Buying an off-the-plan apartment comes with reservations

The latest census data confirmed the shift to medium-density living in Sydney’s inner city. While the debate about under- or oversupply of residential dwellings remains, it is clear that demand for inner-city units is high, as evident by the number of transactions in the 12 months to April 2012, with the unit-to-house sales ratio closing the year at 2.5 to 1 (8,099 units vs. 3,163 houses).

Would you invest in off-the-plan apartments in this market? Yes, but with reservations.

As a first-home buyer I would certainly consider buying after October 1, when the NSW state government’s generous incentives kick in. The chance to move into a newly built property and being able to select the location, aspect and inclusions is a strong drawing card to buyers of a first home. However, given the hurdles often put by financiers for purchases of off-the-plan units, it is prudent to start the journey into the housing market with a healthy deposit that will shield against the risk of a lower valuation upon completion.

As a downsizer I would do the sums. As many downsizers are in the stage in life when retirement is contemplated, it is imperative to take into consideration not only the cost to finance the property, but also ongoing costs such as water and council rates and strata fees. A recent research we conducted found that strata fees in city buildings represented a larger percentage of the price of a unit than in buildings located further away from the city.

The reason was often the type of common facilities included in the building. It is imperative to consider the suitability of each facility to the purchaser’s lifestyle. While an elevator is commonplace in most developments, swimming pools, gyms and function rooms are used in marketing campaigns to attract buyers. They have a significant impact on strata fees and are often underutilised by residents. In recent times, developers have shied away from “resort”-style developments of the last decade, understanding that buyers today are conscious of the costs involved, and often outsource their recreational needs to one of the many sporting facilities located around town.

Units will continue to be the dwelling of choice into the future, as both younger and older generations see value in the lifestyle options offered by this type of dwelling. However, it will be the style of the building and the bottom line, not only the location, that will determine the attraction of each unit into the future.

Oded Reuveni Etzioni is a research analyst at PRDnationwide.

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