Forum Replies Created
“houses make better investments than apartments (mainly because of the capital growth linked to the land content of houses).”
The above statement is correct at times. The preference is often more aligned with “best use” which provides options and can increase capital growth at a faster rate than a typical apartment.
For example, single family homes are often on a lot which can be redeveloped – where an apartment cannot.
If the zone changes and apartments or commercial buildings can be built on the lot by right, then its “best use” changes and the value of the land increases.
However, the value of an apartment is generally inclusive of land also, i.e. if there are 10 apartments, each apartment owns 1/10th of the land [simple example] and is valued accordingly.
Because apartments are more of a static investment – what you buy is what you get, this does not mean to say they cannot appreciate in value as much if not more than a single family home – the “demand” factor.
Furthermore, an apartments value will often appreciate if the house down the road has been rezoned to commercial, for example.
Apartments are driven by several factors which should be taken into consideration when looking to buy, including:
1. convenience, i.e. location.
2. offering amenities/services which many people cannot afford in a single family home, or do not have the time to add-on.
3. second home, i.e. vacation or business.
When considering an investment in real estate, do not be overly influenced by what you read – including what I have said, research the location including planned development, zoning, sales trends, etc, and compare property types to determine which one fits with your investment strategy, in terms of risk versus reward.
— Michael
“what I hate is the strata fees. Every unit is another corporate fee.”
And there are no costs associated with maintaining a single family home.
Do not only account for tangible costs, also take into account the “time” spent maintaining a SFH and property.
In most cases a strata fee is less than the cost to maintain a SFH on an annual basis.
— Michael
“One bedroom units are the way the experts are saying to go.”
This is the second post in as many days where “experts” have been used to qualify a statement which is not quite correct.
One bedroom apartments are not necessarily the way to go, especially in Melbourne at this time.
The fundamentals of real estate investment stem from supply and demand – and common sense.
If there is an oversupply of any particular product, i.e. 1 bedroom apartment, then it is unlikely to be a good investment.
If there is an undersupply of any particular product, i.e. quality 3-4 bedroom apartment in CBD, then it is likely to be a good investment.
— Michael
“If you listen to the experts, they say there is good bargins from Jan – July 2005”
Define “experts”?
— Michael
First rule when buying OTP is to never go with the sellers recommendations, i.e. lawyers, references, etc.
In terms of legal advice, I am located in the United States, and although my company has legal representation in Australia, they are more geared for representing corporations.
What I suggest is contacting one of the more established firms in Melbourne which specialize in real estate transactions, or have a dedicated property law division, and ask questions.
The established firms rates may be slightly higher than a smaller less reputable firm, but they typically have the resources to expedite the job more promptly – and having a reputable law firm behind you is worth the extra few dollars.
Needless to say they may take further action if the seller has acted outside their legal obligations, which can only work in your favor.
Request a quote for services before committing to any legal firm. Generally there is an initial interview at no cost which enables the firm to evaluate if they should take on the client.
A firm that comes to mind in Melbourne is Rigby Cooke [www.rigbycooke.com.au]. I have never had any association with this firm nor do I know their background to any extent. But they do specialize in property, and could be a good starting point – but conduct due diligence.
As for tracking down buyers of CE apartments, the easiest option may be contacting owners who have put their apartment back on the market.
Your post is a lesson for anyone considering OTP property – especially those marketed and sold at sales presentations.
If you were put under pressure at a sales pitch, then there may be legal grounds for cancelling the contract.
Best of luck.
— Michael
“if there were faults – is the vendor obliged to fix these before completion?”
– This provision should be included in the terms of agreement.
The developer is generally responsible for “faults” resulting from inadequate workmanship, materials, etc, for a defined period, i.e. 12 months after date of settlement.
— Michael
“the flat is a Central Equity one”
– CE apartments typically define “over-supply”.
In saying this, the investment may meet your objectives, but make sure you conduct detailed due diligence on the locality, similar current and proposed development in close proximity, market/rental trends and sales activity, valuations, CE apartment turnover – if the turnover is high to moderate, there is a reason.
What is the forecast capital growth during your holding/investment period? If you cannot answer this then find out. CE prodominently sells on projected income. If clear capital growth is not evident, then this type of property may not be your best option [supply v. demand].
If possible contact people who have recently purchased a CE apartment, i.e. 1-2 years. And/or those selling their apartment. Do not ask CE for contact information, source it yourself.
And most importantly, have a lawyer experienced in OTP sales go through the purchase agreement with a fine tooth comb. A detailed inspection of the apartment is secondary to the terms and conditions of this contract.
— Michael
If supply is [or could be during your holding period] in excess of demand, look elsewhere.
Inner city apartments are only worth the investment if they offer a competitive advantage, i.e. spacious, attention to detail, exclusivity; and/or there is a clear demand [rental and re-sale] for the product throughout the estimated holding period.
