Why Investors Need To Beware of Developer Incentives
Okay, picture this.
You’ve just found your ideal home or investment property. It’s a unit. You’re about to sign a Contract to cement the deal, but before you do, you’re interrupted by an ad on your Facebook feed.
IT’S A DEVELOPER OFFERING YOU A BRAND NEW CAR IF YOU BUY ONE OF THEIR UNITS.
Both properties in question are pretty much identical in price and the developer’s unit is newer than the one you were, up until this point, about to buy. This seems like it could be a better buy?! AND you get a bonus CAR thrown in!
NOW YOU’RE PRESENTED WITH A DILEMMA.
Do you go for the new car plus brand new place OR move forward with the original property, minus car and minus brand new?
AND HERE WE HAVE THE “CARROT DANGLE” SCENARIO AS I LIKE TO CALL IT.
So what do you do?
If you’re anything like most people, you’ll probably do your best to justify why the unit + car is a much better deal, even though you like the original property better. So you ditch the original plan for the developer stock, get your brand new pad with brand new car and all is right in the world.
BUT HANG ON, IS IT?
A few weeks ago I was flipping through the Courier Mail as I like to do on my Sundays and as it turns out, an article caught my eye.
It was explaining how developers were offering HUGE incentives (hence the car scenario above) to buyers who purchased units in their projects.
In particular, the article went on to outline how one buyer had followed a well known building to watch the unit prices drop by more than $300,000 in 2 years! He was able to pick up a new apartment in this building for around $485,000 when originally, the same design apartments were being sold off the plan for $785,000.
SO WHERE AM I GOING WITH ALL OF THIS?
Well, if you’ve been following my articles and videos, you’ll know that I warn about buying in over-supplied areas like this.
As a working example to explain... units in Fortitude Valley have experienced negative growth for two (2) years now and at an average annual growth rate of a measly 2.42% which is well below the Brisbane average for units. I certainly wouldn’t be looking to invest my dollars here in the near future. (source: RPData)
BUT WITH THAT SAID, I AM OFTEN ASKED BY INVESTORS, “WENDY, SHOULD I BUY UNITS IN BRISBANE”?
Well, in short, my answer is yes, but it depends.
There are certainly areas that aren’t experiencing the over-supply problems and provided you’re buying in boutique complexes (not the high-rise type), then sure, there are suburbs which have done well in terms of average annual growth for units. And this goes for other areas around Australia too.
Paddington in Queensland is one of these, with an average annual growth rate of 4.70% for units. Rather than negative growth for the past two (2) years, Paddington units have experienced two years of positive growth.
To sum it up, it’s all about where you buy, and remember, investing in real estate doesn’t automatically make you wealthy.
It must be done strategically, or you risk doing your dough on a poor performing investment that won’t help you reach your goals.