It was a wise choice for the then 19-year-old, who was approached by a sales agent in 2003 with an offer he couldn’t refuse. “There were only around six apartments [in the block] remaining, which were being sold at a discount to enable the developer to finalise finance arrangements and proceed with construction. The contract price was $232,000, discounted from the first release price of $245,000,” Julian explains.
“I did my research and concluded that the apartment was good value based on then-current market values and there was a good chance that by the time the apartment building was completed, some 18 months later, the contract price would be below market value.”
After completing his first property purchase the year before, Julian had been told by the banks that he couldn’t borrow again until his loan serviceability improved. “I saw this as a challenge rather than an obstacle,” he muses. “I’d just developed a taste for property and was determined to build a portfolio regardless of what the banks said.”
Julian used a $300 deposit bond to secure the property and entered into an off-the-plan contract knowing that in 18 months’ time he could either finalise the purchase himself or on-sell.
But 18 months stretched into two-and-a-half years, and as the timeframe changed, so too did Julian’s circumstances. “In 2004, I started a full-time degree studying property and, as a result of going from a full-time to a part-time income, I wasn’t able to arrange finance to purchase the apartment myself. My parents agreed to take on the contract and purchase the apartment in their name on completion.”
That day finally arrived in 2005, when the market value of the apartment sat at approximately $295,000 – a healthy on-paper profit of $63,000. Julian was able to pass the contract on to his parents with no trouble, thanks to the addition of ‘and/or nominee’ after his name on the contract.
Julian recommends that all off-the-plan buyers do this to ensure they have the opportunity to on-sell the property on completion. “If you forget this you may be forced to complete the contract, pay stamp duty and other purchase-related costs, then on-sell with much less profit.”
The 61m2 apartment, including an 8m2 balcony, sits on the 11th level of a 38-storey block in Mary Street, Brisbane. Just a stone’s throw from the Queen Street Mall, Brisbane River, City Botanic Gardens and Queensland University of Technology – and with on-site facilities such as a gym, spa, sauna and heated lap pool – the Ackads’ investment is an executive tenant’s dream.
With Julian’s parents at the helm, the apartment was furnished at a cost of $4,000 and is now being leased at an investor-friendly $490 per week. “My parents are extremely happy with the apartment and it’s providing positive cash flow for them,” Julian explains.
Although his investment carried two potentially risky features – being a one-bedroom property and purchased off-the-plan – the young investor says it was undoubtedly a successful mission. Construction delays weren’t even a concern, as the purchase price was locked in and market values were rising.
“Buying off-the-plan is an inherently risky investment,” Julian says. “Markets change and it’s possible that you could have to complete a contract with a purchase price that’s above market value. It’s important to make sure that you’re comfortable with the risk involved in buying off-the-plan. If your risk profile is such that you’ll be anxious about the values dropping and losing money, then perhaps off-the-plan isn’t for you.”
Julian suggests that investors consider a few key factors before embarking on an off-the-plan purchase. “It may sound obvious, however, it's important to make sure the contract price isn’t above current market value. Do your research by viewing recent comparable sales and speaking to several agents about similar properties.” He adds that buyers should also consider the future balance of supply and demand to ensure that similar properties won’t be in oversupply by the time the product hits the market.
“In a rising market, buying off-the-plan can be a very lucrative strategy; however, it's not without risks,” he adds.
Purchase price (2003) $232,000
Sale price (2005) $295,000
Furnishing cost $4,000
Rent amount $490/week
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