Published on 1/16/2021
Published by firstname.lastname@example.org
Apartment prices are falling. Here’s how to ensure you don’t buy a dud
Apartment prices either stagnated or declined through the pandemic year
Source : thenewdaily.com.au
Apartment prices are falling. Here’s how to ensure you don’t buy a dud
Apartment prices in Australia’s three largest capital cities either stagnated or declined through the pandemic year.
But in dreaded news for apartment owners, there’s more pain on the horizon.
High-rise CBD apartments – reeling from low migration, oversupply and bad publicity following Sydney’s Opal Tower saga – will continue to lose value until a vaccine is rolled out, SQM Research founder Louis Christopher said.
Mr Christopher said they were particularly on the nose with investors as COVID-19 had encouraged a regional housing boom and dragged down inner-city rents.
And although green shoots are emerging, Mr Christopher told The New Daily it was a “zero-sum game” for apartment owners.
“There’s been a small reversal in demand for CBD accommodation and we’ll probably see some more of that as 2021 continues, but it won’t be a complete reversal because people are concerned over future outbreaks,” Mr Christopher said.
According to SQM analysis, Sydney CBD apartments on average sell for nearly $290,000 less today than in January 2020.
Meanwhile, Melbourne and Brisbane apartment prices have flatlined.
So, with major city apartments under a cloud, how can apartment hunters avoid buying a dud?
Get independent advice to avoid defects, strata issues
Building quality issues came under the microscope after the Opal Tower saga and, more recently, when Wollongong apartment owners cried foul over disparities between promised designs and the finished product.
Surbubanite principal Ms Porter said buying in an established building, rather than off the plan, can offer quality guarantees.
Ms Porter said though unit owners may be covered for any defects under builder’s warranties, they should still hire an independent inspector to walk through the building to ensure it has no defects.
And obtaining an objective strata report is crucial, she said.
“That does not mean looking at the sinking fund account the agent might provide you, but a $500 independent report can tell you about building complaints, any harmony issues with tenants, any financial elements in arrears, or any planned works,” Ms Porter said.
Getting independent advice on an apartment building’s integrity is an important step prospective owners must take, Ms Porter says. Photo: Getty
Meanwhile, Mr Christopher said it was imperative that apartment hunters did their homework to avoid buying into a faulty building or getting burnt by false expectations.
“There are some developers with a great track record with few problems, but then there are others with atrocious reputations, so buyers need to look at their previous projects,” he said.
Mr Christopher said it’s “notoriously difficult” for apartment owners to demand compensation if they are unhappy with their purchase.
Opal Tower owners – who evacuated after cracks were found in a load-bearing concrete panel in 2018 – are still seeking millions from Sydney’s Olympic Park Authority and developers, and have also launched a class action against the NSW government.
Buying off the plan has more issues
Buying off the plan – where owners enter contracts to buy an apartment upon its completion 12-18 months down the track – is inherently precarious, Suburbanite’s Ms Porter said.
Since the Royal Commission, lenders wait until 90 days before settlement to assess a borrower’s lending capacity, she said.
This means owners, who are relying on getting the right level of finance to fund their purchase, could face a shortfall if their bank believes they are too risky to provide a larger loan or decides the apartment is worth less than the sale price.
If they are unable to make up the shortfall, they risk losing their deposit.
“Not all lenders will use JobKeeper in their measure of sufficient income, so that could impact their ability to borrow,” Ms Porter said.
“And if the lenders shift policies and make it harder to borrow, which has happened a lot in the last 18 months, the buyer could be left in a position where they’ve signed a contract and they’re liable to pay a 10 per cent deposit if they default.”
Buying an apartment before work has completed is riskier in the pandemic housing market. Photo: Getty
Recognise apartment prices may fall in the short term
Charter Keck Cramer director of research and strategy Angie Zigomanis found that, in pre-COVID times, over half of purchased Melbourne CBD apartments sold at a later date for the same value or less.
He told The New Daily that until overseas students and investors return, inner-city apartment hunters should recognise prices may drop further.
“If you’re trying to mitigate losses, look at buildings that might be a little more unique in the marketplace,” Mr Zigomanis said.
“They might be larger, they might offer more facilities, they might even be smaller where there are fewer apartments to influence each other’s value in the same building.”
SQM’s Mr Christopher said the best opportunities for apartment buyers were in the inner-ring suburbs of Melbourne, Sydney and Brisbane.
With more sellers than buyers in these areas, they represent a good opportunity for down-sizers, he said.
“Prices have been falling and will continue to fall for existing properties in these areas, but it will not be like that forever.”
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