Off-the-plan fraught with issues
There are still a large number of multi-storey high rise developments being marketed and sold “off-the-plan” in the Melbourne metropolitan area.
As compared with buying an existing property, there are many potential benefits such as good pricing offered by developers needing to satisfy finance requirements, a potential capital gain during the period between signing the contract and settlement, the flexibility and choice regarding layout and floor plan size, and more time to arrange your financial affairs before moving.
However, it is well-reported that a large number of these newer developments are being financed and project-managed by cashed-up Chinese and Malaysian property syndicates (with Australian developers acting as the fronts) and with less and less reliance on the major Australian banks.
As a result, the developers are benefitting from the less-restrictive requirements imposed by the lending conditions of the traditional financiers and this can, in and of itself, lead to more risks for the eventual owners of these apartments.
Some of the most important things for intending buyers to consider are:
(1) The profile and track record of the builder and developer. For instance, do they have a history of doing good work in Australia and around the world? Do they stand behind their developments? Do they return to their developments to fix any defects? Are they financially solvent? These matters can be checked via online enquiries. If the developer runs into trouble during the intervening period between the sales contract being entered into and settlement, then there is the risk of the deposit being lost, or the project being cancelled or at least substantially delayed;
(2) Has the developer provided sufficient information to understand what is being purchased? For instance, are the architectural plans of the building and common areas no more than generic images? Have the internal furnishings been specified?
(3) Have the running costs of the building been properly specified? Some owners’ corporations have had nasty surprises after settlement when it has been discovered that the budget and levies had been overwhelmingly under-estimated;
(4) Will the building be completed in stages and which stage will the unit be completed within? There can be instances of disruption and loss of amenity for owners that settle early, as they have to move in while the upper levels of the towers are still being built, with workmen and construction noise continuing for several months after settlement;
(5) Will the building be independently managed by reputable owners’ corporation management companies and caretaking companies or does the sales contract provide the developer with the discretion to appoint whomever they like and lock the owners’ corporation into contracts of varying lengths?
(6) Do the proposed rules suit your needs in terms of your personal attitude towards subject matters such as pets, smoking, the ability to short-term let and the ability to carry out your own renovations? and
(7) Do you know whether the apartment will have an obstructed or unobstructed view when completed?
There are always risks implicit with any investment, but with a large choice of apartments currently on the market, potential purchasers can afford to shop around and be picky about whom they choose to invest their money with. Reputable developers with a good track record will do well out of the Melbourne market, while those developers who do not have a good reputation or are new to the market may struggle to get their developments sold quickly, unless they market the building overseas and sell to overseas owners.