— Michael
A cross-border tax advisor/accountant is recommended.
— Michael
There is no specific guideline for the information you require because it varies from region to region [labor costs], project to project [schedule of materials] and month to month [material costs].
I recommend contacting a local contractor to discuss the above and the general steps involved in building a 3 bedroom dwelling.
— Michael
“Shares aren’t generally talked about here due to ASIC regulations.”
– There is nothing under ASIC regulations that prevents discussing shares as a topic in any public forum.
What is restricted is promoting specific shares/stocks/equities or disclosing information that may impact the shares or company.
— Michael
“you’ll need shares – in fact, you’ll need other investments as well”
— This is not a recommendation to abide by. I personally have shares/stocks because of the liquidity – easy to cash-out. But I also have other investment vehicles to offset the risk and/or potential downturn in the markets.
Unless you understand the company/industry you are investing in, acquiring shares can be very high risk.
Also understand how the share market works – investors do not only make money when share prices are on the rise.
And do not rely soley on any broker – do your homework and closely monitor any company you have invested in.
“it called – “Multiple Streams of Income””
– Not necessarily correct.
It is called “diversifying your portfolio” – spreading the risk.
There is no guarantee shares, or any investment type, will generate an income stream.
— Michael
“Ive been told that the area hasn’t reached it’s potential as yet as the developments here have only just started.”
Development does not necessarily mean the market is on the rise. It can take many months, often a year or more from the date the project was conceived before construction begins.
Development planning often gets to a stage where the developer must decide to proceed or forfeit his/her investment – due to declining demand, rising interest rates, etc. Which is why at times new developments are being undertaken in locations where the market has flattened out or is on the decline.
This may not be the case in this circumstance, but it is always something to consider when evaluating any location for investment.
— Michael
Contact your local council/city planning department to find out if you can subdivide the land and what can be built by right.
— Michael
Based on the information provided, you must abide by the covenant, which can only be amended by the adjoining property owner.
However, if you haven’t done so already, you should speak with the local council/planning office, and a qualified lawyer to determine if there are avenues to pursue.
I would have consented to the adjoining subdivision – if consent was required – only if the owners released the covenant.
If they undertake further development that requires each neighbors consent, this avenue may be your only means of releasing the convenant.
— Michael
[response from “Help Needed”]
In order to acquire property by way of a loan in Europe [or any country] with a foreign entity, the entity must have sufficient assets to secure the loan.
The loan originates in the country where the entity is registered – unless the entity retains sufficient foreign assets.
For example, based on the scenario outlined, you would borrow funds from an Australian bank or other lender, which are secured with assets in Australia. The funds are then invested in property in Europe.
If the loan defaults, the lender liquidates the Australian assets.
The principles of vendor finance, as they apply in Australia, may vary in European countries. Therefore it would be advisable to speak with a property lawyer or other professional before proceeding.
— Michael
“My mate is indeed a Malaysian national”
To reiterate my earlier point, the fact that your potential partner is a Malaysian alone means very little. In order to reduce your risk, it is advisable to partner with an individual well established in this market, with a successful track record and reputable network.
“How is the property market travelling over there”
I would think this is a question you should be asking your friend. If you do not trust his feedback then you need to add this to the list of risks.
Don’t mean to sound negative, but you are considering a market we researched several months back and declined to enter for many reasons – the most prominent being, Australia and New Zealand offered greater return on investment potential for far less risk.
— Michael
Unless well established financially [prepared to lose your investment], with value-add/successful contacts/JV partners in Malaysia, then this is a very high risk market.
Given the risks involved – short or long-term investment strategy, Australia and/or New Zealand should be far more rewarding.
— Michael
Without wanting to add salt to any wounds, this is an example of why lawyers should be employed to review “all contracts” – no matter how inconsequential the transaction may appear.
Unless there is a provision in the contract for penalties, then without litigation you are not entitled to penalties.
The same may apply in terms of canceling the contract without arbitration. Although as it appears the builder has breached the 140 days condition, then it is likely the contract can be terminated if so desired.
In terms of avoiding delays, rather than the penalty being a rate of interest, a daily deduction in outstanding payment [percentage should always be held over until satisfactory completion] generally ensures the work is completed on time.
— Michael
In order to acquire property by way of a loan in Europe [or any country] with a foreign entity, the entity must have sufficient assets to secure the loan.
The loan originates in the country where the entity is registered – unless the entity retains sufficient foreign assets.
For example, based on the scenario outlined, you would borrow funds from an Australian bank or other lender, which are secured with assets in Australia. The funds are then invested in property in Europe.
If the loan defaults, the lender liquidates the Australian assets.
The principles of vendor finance, as they apply in Australia, may vary in European countries. Therefore it would be advisable to speak with a property lawyer or other professional before proceeding.
— Michael
