Here's some good advice if you're thinking of reselling that off-the-plan apartment.
Sydney homeowners have experienced exceptional growth in property values with house prices up 65 per cent in the four years to September 2016 and apartments up 44 per cent, Domain Group data shows.
And yet it wasn’t tightly held mansions in the top-end of town that have been the most lucrative for property moguls in the past few years but off-the-plan apartments, experts say.
Some sellers have reaped huge price growth in just a few years by purchasing off-the-plan, something industry experts say left them winning the “powerball” in the biggest growth market in the country.
Some sellers have reaped huge price growth in just a few years by purchasing off-the-plan in Sydney’s towers. Photo: ccummins@fairfaxmedia.com.au
Starr Partners chief executive Doug Driscoll said these property buyers were able to put down as little as 5 per cent of the property’s value as a deposit and see their apartment soar in value before they even had to start making repayments.
With build-times taking about three years on average, this has allowed property owners to make significant sums with just a small investment.
“The main reason it’s proved so successful in Sydney is because it’s largely investor driven,” Mr Driscoll said.
Investors who bought in while cranes were in the skyline would have done well during the Sydney boom. Photo: Glenn Hunt
With more than 60 per cent of buyers in the market during the height of the boom being investors, new apartments were heavily promoted as hot commodities – with the promise of significant depreciation schedules and strong rent returns.
If an investor timed it perfectly, they could have paid a 5 per cent deposit on a median priced off-the-plan apartment in September 2013, or $23,750 on a $475,000 unit.
And in September 2016, they could have on-sold it as soon as it was built for the new median price of $685,000.
The initial $23,750 investment would have increased to $210,000, not including $17,000 in stamp duty and transaction costs.
Mr Driscoll said it would be “properties closer to the city and on the waterfront” that would have benefited the most.
But some investors have managed to buy in the budget market and still have success purchasing off-the-plan.
Ethan bought an apartment in Sydney’s western suburb of St Marys in 2013, paying under the median for it – $312,000. It didn’t settle until the end of 2014.
To avoid stamp duty, he lived in the property for six months as a first-home buyer before moving to Lane Cove and putting the property up for rent.
He then sold it in November 2016 for $420,000 – $108,000 more than he bought it for.
“It was one of those one-time opportunities,” he said.
Mark Mendel, chief executive of iBuyNew – the company Ethan purchased with – said those who bought three or more years ago were bucking the trend as it was a “tough period when others were reluctant to buy anything”.
“They were buying from developers who needed sales and were discounting properties and providing incentives to buyers,” Mr Mendel said.
In Sydney, 100 per cent of his clients who bought off-the-plan at that time have made money – usually at least $100,000 – from buying in areas such as St Marys, Campbelltown, Liverpool, Botany and Arncliffe.
But he said the market was very different now for those considering a similar strategy.
“Banks aren’t funding in specific locations, and I don’t expect to see this same growth over the next two to six years in Sydney,” he said.
“It’s not just finance to be wary of, some developers are asking too much for their apartments because developers have paid top dollar for their sites.”
Propertyology managing director Simon Pressley said those who are settling now since buying in 2013 would be “rubbing their hands together in Sydney .. it’s like winning powerball on the Lotto”.
But he said in other capital cities, such as Perth, it was a different situation for those now settling – some facing lower valuations from the banks than what they had agreed to pay for the properties.
“While we’re all happy for those benefiting from buying three years ago, I wouldn’t put someone in an off the plan apartment today.
“Would you get the same result if you signed off the plan today? Logic would say no.”