I went to a seminar last night on the above subject. They also pitched to the audience and exclusive hot off the pres oppourtunity to buy an aprtment off the plans in Wellington. The figures look good, in terms of predicited growth in the Wgtn CBD and the prediction of falling interest rates and increased house prices. The nice thing apartment this apartment is that it has two aprtments on on lease – a studio and a one bedroom. You can pay for the aprtment using home bonds, meaning you will only need an inital cash outlay of around NZ$4000, with the deposit due on settlement, which is completion in 2-2.5 years. To me this looks like a great oppourtunity to purcahse and resell prior to settlement, hopefully for a nice margin. The price offered is at a discount of 7% to the estimated value (the value being an estimate now and not on completion). I have always been told to stay away from apartments etc, etc and there is at least 100+ titles in total in the two towers being constructed. What are peoples thoughts on this oppourtunity? Any help would be much appreciated.
Regards Tim
I have never bought one of these investments as what I keep reading about them frightens me.
First; if they are pitching this development, then they are sales agents for the developers. Their commissions and ads are built into the price of the apartment – you will be paying too much.
What I keep reading is this;
– you will only be able to flip it for a profit in a rising market – check the status of that local market – not the wider market.
– you cannot predict the end price, thus the cap growth prediction may disappoint.
– the price you are paying now is quite often over the market odds already; the ad costs and saleperson commissions have been built into the price.
– you should only buy in blocks with less than 50 apartments as you could end up with one in a large complex that is hard to sell if everyone is trying to sell at the same time.
– same goes for renting; lots of apartments for rent means competition and either low yield or high vacancy.
– “sunset clauses” in contract allowing the developer to flick you at any stage if the market is booming and they think they can sell it for more. you have money tied up for 2 years for nothing. Or worse; the market drops and you are left with an apartment worth less than what you have to settle on.
– “swithcheroos” by the developers with the fixtures and fittings; you are shown and quoted one brand and price; they install something different (usually cheaper for them) and inferior quality.
– in developments of this size the maintenance/management costs can be very high – lifts, pools, gyms etc. This could scare away potential resale.All the above dangers will contribute to you not being able to offload the apartment at a good profit should any one of them occur (other than the sunset clause as they will flick you before settlement), and you will be left holding the bag.
I would be doing lots of independent research on this. Find out if there are other developments going on in the same area, what the rent demand is like for the area, get an independent valuation on the predicted end price (and the current value of other apartments in the area) and see what existing apartments in the same area are re-selling for now since they were first released.
Get a property lawyer to go over the contract before signing anything.
The worst case scenario is that you will get no cap growth, no-one will buy it at your expected price, and you will be stuck with the apartment at settlement. The rent may be far less than the quotes from the developer and/or his agent.
Can you raise the funds to settle on the property in this event, and can you hold it in the event of high vacancies, low rent yields and high holding costs? If the answer is no, then don’t buy it.
It must be a ‘stand alone’ deal in the WORST case scenario – not the best case. Best case quite often doesn’t happen.
Cheers,
Marc.
[email protected]“we get sent lemons; it’s up to us to make lemonade”
Thanks for your reply Marc,
In this case, the agents price for sourcing the property is set at a stand alone fee, so is seperate from the price you are paying. For the price you pay them, they provide you with a lot of the research i.e. current rental prices for the area, projected growth for the area, etc, etc – which is quite compreshensive. One thing I did like was the fact that the ‘salesmen’ was going to buy a couple of these apartments himself ( as I found out when I approached him after the seminar). Thank-you for your advice on ‘worst case’ senario, it is something that I must take heavily on board. While the apartment will be positive cashflow based on current price and current rental returns for the area, it will be coming up with the actual settlement costs that would be the hard thing, should I not be able to sell. I will certainly invest in doing my own extensive due diligence. I appreciate your help.
Regards tim
I hope as part of your due diligence that you include a valuers appraisal of the apartment. You will need to supply him with a set of plans and the specifications of the apartment. You will then have an independant idea of the end value, regardless of the cost to the developer. If you are paying more then you walk away.
good point thanks, I will definatly take that on board. The agent who have sourced the deal have done their own evalutaiton as well
Originally posted by boon69:Thanks for your reply Marc,
One thing I did like was the fact that the ‘salesmen’ was going to buy a couple of these apartments himself ( as I found out when I approached him after the seminar).
Of course he is lol, can someone say ‘GULLABLE’ ? [whistle] Sooo has he bought them already? Has he shown you the signed contract? C’mon mate thats the oldest line in the book!!!!!
yeah he showed me his contract, he had just signed it that day – it wasnt something he had told everyone, I just asked him after the event
Hi have heard nothing but bad stories about buying new units of plans.
Firstly thay almost always cost far to much. You need to start looking around tonnes of units that are similair and see what they are selling for. Remember the actually selling price is usually 5% to 10% below the asking price, and then all the other costs etc. Claiming 7% below market value is probably just an our-right lie. There is no way they could be that exact. Everyone I have seen who brought new units off the plans was unable to sell for profit until about 3 years had pasted.
hhmmmmmm ok thanks for that, I guess one positive thing in the light is that the they will not be complete for 2 years, which will give them time to rise in value – that is if the initial value is a fair price in terms of real time value
Originally posted by boon69:hhmmmmmm ok thanks for that, I guess one positive thing in the light is that the they will not be complete for 2 years, which will give them time to rise in value – that is if the initial value is a fair price in terms of real time value
Or fall in value-things dont always go up mate……Its sounds like you are trying to convince yourself and us-just do the sums, do the research and then make the call[thumbsupanim]
yeah your right there – I guess I will just have to be extremely careful when completing my due diligence – thankyou
Was anyone quick enough to get one of the new apartments just opposite the Sydney casino?
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