An off-the-plan (OTP) property generally carries a higher risk and delivers a lower return than an existing property, plus the vast majority of current OTP properties are in high-risk areas.
However, RiskWise Property Review has conducted detailed research into OTP properties to determine the best investment attributes.
So how can you tell a low-risk OTP investment from a high-risk one?
Well, according to our algorithm and analysis, our research found there are seven key factors for preferred OTP investments.
1. Economic growth
Economic growth is the number one success factor. Suburbs that are located in a region with sustainable economic growth outperformed the national benchmark in 90 per cent of the cases – delivering an average five-year growth of 48 per cent.
However, only 43 per cent of the suburbs with no sustainable economic growth outperformed the benchmark – delivering an average five-year growth of only 10.4 per cent.
So our first step was to assess the potential sustainable growth in each area in Australia. Therefore, unsurprisingly, our top OTP areas are in Sydney, Melbourne, Greater Brisbane and southeast Queensland.
2. Lower supply
A low proportion of new properties has a strong correlation with solid capital growth. They outperformed the benchmark in 85 per cent of cases, delivering five-year growth of 50.3 per cent.
Areas with a high proportion of new properties outperformed the benchmark only in 63 per cent of cases, delivering only 30 per cent capital growth in the period.
Therefore our second step was to analyse the aggregated number of new dwellings in each area and then to identify the Top 100 Danger Zones across the country.
In addition to the "usual suspects" in inner-Melbourne and inner-Sydney, our list contains a large number of suburbs that were somewhat surprising, such as East Brunswick in Melbourne. Our reports contain many such suburbs.
Middle-ring properties delivered a stronger capital growth than properties within the CBD where there's a large supply of properties.
About 83 per cent of the suburbs in the middle-ring outperformed the benchmark, delivering an average of 47 per cent capital growth.
Properties within five kilometres of the CBD met the benchmark only in 53 per cent of the cases, delivering an average capital growth of 22.3 per cent.
4. Higher medians
OTP properties in suburbs with a higher median price generally outperformed suburbs with a lower median price. Some 85 per cent outperformed the benchmark, against 70 per cent in suburbs with lower medians.
These suburbs also tended to be family-oriented where large units are a good dwelling alternative.
5. Lower prices
Where an OTP unit costs less than 45 per cent of the median house price in the suburb, the capital growth was generally higher than units in suburbs where the median price was 60 to 70 per cent of the house price.
6. Fewer renters
OTP properties in areas with a renter ratio lower than 50 per cent delivered five-year growth of 41.6 per cent. However, areas with a renter ratio higher than 70 per cent had average growth of 22.3 per cent over five years.
7. Houses outperformed
OTP houses outperformed OTP units in the same area. E.g. houses in Baulkham Hills had five-year growth of 84.8 per cent versus units at 51.9 per cent – although in both cases the number of new dwellings was around 2,000.
For the full research and the list of the best and worst off-the-plan suburbs in Australia, visit www.otp.riskwiseproperty.com.au
Doron Peleg is the CEO/Founder of RiskWise Property Review, a Co-Founder and Managing Partner of 'PELEG, KESSEL & CO' and a former Executive Manager at Westpac.
Utilizing 20 years of experience in risk management, Doron has Co-developed RiskWise's property risk rating algorithm. This smart algorithm enables potential property investors to better access and mitigate risks for individual propertues in Australia.
Disclaimer: while due care is taken, the viewpoints expressed by contributors do not necessarily reflect the opinions of Your Investment Property.