Off The Plan Risks
First Home Buyers are back! The Australian Bureau of Statistics showed that First Home Buyer participation had hit a 6 year high at the end of 2018. This is fantastic news. For those calling doomsday on the property market the emergence of a strong first home buyer presence is important. It doesn't completely rule out the possible of a house price dive (I personally don't think a dive of much more than 5-10% a year for a couple of years is on the cards but that's complete hearsay) but they are much less likely to sell due to being over their heads in debt. Owner occupiers generally only stress sell as a last resort, investors on the other hand have different motives.
The mention of investors brings me to off the plan properties, particularly units. They seem to be everywhere at the moment. The city is no stranger to a sky high tower nor are the inner city suburbs that surround the CBD but the craze is stretching further and further from the city and enticing first home buyers with brand new properties at an affordable (and respectable) entry level price. There's even multiple unit towers currently under development or nearing completion in Penrith at the moment!
The only time I whince when I speak to people buying units is when they say " it's due for completion in 9 or more months time." This can be problematic. You secure your price now but it is almost impossible to guarantee finance now. Whether you get money now or later is generally irrelevant. Unless of course something drastic changes in your life (think new job, babies...click here for a more in depth explanation) and it affects your disposable income. You can check that you would qualify for a loan right now but the lenders will want to check again within 3-6 months of moving in to your own place.
Passing the first hurdle the next one, and the one that is completely out of your hands, is property prices. Right now Sydney house prices are on the slide. It's no secret the market is seeing less demand from buyers. As of the 31st of December 2018 Corelogic noted that unit prices had dropped 6.28% for the year and houses had fared worse at a drop of 10.03%. I focus on units in this article due to the higher supply of off the plan units and the longer dwell time to completion.
The issue is when you agreed to buy your property on the 31st of December 2017 for $500,000. On the 31st of December 2018 your unit is only worth $486,000. To complete the transaction you'll need to find about another $3000 to put towards your deposit. If you can't this could out you in to Lenders Mortgage Insurance territory. If you're already deep in to LMI you could have further issues if you can't find the extra deposit funds and not be able to complete the transaction and thus surrendering the deposits you've already paid to the developer.
It sounds all gloom and doom. I like units and I do believe built and designed correctly they're a great option for dense living but the lack of infrastructure surrounding these developments hurts their appeal. If you're thinking of buying an Off-the-Plan property you need to be well prepared. Chat to a broker today to ensure you're best positioned to deal with any possible problems that may arise.