Paying some top off the plan prices is just reckless: Terry Ryder

I fear for investors enticed into buying generic off-the-plan apartments at over-the-top prices.

It’s happening in and around the CBDs of all our biggest cities but, increasingly, it’s also happening out in the suburbs. It’s not going to end well for many buyers.

Reports suggest people were clamouring at the weekend to buy units in a proposed development in central Blacktown, paying up to $775,000. 

Nothing wrong with the location – I’ve been advocating the Blacktown area for a long time and it’s delivered handsomely with price growth averaging 13% per year over the past three years.

Blacktown is consistently the most popular suburb in Sydney in terms of sales numbers and the Blacktown City LGA is the leading municipality in NSW for population growth. 

There were 940 homes sold in the suburb of Blacktown in the 12 months to May, according to Australian Property Monitors, with the median house price rising 19% and the unit median up 13%.

But paying the prices reportedly achieved in the Blacktown unit project is beyond reckless. 

The median price for a Blacktown house on land is $545,000 and the mid-range unit fetches $385,000. To pay double the suburb’s median price for an off-the-plan unit flouts basic investment rules and defies common sense.

A couple of years from now, after all the heat and hysteria has evaporated from Sydney markets, I would hate to be the vendor trying to find a buyer for a Blacktown at $800,000-plus, assuming they’re hoping for some capital gain.

Apparently buyers queued up to “snap up” 106 units in Altitude Tower, a planned 24-storey building on the edge of Blacktown’s CBD. Most of them sold at the weekend, reportedly, to a mix of first-time buyers, next-time buyers and investors.

Prices ranged from $395,000 for a one-bedroom unit to $775,000 for a three-bedder on one of the upper levels.

One newspaper report featured a first-home buyer who paid $425,000 for a one-bedroom unit. The median price for all units sold in Blacktown in the past 12 months is $385,000, so where is the value in a one-bedroom unit at $425,000? 

A couple of weeks ago I received an email from a consumer who was thinking of buying in the project. She was considering a two-bedder for around $600,000. I suggested it made no sense to buy a small unit at a price well above the suburb median for a three-bedroom house on land. A view over Blacktown does not justify the price distortion. 

It’s a common phenomenon – new developer product marketed off-the-plan at prices that bear no relationship to established pricing levels in the location. It’s simply bad investing.

I was presented with a Melbourne example recently: a townhouse project in South Morang with two-bedroom townhouses for $443,000, when you could buy the typical house on land for less than that. When the suburb’s unit median price is $310,000, a small townhouse for $443,000 is over the top. 

I urge all investors considering purchases like this to ask themselves this question: is this the best buy I can find in Australia at this moment? 

When buyers are considering off-the-plan developer product at inflated prices, the answer almost certainly is NO. 

TERRY RYDER is the founder of hotspotting.com.au. You can email him or follow him on Twitter.