Off plan pur­chase pit­falls

Herald Sun - Property - - COVER STORY -

BUY­ING off the plan of­fers con­sid­er­able stamp duty sav­ings but it can come with con­sid­er­able risk.

Re­search by Mel­bourne buyer ad­vo­cates WBP Prop­erty found more than 40 per cent of off-the-plan sales sam­pled were val­ued at less than the con­tract price when it came time to bor­row money from the bank.

Chief ex­ec­u­tive Gre­ville Pabst (pic­tured) said the av­er­age de­vi­a­tion in prop­erty value was $35,000.

If the bank’s val­u­a­tion comes in be­low the con­tract price for an off-the-plan pur­chase, the buyer usu­ally has to wear the dif­fer­ence.

Mr Pabst said the risk buy­ers face is that they sign a con­tract in one mar­ket, but con­di­tions may have changed when it comes to set­tle; some­times up to two or three years later.

“What typ­i­cally hap­pens with off-the-plan apart­ments is th­ese are mar­keted dur­ing an up to two-year cam­paign. It could take the larger ones two to three years be­fore th­ese apart­ments are com­pleted,” he said.

“You’re buy­ing in one mar­ket but by the time it comes to set­tle, it could be 2017. The mar­ket in two years may bear no re­sem­blance to two years ear­lier. That’s the big risk peo­ple need to be aware of.”

Mr Pabst said buy­ers au­to­mat­i­cally ac­cept that the $500,000 they paid for an apart­ment will be the value.

“Our re­search has in­di­cated quite of­ten that’s not the case.”

Mr Pabst said eco­nomic con­di­tions, such as in­ter­est rates, and the sup­ply of new apart­ments in a lo­cal area could im­pact on an apart­ment’s value.

The re­search, which took a snap­shot of about 900 apart­ments sold off the plan in the past 18 months, showed that 55 per cent were val­ued at the pur­chase price when com­pleted.

“In most cases, the prop­er­ties that did value up at con­tract price were those that were gen­er­ally un­der $400,000. Typ­i­cally they will be the onebed­room apart­ments,” Mr Pabst said.

“When we found a higher de­gree of risk it was in the twoand three-bed­room and higher value apart­ments, which typ­i­cally con­tracts were ex­changed at $600,000 to $900,000.”

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