We take a look at the pros and cons of buying off the plan with George Raptis from Metropole Property Strategists.
Kevin: It’s always a telling sight around Australia when you see those cranes go up. You know there’s a lot of construction happening. We’re certainly seeing that now in the capital cities around Australia.
There’s word that there is an oversupply of units hitting the market in Melbourne. I wonder what the situation is like in Sydney. That’s a bit of a landmark market for Australia. I’m going to ask George Raptis from Metropole Property Strategists what he’s seeing on the ground.
Any risk that there may be an oversupply on the way in Sydney, too, George?
George: Hi, Kevin. What we found in the Sydney market up until recently is being Australia’s largest market, we have been struggling with a bit of an under supply of property actually, but there is quite a number of new apartments coming out of the ground. They’re traditionally in those inner-city type locations whereby they used to be the old commercial industrial sites and now transformed into residential living.
Kevin: Yes. One of the things I notice about new unit development is by the time it starts to come out of the ground, most of them are sold through presale activity, because the banks demand that there is a certain level of presales before they’ll even allow finance to go ahead.
Let’s have a look at what might be happening in the future and what people would be aware of if they’re actually going to buy off the plan, George.
George: Yes, it is. The banks do look at these type of developments very carefully. Interestingly, a lot of the major banks don’t like to expose themselves too much as far as lending in these types of developments.
In other words, in some cases, they like to keep to about a 15% ratio. That means if you’re the 16th person going to the bank and want to buy in that particular development, there could be a bit of a drama.
Kevin: On what basis, George? How do they base that?
George: Especially in the developments whereby there are thousands of these things, they all look the same, they like to limit their exposure, Kevin. They don’t want to expose themselves completely, because sometimes these types of developments, you need to be very wary that they are going to be the right property for the investor out there.
Kevin: What precaution should someone take if they’re going to go to the bank? You don’t want to get knocked back too often. It goes against you on your credit file.
George: That’s right. They need to obviously be in touch with a bank who they’re speaking to there, make sure that then they have all the right information with regards to the development and get the feedback from them.
Kevin: I guess a lot of these developments have their own finance people on site. Is that a better way to go, rather than deal with your own bank?
George: A lot of them try to tie everything up in a nice neat parcel and have their own finance people, have their own solicitors, that sort of thing. I’m always a little bit wary of that. I like to keep a bit of an arm’s length, keep someone totally independent from the transaction, someone who’s going to give you honest and independent advice.
Kevin: Let’s have a look now at the situation. We talked about these developments coming out of the ground, and there’s obviously been a number of presales, but by the time they go to construction, there will be still a number unsold. As an investor, am I better off waiting until towards the end because there might be a bit of a clean out at the end, George?
George: It’s a bit six of one, half dozen of the other, Kevin.
I found that in my previous life as a selling agent sometimes some people got better deals at the beginning, sometimes people got better deals at the end. It really depends on the development –how popular it is, for example. They do limited releases to start with. They see how quickly they sell these properties.
If they see they’ve got a lot of enthusiasm in the beginning stages, what they tend to do is then uplift the prices on the remainder of the properties, so sometimes at the end, you’re paying more.
If it’s a development where it’s not as popular and they’re struggling to sell in the initial stages, then what you’ll find later down the track, they probably will discount. You just have to watch what you’re getting yourself into.
Kevin: Even in over supplied markets, George, we see units continue to sell. What is it in one block compared to another that’s going to minimize the impact of an oversupply? Are there any features that stand out that you’ve seen?
George: With regards to features, I always like to look for something that’s unique, something that’s got a bit of a boutique feeling about it, something where they’re not like rabbit warrens, where every one looks like the other one and you can’t differentiate one from the other.
It could be floor plan. It could be the aspect. One might have a nice city skyline view or a water view as opposed to something that’s looking into another block. I’m always looking at something that’s got that uniqueness about it.
Kevin: What about that mix of owner occupiers compared to investors? Is that something we should be concerned about – in other words, trying to get into a block that’s got more owner occupiers than investors?
George: Always a better thing to do. I don’t like looking at properties where it’s predominantly investor owned. Unfortunately, they don’t get involved in the day-to-day runnings of the property. They don’t take a lot of interest, so what happens is you have this huge flow of people moving in and out and places get knocked around a lot.
If you’re looking at something and it’s predominantly owner-occupied – which unfortunately, in a lot of cases, a lot of these larger developments, they’re not; they’re mainly investor-owned – I’d say a good rule is if it’s mainly owner-occupied, it would go well in the future as far as it being well looked after.
Kevin: Good idea, George. George Raptis there from Metropole Property Strategists. A bit of wise advice if you’re planning on buying off the plan.
George, thanks so much for your time, mate.
George: Thank you, Kevin.