
JES
this certainly is a strategy that alot of investors use. Personally, I have never done it, I prefer bigger blocks that offer some kind of value add potential, ie renovation or subdivision.
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We bought off the plan mid 2005 for settlement in late 2007. I feel confident as this project is the first in this area (riverside and CBD) so it was a case of position, position, position in a very booming town with huge incomes. We are very confident that we can sell at a profit very close to the time of settlement.
Not sure what your circumstances are but I believe if it all adds up and you can afford to cover the interest costs on the deposit until settlement, go for it!!
Cheers
Lisa
mmm..my concerns are that this adds up to speculation. The development I had looked at is now nearly sold out and only the scraps are left. Much more apartment development is heading to the eastern river sector of perth with 30 story towers planned. Perhaps more opportunities will come from here. However, there seems little way to ‘value’ landmark developments in up and coming areas. Personally I reckon $600-$700k (odd) for a 3×2 apartment with city views (all beit not exactly on the CBD doorstep and in a formerly lower standard area) is somewhat high. (for Perth)
Firstly, assuming the price for the apartment cannot be ‘todays’ value. The developer has to factor in rising building costs in order to make a profit. So we must assume that really we are paying perhaps the equvilent of the value of the apartment in say 12 months time anyway. Then the apartment would have to increase in value by 7% just to cover purchase costs, and 15-20% to make a real profit given the risk of the speculation. Personally I believe Perth could start slowing down in perhaps end of 2006 to mid 2007 based on trends experienced in eastern sttas when property just got too inflated for the market to stand.
This means that our speculated apartment would have to then be worth somewhere around $750k (asume $600k purchase) in order to give us a reasonable return (given the risk).
Perth should experience a glut of apartment developments in the next 18 months also which could apply pressure here.
I think I would prefer to look for a good apartment reno in South Perth, West Perth or Subi (undervalued) and add value to it and turn it around in 12 months. That would appear much more challenging in this market (to find the undervalued property) but not so speculative and perhaps more like solid investing.
My 2c.
JES
Hi JES
Looks like you really knew where you wanted to go and just needed to get it all down in order to take a step back.
Cheers
Lisa
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