A national property advisory firm has warned investors to avoid off-the-plan purchases, claiming they are “fraught with danger”.
David McMillan, director of acquisitions at Performance Property Advisory, said an oversupply of off-the-plan apartments, falling property values and recent regulatory changes by APRA will begin to effect purchasers in the months ahead, and believes Melbourne is particularly at risk.
“For a start, it has too many off-the-plan apartments and not the available rental population to make this type of investment worthwhile,” he said.
“In addition the value of generic off-the-plan high-rise, fringe house and land packages has fallen by 10 per cent to 15 per cent in some pockets of the city, and now with APRA changes beginning to take effect and the big four banks requiring a 20 per cent deposit, those with off-the-plan contracts will have to stump up additional cash to settle.”
Mr McMillan said the problem with off-the-plan property is that there is a significant time lag between purchasers making the initial deposit and settlement – sometimes up to three years.
“What this means for investors, who say, put down a 10 per cent deposit on a $1 million apartment, they will now need an additional $100,000 to settle,” he said.
While Mr McMillan welcomes the changes made by APRA, saying they will moderate an over-heated market, he noted that there will be collateral damage.
“Those most affected will be people who can least afford it – often those close to retirement who have used their life savings to purchase property via their SMSFs.”
Mr McMillian noted that the finger should be pointed at unscrupulous advisers, accountants and financial planners for herding their clients into risky investments because they stand to pocket commissions of up to nine per cent on the purchase price of the property.
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