Mayhem in the Off-the-plan Sector

The redemption of the construction sector was expected to partially piggyback on the performance of the off-the-plan housing. This sector has however suffered a rude jolt of late, reports Duncan Hughes in an article for the Australian Financial Review.

Mayhem in the off-the-plan sector

Apartment values in most promising capital cities of Sydney and Melbourne have suffered a setback by 20% between the time they have been purchased off the plan and their keys have been handed over. As many as 44% of apartments have had their keys collected at less than the sale price discussed during the off-the-plan purchase.

Investors should exercise caution

If this is the seed state, the problem can sprout into something uncontrollable, says Hughes. In the light of the above fact, it has become even more crucial to look deep into the history of capital growth and rental yield before buying.

Oversupply has been a bane and with even greater supply ready to be loaded into the Melbourne and the Sydney market and investors getting aided by their SMSFs (for borrowing out their prospective properties), condition might just deteriorate further for the off-the-plan constructions.

You can read the original article here.

The Sunset Clause

I think that apart from the need to have a thorough understanding of the capital growth and rental yield, investors should never lose focus of the Sunset Clause and how developers can play unfair with its help. It is a clause that allows developers to rescind contracts that have gone beyond their promised time of completion.

There have been no dearth of cases so far where developers have revoked  off-the-plan contracts citing time issues when they have clearly been motivated by better deals offered by some other investors.

Have you suffered due to off-the-plan deals going wrong?