Off-the-Plan Investing
It seems like only yesterday that queues of frenzied buyers were forming before dawn outside building sites to buy apartments off-the-plan in so-named “lifestyle projects” promoted in glossy brochures and all-expenses-paid trips. Then came the bust. But with the dramatic reaction in new building activity and a strong rise in rentals in apartments over the past two years, off-the-plan units for sale are starting to reappear.
But are they a good buy? For developers, selling off-the-plan is a way of securing guarantees of enough early capital to finance the project and is often a prerequisite of bank lending. For an investor the case for buying can be compelling (particularly when it’s put to you by a commissioned salesperson from the development company or their agents!). There’s always the chance that prices might rise enough during construction – between the buyer putting down the deposit and final settlement – to eclipse any premium added on by developers, and deliver a capital windfall.
But of course there are real downside risks. Buying off-the-plan always has to be approached with caution, plenty of homework and faith that the developer will actually deliver what has been promised. It certainly has the potential of getting one into the property market without really much outlay at all, for example by using a deposit bond for a few hundred dollars. The real question is the value proposition. Is the price realistic against prevailing prices and what are the prospects of completion and rental returns being what are indicated?
The answers are the same whether you are buying an existing property or an off-the-plan. And they lie in the fundamentals: Is there a view? Is there a car space in a locality where there’s not much car parking? And you also have to take into account the quality of the project.
That is how many people, during the off-the-plan frenzy of the early 2000s, had their fingers burnt. Some developers produced beautiful brochures with images of what could never really materialise in real life.
Filed Under: Investment Strategies • Property Investment
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