Are off-the-plan purchase prices inflated?


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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.

Off the plan property prices

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"

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Geoff Fagan
September 3, 2015 4.30pm

I bought an apartment in Moonee Ponds 4 years ago off the plan for 498k .
It is worth $435k today. Worst investment I ever made

September 10, 2015 1.08am

I bought a CBD studio apartment in 2005 for $231k and still to this day get appraisals coming in under $200k. It becomes very frustrating when you can't sell an investment property knowing it will leave you with a debt you didn't have prior to purchase. I have developed the belief that this type of investment is not an investment unless you can pay cash for it and treat it as a cash flow portal.

Ms Jennifer
September 18, 2015 5.38pm

Thank you. I was considering buying off the plan

Bob Terry
October 19, 2015 2.03pm

Buyer beware!!

Cathy G
November 11, 2015 10.57am

I bought a unit off the plan at Lane Cove in 2014 for $590k and it should be ready early next year. I have kept up with other developments in close proximity to mine to check potential rental etc. and the prices for 1 bedders that are now actually smaller than my apartment are being sold in excess of $650K! I bought this apartment as an investment but also because I really liked the block and cannot wait till I actually get to see it. So hopefully It will be OK for me. As although I plan to have it for the long term I would like to see some capital gain .

January 5, 2016 5.44pm

I live in a new development and you could see empty houses forat least a year after completion also the mix is very unbalanced in ethnicity and it will continue around sydney for sure as the development companies advertize very heavily overseas first

May 26, 2016 12.53am

We still have the previously mentioned studio apartment and hope to part with it some time in the next year or so and at least cover costs. Anything that has the potential to leave you in debt is a liability, not an investment.