The key to making money in real estate is to buy well, and make sure you buy a property to which you can add value. This is the origin of the “worst house in the best street” principle. This is why I have never liked apartments as an investment because you usually can’t add value to an apartment. And the worst way of all to buy an apartment is off the plan.
Just last week the Australian Financial Review contained an article pointing out that two out of three Melbourne apartments sold off the plan during the past eight years have made no price gains, or have lost money upon resale, despite a property boom and record immigration, according to analysis by BIS Oxford Economics.
In Brisbane about half are selling at a loss, or no profit, over the same period, while for Sydney it is about one in four since 2015.
Numbers of properties losing money are rising as the slump in prices, a slowdown in overseas buyers and fears grow about the dangers of living in high rise because of negligent construction, particularly the use of inflammable cladding. Nervous lenders are also demanding a bigger deposit from buyers, which means buyers routinely having to pay more before the purchase can be completed.
Property investors and BIS are warning proposed changes to negative gearing proposed by the Labor federal opposition are likely to worsen the problem, particularly for pipeline projects still being completed. Angie Zigomanis, associate director for BIS, said: “The removal of negative gearing benefits from established dwellings and quarantining it to new dwellings will further reduce the value of established dwelling related to new dwellings and is likely to exacerbate resale losses.”