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Why to avoid OTP in Sydney?

Discussion in 'General Property Chat' started by rooster123, 9th Jul, 2016.

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  1. rooster123

    rooster123 Active Member

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    Trying to get bit more insights from greater audience here as why to avoid OTP in Sydney?
     
  2. ashish1137

    ashish1137 Well-Known Member

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    Check other threads. You will get ample reasons.
     
  3. Tony Fleming

    Tony Fleming Well-Known Member Business Member

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    Oversupply, multiple valuation/market cycles and lender issues just to name a few.
     
  4. The Y-man

    The Y-man Moderator Staff Member

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    @rooster123

    I definitely will not do OTP again for investment, but is it for you to live in?

    The Y-man
     
  5. markson

    markson Well-Known Member

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    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.
     
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  6. The Y-man

    The Y-man Moderator Staff Member

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    @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
     
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  7. larrylarry

    larrylarry Well-Known Member

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    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.
     
  8. MTR

    MTR Well-Known Member Premium Member

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    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:)
     
  9. spludgey

    spludgey Well-Known Member

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    The "in Sydney" part wasn't needed!
     
  10. MTR

    MTR Well-Known Member Premium Member

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    probably because the poster is from Syd, but it really applies to all capital cities around Australia
     
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  11. nothingman

    nothingman Active Member

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    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
     
  12. barnes

    barnes Well-Known Member

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    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.
     
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  13. LibGS

    LibGS Well-Known Member

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    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?
     
  14. MTR

    MTR Well-Known Member Premium Member

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    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
     
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  15. Gockie

    Gockie I'm an ISTP-A female, so I might be a bit quirky! Premium Member

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    Just when you think there's no more Mona Lisa avatars.....
     
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  16. euro73

    euro73 Well-Known Member Business Member

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    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 .
     
  17. MTR

    MTR Well-Known Member Premium Member

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    it's tough, but I try....lol
     
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