Many buyers like to see apartments under construction before buying.
Once buying an apartment meant lining up for the home open, poking around the cupboards under the sink and peering over the neighbour’s balcony before signing on the dotted line.
Now the dotted line makrs out the proposed floor plan of an apartment that might not be built for several years.
Off-the-plan purchases have soared in popularity in WA, growing 133 per cent between 2012 and 2015, the second fastest growth of any state, according to Realestate.com.au
But before you pick an off-the-plan home or investment, you need to read the fine print.
Colliers International residential sales agent Greg Oldfield says there are big difference in purchasing an established apartment, one off-the-plan, or — a growing third choice — residual stock.
“There are advantages to all three, but disadvantages as well,” he says.
“You really need to be comfortable that you understand exactly what you are signing up for.”
Established apartments are the easiest option for buyers, as they can walk around the space, get a good sense of what is on offer, and identify any drawbacks — like cupboards that are too small or walls that need a good paint.
The downside is that these apartments are usually several years old at least.
“You also find that sellers of established stock may overestimate the value of their apartments,” Greg says.
“After all, they have lived there happily for five or 10 years and assume that the property has appreciated in value all that time. What they forget is that newer, perhaps better designed stock has come on to the market since their apartment was finished.”
Greg says to undertake a thorough inspection of any established apartments (sometimes called ‘second-hand’) to check for damage or items that need repair or refreshing.
The upside is that established apartments can also come with an established community, so you can get a sense of whether you will be happy in the complex and whether it is operating smoothly.
Off-the-plan purchases are increasingly common as the banks that fund construction of new developments like to see that 70 to 80 per cent of all units have sold before they give the green light.
Most of these apartments will go ahead or, if they don’t, the decision not to proceed often happens very early in the sales process. For some unlucky buyers, though, it might be months or even a year after putting down a deposit that they discover their new apartment is never getting off the ground.
Overall, 2000 apartments were deferred or cancelled in WA in 2015, though many had not even started selling before the developer pulled the pin.
Colliers International Head of Residential Sales & Marketing Daniel Crotty says looking at the track record of the developer, and engaging a lawyer to read the contract, is essential.
“It is important to check things such as the time for settlement from the date of plan registration,” Daniel says.
“Usually contracts have approximately two weeks for final settlement but that time can vary. Also check the clause regarding the sunset date, which is the longest date possible for completion.
“Look at what projects the developer has produced in the past and how they have performed, including the time taken to complete.”
Recent cases in New South Wales had seen allegations of developers slowing work as they neared the sunset date, in order to be able to cancel pre-sale contracts and resell property at higher prices.
“That kind of thing can happen in an overheated market but I’ve not seen it happening in WA,” Daniel says.
“Buyers should always ask for a cash deposit to be held in trust until settlement, which should be the case with any real estate agency acting on the developer’s behalf.
“In WA, you can also ask in writing for any deposit more than $20,000 to be held in an interest-bearing trust account with the interest payable to you.”
On the plus side, buying off the plan lets you customise your apartment with finishes and colours that suit your taste, you get something brand spanking new with the knowledge that defects will be fixed by the builder, and you might be able to depreciate your fittings and fixtures if it is bought for the purposes of investment.
After the 70 to 80 per cent needed to start construction is sold, what happens to the rest? This stock can sometimes sit on the market with only limited marketing until the building is nearly completed.
At that point, these apartments, known as residual stock, can be marketed again — sometimes but not always for more than if sold off-the-plan.
The big advantage of residual stock is that it can give you the best of both worlds: a brand new apartment that you might still be able to customise if not fully completed, but also an established property you can see and maybe explore before buying.
Some developers believe residual stock will be the big growth area for Perth in the next few years, particularly among owner occupiers taking their pick of the nearly finished apartments available.
“There’s a great deal of certainty with residual stock, which is why it can be so appealing,” says Colliers’ Greg Oldfield.
“You can weigh your options and get a sense of whether the development has met or exceeded expectations. At the same time, though, there’s may be only one or two units left so you have fewer options than the off-the-plan buyer — you will need to be fast.”
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