High Rental Ratio To Purchase Price But No Capital Gain
Apartments may seem an attractive purchase because of their higher rent yield to purchase price ratio but the short term gain is nullified by the absence of any long term capital gain. In the period since 2011, Doncaster asking prices have fallen by as much as $50K. This is one of the reasons why Australian lending authorities are revaluing off-the-plan dwellings, sold up to two years beforehand, well below the initial purchase price. As a result, purchasers are required to cover any shortfall between the sales price and what banks are willing to lend. Depending on the amount of money paid, their have been instances where purchasers have defaulted, walked away and forfeited their deposit. If the trend continues it will be financial trap for owner occupiers who will have
little chance of redeeming their original out lay if they wish to sell.. “like when you drive a new car out of the showroom” as one state politician so eloquently explained.
This is why most of off-plan units in Australia are now being sold to overseas buyers. One reason for this is that overseas buyers are only allowed to buy new or off the plan properties. Another reason is that these units are often priced way above current market prices, so investors who know whats happening with the local market will not be as interested.
Chinese investors have become big buyers of off-plan units in Australia. One reason for this is that they want to place some of their money outside of China and they regard Australia as having a stable economy. This means that their primary priority may not always be to make a good investment. Quite clearly, without overseas buyers, nearly all the off-plan projects, particularly those on Doncaster Hill, would not have proceeded.
A lot has been written about the huge flow of money coming out of China almost as if it’s people are desperate to place their money outside of their country. This is not ideal if they are buying apartments off the plan sight unseen and trusting some of the agents representing developers. There will be people who will take advantage of their desire to purchase Australian property by representing them as high quality housing when clearly they are not.
Since the local demand for apartments on Doncaster Hill disappeared after 2012, overseas developers have come to the rescue of its flagging strategy by purchasing all key development sites and are now building the high rise apartment towers and selling them through overseas agents.
The difficulty however will be when these overseas buyers want to sell they can only sell on the local market, which makes me think there will be a huge mismatch between stock coming on the market and purchaser demand down the line.