Buying units because of a develop’s incentive??????

Hello Friends, Associates and Clients,

Another article for your perusal and information:-

If you buy a unit because of a developer’s incentive, you deserve your dud investment: Terry Ryder
By Terry Ryder
Wednesday, 15 August 2012
People who allow themselves to be lured by developer incentives into buying new apartments deserve the dud investment they’re getting.

Quality properties for which there is genuine demand don’t need to offer incentives to buyers. The existence of incentives is a warning sign for buyers to look elsewhere.

Melbourne’s inner-city unit market is the standout example. For the past 18 months I’ve been urging buyers to steer clear, because the level of new product being built is bordering on the ludicrous.

Demand for real estate is weak in Melbourne, and the only way developers can stir up sales is to offer inducements or sell product in distant locations like China. Both are happening, and both serve as danger signals for buyers.

Sadly, Melbourne newspapers have been breathlessly characterizing the building frenzy as a boom, highlighting the impressive statistics rather than warning people that the situation has “oversupply” written all over it.

One journalist notes that 6% of national building approvals are focused on inner-city Melbourne, with over 5,000 new apartments approved in the CBD, Docklands or Southbank in the past year.

That brings to 21,000 the number of new units in the development pipeline. A metropolitan newspaper journalist who should know better described this as developers “meeting the demand for inner-city living”.

It’s nothing of the sort. It’s developers allowing greed to over-ride common sense, supported by buyers who conduct research by reading newspaper headlines.

They are likely to end up with investments with falling values and little demand from tenants. The incentives that inspired them to buy will mean little when that happens.

This is happening at a time when the Melbourne market is weak, the state economy is falling, jobs are being cut by the state government and major businesses, and the state’s grants to first-home buyers have ended.

Melbourne developers have responded by offering discounted prices, rebates, cars, holidays and furniture to get signatures on contracts.

The greatest trap in the history of apartment buying, the rental guarantee, is also being rolled out. Anyone who buys an apartment because the developer is “guaranteeing” the rental income has been living in a cave for the past 10 years during which dozens of similar deals have ended in tears for investors.

One developer, having failed to clear stock by cutting up to $200,000 from individual unit prices, offered a $65,000 car to lure buyers. Another offered a tropical holiday for two. Some have offered rebates of up to $20,000.

All these measures have one thing in common: desperation. Not even the Gold Coast, where the unit market has been undermined by oversupply for the past five years, has resorted to such largesse.

The Gold Coast, however, is an object lesson for anyone inclined to ignore the warning signals in Melbourne. The median price for an apartment in Surfers Paradise today is almost 10% lower than it was five years ago. It’s the same in neighbouring Broadbeach, according to data from the Real Estate Institute of Queensland.

At Hope Island, on the northern fringe of the Gold Coast, the median apartment price has dropped 26.5% in the past five years.

At Noosa Heads on the Sunshine Coast, a market traditionally favoured by Melbourne investors, the median unit price has dropped 22% in five years. Many other markets around the Sunshine Coast are also in negative territory.

These sorry results are not the norm in Queensland real estate. Quite the opposite. Many markets have appreciated at least 50% over the past five years. The ones that have gone backwards are the ones where brainless developers have built too much new product.

Melbourne developers have opted to ignore those lessons. Perhaps they think they can defy the laws of supply and demand. They will experience the same disappointments as developers and builders who went broke in Queensland.

Sadly, mum and dad investors will sink with them.

Best regards,
Linda and Carlos Debello

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