There are Significant Risk factors, especially in a falling market or during a glut of unsold apartments in outer suburbia…
Market Risk – Let’s assume you paid the right amount to begin with and, when the property is complete, the market has dropped 15 per cent. The bank will only lend on the property’s value upon completion, not the sale or contract amount and you, the purchaser, are obligated to pay the difference. Let’s assume you sign a contract to purchase a property at $1 million and, upon completion, the bank valued it at $850,000 because of the decline in the market. You would have to cover the difference.
There’s no greater leap of faith than committing to pay for something two or more years later – something with a price tag of $300,000, $500,000 or more.
When someone buys a property that doesn’t exist yet, they’re placing great trust in future outcomes That the developer is reputable, financially solid and can deliver on time.
- That the promised finishes and facilities will be delivered.
- That the market will rise.
- That interest rates won’t.
- That the rentals forecast will translate into reality.
- That the investor won’t lose his/her job between signing a contract and settling.
- If it’s a large development, there can be 2-3 years between the marketing launch and completion date. That can be an eternity in the property market.
Here is some more information on the topic: