Off-the-plan resales: Is it a good strategy?
Off-the-plan properties offer various wealth-creation opportunities but certain circumstances push investors to resell. Is this strategy worth the risk?
According to Real Estate Uncovered’s Peter O’Malley, there are many reasons for wanting to exit an off-the-plan purchase.
“The reason for wanting to exit the purchase may have been pre-planned or it may be due to a change in circumstances since they initially put their deposit down,” he said.
However, reselling an off-the-plan property is not as easy as buying it.
Mr O'Malley said that there are usually hundreds, if not thousands, of apartments available for purchase in a development, which means that buyers are usually safe from the risk of oversupply.
Moreover, since the financing is often arranged by the developer, the commitment to pay the mortgage is delayed by a few years, according to him.
The property professional highlighted: “Practically and emotionally, it’s easy to secure an off-the-plan purchase if you are an investor.”
Risks of reselling
Ideally, investors buy off-the-plan properties for little to no deposit years before the development project is complete, expecting that the market will rise by the time the property is ready to be put up for rent or sold for a profit—but it does not always work this way.
Aside from unforeseen circumstances, one of the main reasons why people decide to sell off-the-plan properties is to acquire profit prior to completion, before they are bound by the commitment of settlement.
These resales usually happen before the developer has cleared existing stock, making the property supply exceed market demand.
For example, according to Mr O’Malley, if 20 per cent of buyers decide to resell before completion of the development, there will be 120 per cent of stock available in the open market.
“Reselling off-the-plan is usually difficult because of unsold developer stock and added competition from private vendors looking to avoid settling,” he said.
Most of the time, you will be forced to liquidate at the best price possible if the development is still under construction.
The property professional explained further: “Given that fresh developer stock is competing with private resales, it’s fair to expect some downward pressure on prices of brand new apartments.”
While not every development projects go down this path, most do, which is why Mr O’Malley strongly encouraged doing due diligence before ultimately implementing the resale strategy for your off-the-plan investment property.
Study the broader market to ensure that you’re making a good purchase and seek the guidance of property professionals, where appropriate.
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