@rooster123 I definitely will not do OTP again for investment, but is it for you to live in? The Y-man
Normally you are buying at a premium. Like buying a new car... as soon as you drive it off the lot it is "used" and starts to depreciate. Its the land which grows in value.
@rooster123 As per @markson above. One of the key things to consider about OTP or brand new as an investment is this: what's the developer's cut? No one goes into developing a building to make loss. Let's look at the numbers of one of the forum members Croydon (Melb) - 3 Townhouse Development MTR is aiming for a 30% profit (and rightly so) - what that means is that if you buy it, you are paying effectively 30% more than what the underlying property is worth. Buying a second hand, pre-loved property often means you are buying from an inexperienced seller, who's primary drive is not about maximising the profit from the sale (usually more personal reasons than business), who does not do it day in day out. Remember the old adage - the profit is made in property at the time of purchase. The Y-man
In our current lending environment, banks may value your OTP property lower than what you agreed to pay for. So you may need to come up with the shortfall. There are already posts about this from people's observations in Sydney. It is real, not fiction. So if it's investment purpose you are already going backwards because of bank's valuation. If it's for yourself to live, it probably won't matter too much unless you're thinking of using equity to buy something else.
HI Y-Man there is a difference though, I am building townhouses not apartments, and not in the CBD where there is an oversupply. BTW oversupply is currently being experienced in every capital city in Australia. The product in general are large blocks of apartments, 1/2 bedders where larger developers have jumped in perhaps 50-100+ in one complex. When the market turns, buyers get desperate and sell under market value, this causes a ripple effect and values drop. Perth, Darwin, Sydney, Melb, Bris all feeling this pain. Buying OTP apartments works well if you buy at the beginning of a boom cycle and sell prior to the peak. I know many investors who have made a bucket load of money doing this with 10% deposit, however I also know a mountain of investors who have lost money doing this because they got the timing wrong. This product is not forgiving if you get it wrong, bank values will come in much lower and you will be stuck for years with no growth while rents start to fall. Moral of the story, don't try this strategy unless you are a very experienced investor, and even then you need to get the timing right. MTR
probably because the poster is from Syd, but it really applies to all capital cities around Australia
good point, but is the cost price always = market value? Also are you implying that if you buy a PPOR (house) but plan to sell it in the future, its better to not get a new property and to get an existing dwelling? i see alot of young couples buying or building new houses as their first PPOR, with the mindset that they'll sell and get a bigger one in the future, or keep it as an IP and upgrade when they have families etc
In all my years of investing (20 years plus) I have only bought 2 properties NOT of the plan, everything else was OTP even a few PPR's. Would I buy OTP in Sydney now - NO, not because it's OTP, but because it's Sydney. When you buy OTP you usually get at least 10-15% CG profit when the property is completed from the OTP price, you save heaps on stamp duty and also you can always upgrade a property with your own flooring and other upgrades which are difficult to make in an existing house. Also I hate to deal with an "old' property as a whole, only new ones.
But if as many people believe, property grows faster than inflation, then this is the cheapest these town houses will ever be. In 20 years time when they are not new, will they be better value for money?
I just sold 4 townhouses I built OTP in Thomastown, Melb, the buyers saved on stamp duty and these properties are now worth about 10% more. Its very much dependent on market conditions at the time of buying
I'll second that. I sold 34 x NRAS approved townhouses in Bungarribee, NSW ( Bunya estate) which are about to settle. Valuations have them up by between 100-120K on the contract prices of April 2015.... that's @ 20% uplift on the purchase prices. Add 9-10K of tax free surplus cash flow to that, and I have 34 very happy clients .
Saw this in my newsletter inbox. The article says OTP value will decline but not as fast as the mining turn down. No personal thoughts on this. What do you think? Overpriced OTP buyers will suffer most: BIS Shrapnel's Bill Mellor
