A timely reminder of the risks of OTP....

I don't like appartments. I like land value

 

There's nothing wrong with apartments, two of my best performing properties are apartments and I own majority house w/land. You just have to be selective and avoid certain types.

 

According to a study by BIS Oxford Economics, released last week, you do need to be selective. Around 40% of off the plans in Brisbane sold at a loss, and 60% at a loss in Melbourne, since 2011. That part of the market is also seeing some major developer discounting - 39% off "fire sales", $30,000 cash back schemes, free cars - all of these have been attempted in recent weeks in Sydney, Brisbane and Melbourne, especially where foreign investors aren't able to settle. Established apartments performed better (though did have a higher rate of loss than houses). Apartments are also where the majority of oversupply is concentrated - any bust could be contained there, with luck.

 

My two property mentors that I really look up to, taught me this lesson. Their portfolios does not have a single apartment and they like land. But than again, I do have friends who brought well for units in the Bondi and Northern beaches area.

 

It's true people have done very well with appartments. My best friend made heaps of money buying an off the plan appartment on the beach in Sydney.

There are lots of ways to make money in real estate and everyone has a signature strategy that works well for them.

You actually don't make money following the packs but make money when you personalise your own style.

Developable blocks in western suburbs are my personal strategy.

 

But right now growing a rent roll takes precedence as a real estate strategy over anything else.

 

The reality is in the current world, the primary thing that makes real estate valuable is location.

Location, location, location.

It takes precedence over land, leases, etc, etc..

 

just walked past the Meridian Chatswood OTP opening a few minutes ago and its already packed with expectation that they will all be sold out immediately. You'd think they were giving out money...

 

Totally agree with you. I am always amazed at seeing excellent results done by people that may have applied a different strategy and it works well for them.

 

Ummm I half agree with you. Even if you were in an excellent location, it means jack if there is an oversupply of properties for lease and a high vacancy rate.

 

I was raised close to that area and amazed at the prices in Chatswood. So many more apartments coming up and I agree they are selling like hotcakes. Was the 1 bedroom units selling pretty well as well?

Pretty good public transport, schools, eating places and entertainment. Only a short car trip to the excellent northern beaches. Very hard to get parking if you are visiting due to the councils selling off so many of the carpark spaces for development sites.

 

By definition, thats not an "excellent location" as location is what would make it valuable in the first place..

You could argue that you could own 20 000m2 of land out in the sticks and there's not much to do with it, so its value won't be as great as some income generating 200m2 in a CBD.

 

Not sure if they have all sold out (opening day today) but was told (of course) that they will. Agents quoting $800K for 1 bed and $1.2 for 2 beds. Looking at the demographic of the crowd, wouldn't surprise me if they do all sell out.

 

Ok to add to the dangers of a new build. I identifed a couple of defects in the WSU building in parra city such as in the bathroom, when you turn on the tap, it makes a very noisy sound as if the pipes are breaking. Also, some uneven surfaces and loose power sockets.

 

This is true for any type of property and routinely happens in "green field" areas where the supply of houses is quickly expanded by land release and the same problems with vacancy and price happen. The main difference between the two is that the supply of apartments can be increased in an area that is otherwise landlocked for houses which is clearly and advantage for houses in these areas and an additional risk for apartments.

 

Victoria has been the Guide to Standards and Tolerances which is used to determine what is a defect:
http://www.vba.vic.gov.au/__data/as...63/Guide-to-Standards-and-Tolerances-2015.pdf

 

The basic concept which isn't factored in is holding period. OTP or new units have builder's and developer's margins which skew the price, so these need to be absorbed (through depreciation alliance) so the 'book loss is nowhere near as severe as the comparison of purchase vs sales price for an investor.