What to look for design-wise if you are buying off the plan

What to look for design-wise if you are buying off the plan
Michael MatusikDecember 8, 2020

In reply to the many emails we received from yesterday’s missive (posted below), here are some of the design-related things that buyers should consider when buying an apartment (and other attached product like townhouses) before construction has begun.

•             The fewer apartments in a complex the better.  This reduces the number of stock for resale at any given time.  For larger developments, select a project with a wide variety of apartment designs.  This, too, helps when it comes to resale.  It is quite common to have one in every 10 to 12 apartments or townhouses in a complex up for resale at the same time.

•             Beware of all the shiny new toys.  A good foyer or useable public gathering space is important, as such space doesn’t often exist on individual floors or in the apartments themselves.  And apart from anything else, allowing guests and others to gather in the complex proper might annoy other residents and could become a security issue.  On that note, it is important to have a functional security system and good phone/internet access.  But the other things that are often included in new medium- and high-density projects – the pools, spas, saunas, gymnasiums, theatrettes and party rooms – catch buyers but not necessarily more rent.

Some things work well, such as snooker tables in student accommodation, but most amenities end up costing the owner money, and often lots of it.  Ask yourself: Will the target tenants actually use the facilities?  Our experience is that most won’t.  And they won’t fork out more rent for them either.

•             The way to get more rent and a better return in an apartment or townhouse complex is to buy product that can be more easily shared and has some half-decent storage.  The key to sharing is equally sized and positioned bedrooms, each with its own ensuite.  One-bedroom apartments need to be designed so that a couple can comfortably live in them.  Secure basement storage is often not supplied but can be in most new projects.  Tenants will pay up to 5% more per week for such storage.

•             Often the best-designed apartments or townhouses are simply a square or rectangle.  This allows each room to get as much natural light as possible.  This, in turn, increases the perception of space – remember, apartments and townhouses in general are tight in terms of floor area – so buying a design that makes the dwelling look larger than it actually is pays dividends.  This can be done when the ratio of glass to solid wall is high; the ceilings are higher than standard issue; the bedrooms are sized to accommodate a queen-sized bed and there is little dead space, such as long hallways.  Alfresco areas (enclosable balconies for all of us plebs) also make apartments more usable and spacious.  So too, somewhat ironically, does a framed view rather than an expansive one.

One of best ways to get more space in an apartment is to get in early and buy the product immediately below a change in the apartment floor plan – say at level eight, for example, which might have 10 apartments per floor whereas level nine drops down to six apartments per floor.  Why? Because the apartments on level eight will have higher ceilings to allow for the change in blockheads.  I know of many repeat investors who have made tidy profits from this buying strategy alone.

•             Finally, it pays to have a separate laundry, a galley kitchen (even if it is small) and some secure off-street parking.  Also, and although it costs more initially (and remember it can be depreciated too), furnished apartments these days are popular with tenants and the rental premiums can be very good.

It also goes without saying that density needs to be off-set – so medium- and high-density developments are best located near public transport and places of work, and also within close distance to leisure precincts and quality public open space.

For more advice on buying off the plan, download our free eBook.

Three risks buyers take when buying off the plan – and how to avoid them

There have been several short reports for public consumption of late discussing off-the-plan buying.  Most have been masquerading as buyer tips or advice, but they take a very pro-developer side of things.

Now, without wanting to peeve too many of our developer clients – we have helped, after all, over 550 new residential developments (nearly all of which involved pre-selling) come to fruition over the past 15 years – below are my thoughts as to what a buyer should be asking when considering buying a dwelling before it has started construction.

I haven’t bothered to comment on the obvious here – stamp duty concessions; building depreciation; potential for growth before settlement (don’t we all wish!); time to sell your house or other investments or even the need to match the dwelling type to demographic/economic demand – but have touched on some less covered ground.

There can be great benefits to buying off the plan, but inherent in such purchases is risk.

