Pros and Cons - Off The Plan Dual-Key Apartments

[Puff]

Hi all.

I am interested in your thoughts (constructive please either way) on purchasing Dual key apartments off the plans.
Ill make a start:

Pros

• Locked in Price even if it increases during the build process
• Can often get discount on Purchase during pre-sale
• Minimal outlay
• Dual key meaning can either rent out as a 2 bedroom or separately 1 bedroom and Studio.
• Get great cash-flow if done well
• Tenants like new and fresh
• Options to re-sell, to owner occupied and/or other investors

Cons

• Rent isn't as high as stated in Rental Appraisals
• Buy price is over inflated
• Market drops during build stage

Interested in any feedback please. Thanks in advance.

[speights boy]

Cons

1. Developer running into financial difficulties;
2. Developer trying to use a delay and a force majeure clause to refund deposits and resell at a higher price;
3. Purchasers' lack of knowledge / input about the initial building management / body corp contract which will be set up.

[klauster]

At the time buying something that does not exist is a speculation, huge problems with quality and body corporate (both controlled by the developer)

Lender have restriction on loans for apartments, especially such types.

Huge percentage of selling cost is spent on marketing and – something the buyer must pay for. Buyers are often lulled into a false sense of security with “off the plan properties seminars”

All properties I know purchased off the plan were valued at considerably less than their purchase price. I purchased one after completion with more than 100k below the “off the plan price”

Developer’s interest is to squeeze as many apartments as possibly into the building. Do owner occupiers want to live in buildings with 99% rentals and with partying students etc?

At settlement because of oversupply – it is hard to find tenants, and price drop because a number of almost identical properties would come onto the market at the same time.

Marketing strategies can add further pitfalls such as a rental guarantee or furniture package to justify a high price - in fact they inflate the price by adding additional costs with cheap bulk orders of appliances, cheap furnitures etc (limited warranty, problems with service and repair after that).

Uncertain settlement date as the settlement will be linked to the completion of the building and for delays there are additional costs.

If buyer’s circumstance change e.g. can’t find the short fall money to settle the purchase, then by breaching the obligations under the contract the buyer will forfeit the deposit.

Such apartment are great as long as they are new. When getting older, because of the issues with disfunctional body corporates the good tenants move onto newer properties, and rather than rent going up over time, it can actually go down combined with huge expenses for repair and steady increasing body corp levies.

[Puff]

Thanks guys, would love some more comments.
Thanks Speights Boy. Your Point 2 is the sort of developer you don't want to deal with.

Klauster, obviously you have had a bad experience thats a shame. I also did several years ago, not apartment, but, off the plans all the same, I am very cautious.

More comments please, where are the Pros and some good experiences? I know of a lot who have also had that. Or are we being typical Kiwis and only talk of the bad, hopefully I haven't offended anyone...

Thanks

[Puff]

At the time buying something that does not exist is a speculation, huge problems with quality and body corporate (both controlled by the developer)

Lender have restriction on loans for apartments, especially such types.

Huge percentage of selling cost is spent on marketing and – something the buyer must pay for. Buyers are often lulled into a false sense of security with “off the plan properties seminars”

All properties I know purchased off the plan were valued at considerably less than their purchase price. I purchased one after completion with more than 100k below the “off the plan price”

Developer’s interest is to squeeze as many apartments as possibly into the building. Do owner occupiers want to live in buildings with 99% rentals and with partying students etc?

At settlement because of oversupply – it is hard to find tenants, and price drop because a number of almost identical properties would come onto the market at the same time.

Marketing strategies can add further pitfalls such as a rental guarantee or furniture package to justify a high price - in fact they inflate the price by adding additional costs with cheap bulk orders of appliances, cheap furnitures etc (limited warranty, problems with service and repair after that).

Uncertain settlement date as the settlement will be linked to the completion of the building and for delays there are additional costs.

If buyer’s circumstance change e.g. can’t find the short fall money to settle the purchase, then by breaching the obligations under the contract the buyer will forfeit the deposit.

Such apartment are great as long as they are new. When getting older, because of the issues with disfunctional body corporates the good tenants move onto newer properties, and rather than rent going up over time, it can actually go down combined with huge expenses for repair and steady increasing body corp levies.

Thanks for your reply Klauster.
In reply to this I am working with a developer in CHCH and one of the reasons I asked this question was I think most of what you commented on is valid and has been sorted with this particular development.

Such as in reply to your above:
No hype seminars, although there may be a couple small info nights about the CHCH Rebuild
Lending is very good for such things at the moment
These are extremely under value (about $50k below similar)
Because of extraordinary situations, the prices you would expect to grow greatly
Mixture of tenants and owners
Potential to get higher than normal (RAs) rents
Certainly not too many apartments, i.e. trying to squeeze in as many as you can
Experienced ethical developers

Anyway, appreciate your replies, as I agree with most of them.

[Gladdynook]

I don't know anyone who did well out of buying an apartment off the plan as an investment. Owner occupiers are a little different as buyers don't really care what the real market value is at completion, or the rent return at the time. It's several years later that it becomes important.

Anyone here that can name a block that has proven to have been a great deal? and what was it that made it so?

[Stevegoodey]

The Monvie Building in Wellington was very profitable for nearly all of the pre construction buyers.

Timing made it good, buying off the plan is a speculative purchase.
Your betting on the future value of the property.

If the markets moving in the right direction and the construction is quality and both the buyer and developer do what they agreed to do then it can be a very cheap way to control a large asset.

[Puff]

As Steve has stated,
Off the plan buying is speculative, and so as long as the market is going forward or there are other positive factors you should be in a good situation with profit and options moving forward.
A good experienced developer is also essential.