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Ben Kingsley Blog post by Ben Kingsley

‘Off The Plan’ and New Property as an Investment Asset?

You know the saying “I wish I had a dollar for every time…..”

Well in my case this saying rings true for people buying ‘off the plan’ properties and seeing the price they paid come in at a lower valuation once the property is actually built. So for me I wish I had all the dollars that made up the shortfall in valuations from the purchase price paid on most ‘off the plan’ or new developments, as I would have accumulated millions and millions of dollars in a very short period of time.

Here’s an example I often refer to.  During the WA property boom, a person purchased a property for $920,000 on the canal developments in Mandurah, WA.  Naturally with ‘off the plan’ purchases, you need to wait for the building to be completed and then the property is valued for bank purposes if you plan to get a loan.  Fast forward about two years and the property was ready to be valued – An independent valuation was completed and it came in at $740,000 a difference of $180,000.  Ouch!!!

Then there are the hundreds of examples in more densely populated locations.  The standout location for wiping out the wealth of most households in the past few years has been the Gold Coast.  Horror stories of valuations under purchase prices of over $1 million dollars, especially in the penthouse and luxury apartment market  – were common.  But we did predict that some 4 years ago, the Gold Coast and Sunshine Coast apartment markets were time bombs ready to explode.

Historical valuation data tells us that generally speaking high density apartments are under-performing investments.

Yes, there will always be exceptions to this rule, but unless you are an expert in understanding the cost of build, the valuation methods used, the planning regime, the exclusivity of location, then you are more than likely going to buy a dud.

So what is the best way for me to get this message through to the average man or women on the street?

How about this simple example:

If you buy a new car, TV, an airline ticket, a cruise, a soft drink – who is going to profit from these purchases ?
The manufacturers and the retailers, right.

How many of the buyers profit from the deal? None.

So if you are ever considering buying a new property (purely for investment), don’t be seduced by the sales pitch and remember the main focus of these sales is to profit the developer, the builder and the person selling the property.

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