First home buyer considering OTP purchase in Melbourne

Discussion in 'What to buy' started by Sail, 6th Feb, 2020.

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  1. Sail

    Sail Active Member

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    Hi - I'm so close to buying an off the plan apartment in Carnegie Melbourne but because of this crazy amount of negativity around OTP apartments, I'm really confused. Hoping I can learn from the experience of others. The apartment is a 2 bed penthouse with massive outdoor area.

    I love living in Carnegie, but units and townhouses are in the range of 800-900k range which is impossible at this stage. Even saving a deposit for a unit worth 800k will take me years. So off the plan becomes an attractive option.

    My main concern is property valuation at the time of settlement. I wonder how drastically low can bank valuations be compared to purchase prices and also what are the options if the valuation is drastically (more than 5%) low.
     
  2. Trainee

    Trainee Well-Known Member

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    Why is otp a more attractive option?

    fact is, if the val comes in lower, you have to put more cash in.

    if you expected a 800k val, 80% lvr, then if the val comes in at 750k, you need an extra 40k.
     
  3. Sail

    Sail Active Member

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    As a first home buyer, I need to stay within 750k to get my FHOG. If I go OTP, I will not pay stamp duty for properties under 750k because the land value is almost always under 600k (even if priced more).

    Therefore, I get to stretch my budget with OTP. Just the stamp duty for something that is not OTP will be around 40k for established units around the 750-800k range.

    Hence more attractive. Is it too much of a risk? I can maybe handle a 5% lower valuation but not more.
     
  4. Trainee

    Trainee Well-Known Member

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    Not more attractive. It just looks more viable and you dont have to lower your requirements. For now, anyway.

    what happens if its 10% lower? You have to assess how likely that is.
     
  5. Sail

    Sail Active Member

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    Yup exactly what I'm trying to find out - if anyone has been in this situation before and how likely it is that the apartment will be valued 10% lower or more. BTW, the building is due to finish by end of this year.
     
  6. Peter_Tersteeg

    Peter_Tersteeg Well-Known Member Business Member

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    From my experience as a broker, valuations are rarely a problem with property purchases. However those that are a problem fall into one of the following categories 99% of the time:

    * OTP purchase or house and land package.
    * Development site purchase.

    Perhaps about 1 in 10 OTP properties have a problem in my experience.
     
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  7. The Y-man

    The Y-man Moderator Staff Member

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  8. The Y-man

    The Y-man Moderator Staff Member

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    IMHO quite common to get 10% below - possibly more depending on market conditions and other buildings at the time. There's a lot of building going on in the area at the moment - the killer is usually if the view gets altered by a building next door - even a top level apartment will drop in value if another building same height pops up next door before you settle.

    Also have you considered holding and setup costs?
    • Whatever estimate they give you for OC costs, safe to double it (esp if they put sinking fund in - which they should)
    • Check inclusions - even things like door stops, window furnishings

    The Y-man
     
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  9. Sail

    Sail Active Member

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    Thanks. The one I'm considering is actually bigger in size.
    Also, I've been to Carnegie auctions in the past and I've watched them sell almost always around 50-60k higher than the indicative price.
    But I'm actively searching for such units, honestly would love to have such a unit/townhouse over an apartment.
     
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  10. Sail

    Sail Active Member

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    Thanks. My broker has similar views as yours. In your experience, what options do you have if the valuation comes lower? Can you go to multiple banks/lenders?
     
  11. The Y-man

    The Y-man Moderator Staff Member

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    Unlikely - they all use a small number of valuers (can be same valuer across different lenders), and they will always value low to mitigate risk for the lender - although @Peter_Tersteeg could confirm

    The Y-man
     
  12. Propertunity

    Propertunity Exclusive Real Estate Buyers Agent Business Member

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    If that's the case, then please do not do it! (10% is common, 15-20% is not unheard of - the recent downturn was about that, which is all forgotten, since we are back in almost boom times again).

    Nooooooooooooo, that may / will make it even worse for you with multiple hits on your credit file.
     
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  13. Sail

    Sail Active Member

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    Thanks - OC is under 3k/year.
    I would love to wait it out till I can save up more for my deposit and then buy an older unit. However, I've only seen the property values for units/townhouse go higher. It's more like - fear of missing out on something.
     
  14. Sail

    Sail Active Member

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    Wow. Why is it that apartments have such a high purchase price then?
    I've looked at so many suburbs and they all have similar price points.
    If -10% valuation is so common, I wonder why there isn't provision to help first home buyers? This is very discouraging, to be honest.
     
  15. The Y-man

    The Y-man Moderator Staff Member

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    Like I said, double your budget for the OC ($6k pa is normal for a dev with lifts and a powered garage door). I think you'll also be liable for a larger slice of the OC costs due to the big balcony allotment.

    You'll be surprised how many things break (or are broken) by careless tenants (who are renters and don;t care).

    The Y-man
     
  16. Sail

    Sail Active Member

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    OK fair enough, I should find out the exact cost. I am planning to look for a place to live in for a good 5 or 6 years and then maybe put in on rent.
     
  17. The Y-man

    The Y-man Moderator Staff Member

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    Because there's lots of people who don't read forums like this and just get suckered by the sales spiel. Remember, you'll have a totally different view if you were the developer (as there are many here on this forum too!) who has to consider making a decent profit (30% at least!) to cover purchase of original land, planning, subdiv, building, interest while holding, yadda yadda.... ;)

    The Y-man
     
    Last edited: 6th Feb, 2020
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  18. The Y-man

    The Y-man Moderator Staff Member

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    That's the joy of OTP - you can't - because the OC rates are struck later and/or after the problems happen. With existing, you at least have a history and know.

    When we bought OTP (our first IP 20 years ago!!) the OC estimates were $2k pa. They went to $7k pa the following year when we discovered the cost of maintaining the lifts, pool etc (and this was 20 years ago!) and when they had severely underestimated the power consumption in common area etc.

    The Y-man
     
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  19. Propertunity

    Propertunity Exclusive Real Estate Buyers Agent Business Member

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    To quote a friend of mine: "The market does what the market does ........ and it doesn't do it to you"!
    As a FHB you are already getting a good deal of help IMO. Free stamp duty for a start + ability to use a 5% deposit with no LMI (under an arrangement guaranteed by the Feds). OK, I'm older than you but when I was buying as a FHB 40 something years ago, the Qld Government's FHB scheme was a $2,000 cash grant which arrived so many months AFTER settlement is was humorously called a "home improvement grant", which, at the time, was enough for a new kitchen :)
     
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  20. spludgey

    spludgey Well-Known Member

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    Possibly, but with a much lower land component.
     
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