I sometimes get approached by clients, friends, potential clients etc, because they have agreed to purchase an apartment off-the-plans (before it is built), settlement is now approaching, and they want advice on what to do.
Often they want to sell it before they settle, hence avoiding the need to even raise a mortgage.
Remember the Good Old Days?
Many of these apartments were bought and sold in 2006-07, when the market was in full feverish swing, and everybody knew somebody who had made a “quick $50k” by buying an apartment and on-selling it, without even needing to raise a mortgage and settle on it in the first place. This seemed like heaven… a quick $50k for doing nothing.
The Good Old Days Are Over!
Sad, but true… it is no longer realistic to expect to on-sell your off-plan apartment (bought at the peak of the market) prior to settlement and make a profit.
What Happens When A New Building Settles?
When the settlement date approaches, there will be several groups of people among the buyers, including…
- Some buyers never intended to settle, and are in no position to do so.
- Some buyers planned to settle, but their position no longer permits them to do so.
- Banks’ lending rules have changed significantly, meaning some buyers no longer qualify for finance, even if their situation has not changed materially.
Settle On Your Apartment If You Can
If you plan to sell in the near future, rather than compete with extremely motivated vendors around settlement time, I recommend you settle on your apartment if you can.
The next issue to deal with, is getting it rented… there will be LOTS of apartments available for rent in the building… so how do you attract the tenants to yours, over and above the competition?
Firstly, the best quality units will go fastest. This is obvious, but it is amazing how many investors overlook this when buying the apartment. They go for the one with the highest theoretical yield. In other words, the shittiest one!!! But when the tenants come to rent, the ones with good sun, more generous spaces, good balconies, unobstructed outlook… these ones go first.
Whichever one you have got, there are two things you can do to get it rented as fast as possible:
- Be realistic on rent. Do not wait for AGES in order to achieve full rent. Take a 10% cut in income, and get it filled up. Receiving 90% is better than holding out for 100% and receiving nothing for 10 weeks!!
- Offer something extra… a flash new TV on the wall, nice whiteware, a stereo, some nice art or a mirror etc. This costs very little and will buy you valuable peace of mind as it helps rent your apartment out faster.
Sell When The Building Has Settled Down
- Have the highly motivated vendors in the building exited the market?
- Have the values in the building settled down to establish a “norm”?
- Has the number of apartments available to rent in the building reduced to sensible levels?
November 09 2011 12:03 pm | Uncategorized