Off-the-plan buyers face losses

No matter how much the marketing brochures sugarcoat it, the reality remains that some former off-the-plan buyers in Melbourne’s CBD units are now in a precarious situation if they decide to sell in today’s market

Imagine yourself holding a unit you bought off-the-plan last year or even two years ago. Now imagine trying to sell it in this market. How would you feel if someone tells you that you’re unlikely to get your money back? Or worse, you lose your hard-earned cash?

Harsh as it may sound, this is the reality that some off-the-plan buyers are facing at the moment, according to Angie Zigomanis, senior research analyst with BIS Shrapnel.

“If you bought an off-the-plan apartment today or in the past year or two, especially around the CBD, you’ll probably struggle to get your money back at this price,” Zigomanis says. “If you allowed stamp duty and add other purchase costs and selling cost, you really would struggle to get your money back. That’s because you’re competing with new projects. Prices of new projects haven’t really moved that much. Even if you’ve got a brand new secondhand product, when someone buys your completed apartment in Melbourne, they pay stamp duty on it. If they buy off the plan, they’d pay minimal stamp duty, if at all. So your completed off-the-plan property, even if it’s brand new, [is] more expensive for buyers than the unfinished products.”

Andrew Wilson of Domain agrees that there are simply way too many units flooding the market at the moment; he advises investors to stay away from this sector if they’re looking

to buy in Melbourne. 

“I would stay away from the unit market, particularly around the Melbourne CBD,” Wilson says. “In November alone, there were about 4,000 units approved in Melbourne. That’s absolutely extraordinary. That’s huge supply going in to flood the apartment market for at least the next two years.”

Sweet spots remain

Despite the dire outlook for off-the plan apartment buyers, there are still areas offering solid investments, according to our experts. 

“If you want to invest in Melbourne, focus on the established units a couple of suburbs away from the CBD,” says Wilson. “There are still good values to be found, especially around the middle ring suburbs, particularly in the East and North, because they’re not going to be building lots of new units there. There are always going to be good values in Melbourne in the medium to longer term in the mid-priced properties in the established suburbs around the $600-700k mark.”

Zigomanis echoes Wilson’s view and adds that he’d look for areas where there are not many new apartments going up. “I’d focus on older units that are affordable and have good bones,” he says. “Look for those that allow lots of natural light, not competing with other units, as you tend to do with high rise apartments. Don’t be afraid to look further out. A good place to start would be St Kilda, where it’s still close to the CBD but there are not as many apartments there currently being built.”


St Kilda: Popular suburb set for big things

Is it any wonder people have been packing into St Kilda like sardines? Located just six kilometres southeast of the Melbourne CBD, St Kilda is home to the city’s most famous beach, buzzing nightlife, theatres, beautiful parks and classy dining options. Additionally, there are efficient train and tram links to the city, which are a major attraction for the professionals who target this area.

Despite being famous for its culture of bohemianism and embrace of subcultures, the area has experienced rapid gentrification in recent years, which has seen many members of these groups pushed out to more affordable areas.

The area also benefits from tourism, as it hosts a number of writing and music festivals, not to mention Luna Park. St Kilda’s high population density is evident from its abundance of strata titled units, apartments and flats. Moreover, units there have only typically experienced 4% growth over the past year and 1% over three years, indicating the area is well overdue for a growth spurt as it continues to gentrify further.

For less than $450,000, investors can typically pick up a two-bedroom apartment in Barkley St or Crimea St. The latter is close to the lively Chapel St, St Kilda Beach, Albert Park Lake and Windsor Station.

There are also nice apartments and Spanish villas available on Eildon Rd and Jackson St, which are a simple stroll to St Kilda Station and the suburb’s best restaurants.