Are off-the-plan purchase prices inflated?
Money asks property expert Patrick Bright whether off-the-plan prices are inflated?
The theory with buying property off the plan is that you pay today's price (or at a little discount to today's price, as you're helping a developer with funding to get a project to a pre-sale level so the bank will fund the construction) with the view to picking up any capital gain while construction is under way. This is typically a one- to two-year time frame.
The challenge with buying off the plan is that since 2008 - when foreign investment laws were relaxed by the then federal government - Australian citizens and residents have been competing with foreign investors more than ever. We have gone from a situation where a few percent of new property was being purchased by foreigner investors before the laws were changed to over 16% in Sydney and over 24% in Melbourne during the latter part of 2014, according to National Australia Bank. The forecast is for this percentage to continue to rise.
Within the industry we know it's also happening in other capital cities, in particular Brisbane, but we don't have reliable statistics on the numbers at this time. It's well known within the industry that foreign buyers are not as concerned about the price they pay as they are first and foremost focused on getting their money into Australian real estate. Why would a developer spend tens of thousands more per apartment in advertising and marketing costs to attract foreign buyers if local buyers would pay the same price?
People regularly ask me to check a purchase before they make it. Some are for off-the-plan purchases and since 2008 I haven't seen one where I thought the price they were paying was a good buy. If you're buying off-the- plan property in Australia in the current market, I would be 99% certain in saying you're going to pay over the odds.
Patrick Bright is a buyers' agent & author of "The Insider's Guide to Buying Real Estate Series"