One of the biggest risks is that the project is cancelled – or that the completion date will be delayed for lengthy periods of time, during which you may be required to commence paying fees without the ability to live in or rent out the property.

Another risk is that the development will not be built to a high enough standard to reflect the price you paid.

A third risk – which applies to investors – is that your property won’t attract the actual rent and yield you were told it would.

It is important to do your own homework in order to limit your risks – ascertain information regarding the property you are interested in and comparable sales/rents in the area.   It is also important to seek legal advice regarding the terms of any contract.  OK, now that the basic caveats are out of the way, here we go.

Risk 1 – the building is late or doesn’t happen

Right off the bat, a buyer should question the number of sales being reported.  A fast sales rate, with only a few remaining for sale, is one of the oldest spruiks in the book – it’s project marketing 101.

It used to be that a new off-the-plan dwelling sale was only reported as “sold” when a contract went unconditional, the full deposit was paid and all the necessary documentation was signed by both parties.  Too often today a “sale” is reported based on a holding deposit only – sometimes as little as $1,000.

One service my business conducts is “mystery shopping”.  We send buyers to new projects to critique sales techniques and to ascertain the real sales status.  Often, and increasingly of late, our mystery shoppers have been able to purchase “sold” stock.  Sometimes up to a third of the sales claimed to be made had not really occurred at all.

In addition to challenging the number of reported sales, a buyer should also ask if the proposed project has all the necessary development and building approvals to go ahead.

Another good thing to query relates to multiple sales being made to the same buyer.  Also, ask if any sales have been made internally, i.e. to people directly associated with the development, and whether any of the reported sales actually reflect unsold stock taken off the market.

A buyer should also question the time period for the reported sales.  Often developers will “soft” launch their new project to interested buyer groups many months before going to the open market.  Many of the sales might have been made during this period, yet the sales spruiking is often based on the public launch date.  Don’t always believe the “50 sales made in the first two weeks” or similar headlines.  Fifty sales might have been made, but our experience is that they took many months, if not up to a year, to make.

Finally, in relation to this first risk, a buyer should ask about the financial conditions needed to be met before start of construction.  And although somewhat obvious, too few ask about the exact planned start and finishing dates.

Risk 2 – building standard

First and foremost, make sure you know the answers to these questions:  Who is the developer and/or builder?  What are their track records?  Have they developed/built buildings before, and do they have any history of being sued over defects?

Also important is to check that the three-Fs (fixtures, fittings and finishings) in the display and printed material are guaranteed.  Beware of glossy leaflets with annotations along the lines of “artist impression” and “subject to change or availability”.

Ask, too, whether the construction will merely meet Australian standards.  These standards are, in the main, inadequate for the realities of modern urban living; and in particular, for those residing in large apartment complexes.  You are better off paying for higher than the prescribed building standard.

Risk 3 – rent and return

Paramount questions when building an off-the-plan apartment or townhouse are: Who will manage the complex?  What is their track record?  And under what circumstances could these arrangements change?

Sometimes the management rights are sold early in the piece.  That is OK, as selling the rights to manage a complex forms an integral part of a developer’s income stream.  But you should be told who they are and make sure that you have full voting rights at the first AGM.

While many buyers ask how much the body corporate fees are, like they do with council rates, too few ask for a breakdown of the body corporate costs.  Nor do they ask about cost projections.

Also, make sure that your view – for which you will pay a premium – is unlikely to be blocked by any future development.  And also ask an independent agent for their opinion on the suggested rent.

In most cases, you will receive honest and satisfactory answers to these questions.  But in those rare examples that you don’t, our experience is that it might be best to move on.

Michael Matusik is the director of independent property advisory Matusik Property Insights. Matusik has helped over 500 new residential developments come to fruition and writes the weekly  Matusik's Missive.

 


Michael Matusik

Michael Matusik is the founder of Matusik Property Insights, which has helped over 550 new residential projects come to fruition.

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