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Off the plan property investment mistake! Be ware.

Discussion in 'Real Estate' started by glennt, 2nd Mar, 2011.

  1. glennt

    glennt Member

    Joined:
    24th Jul, 2009
    Posts:
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    Location:
    Adelaide
    I am so disgusted as to what has happened in my situation, I am going to post this erery where so people are aware!!!!

    I invested in a property two and a half years ago on an investment property off the plan ($540k). Yes I was a sucker, no stamp duty and a rental guaranty for two years. Judging by the drawing and photos I thought great, just a $2000 initial bond and wait until settlement. Plenty of time to save and let the market rise.

    After two and a half years the property settled, developers paid the stamp duty as agreed in the contract, but when it came to the rental guarantee.. they are planning to go bankrupt. We can't win because it will take more money to take them to court. Now the banks still require their monthly interest paid and theres a number of apartments wanting to be rented. The banks have under priced the property, and we agreed on a price, not knowing, that was over inflated at the time.

    Now I have to sell at the risk of hoping to get the price that I need so to pay the bank loan off and get my 20% bond back. Who's to blame myself and the realestate agent who sucked me in. I still can't find anything about the developers. Everone was in on it from the agents, finance company, strata managers, settlement agents. They all make their commissions and move on to the next scam.

    So folks be aware.
     
  2. builder2818

    builder2818 Well-Known Member

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    Location:
    Sydney
    How much were they undervalued by? Would it be possible to wait and see if you can get a tenant in? Maybe even offering a cheaper rental rate then the other unit owners?
     
  3. kaz101

    kaz101 New Member

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    4th Sep, 2008
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    Location:
    South Australia!
    What about doing something like a lease option? You'd need to investigate that you could do it on a strata title.

    You charge the tenant / buyer more than the usual monthly rent and that would hopefully cover the mortgage (or get closer to it). You could set the lease option to be 2 years and so you charge the price of the property that you would expect in 2 years (depending on what prices are doing in that area).

    Just something to think about.

    Regards,
    Kaz
     
  4. glennt

    glennt Member

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    24th Jul, 2009
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    Location:
    Adelaide
    Go sucked in by the marketing from real estate agents

    They have over priced the property by $60,000, the agreed purchase price in 2008 was $540k and I'd paid that at settlement in Dec 2010 you'd think it would have appreaciated but was actually worth $480k. So the property was worth much less initially say $420k in 2008.

    So the developers had made much more than what they would have by promissing a rental gurantee of two years which they did not keep. I was told the 2 year cost of the rental gurantee was rolled into the price which it was but they are not paying the rental gurantee.

    Instead they are stashing the money in say a swiss account and declaring bankrupt, or even going to another state and starting their scam all over again.
     
  5. successonline

    successonline New Member

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    19th May, 2011
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    Location:
    NSW
    Hey Glennt, thanks for sharing your story.

    I read your story then find the real problem is on the developer. In australia, when purchasing the off-the-plan project, developer's reputation is always the 1st consideration. Large developers llike Mirvac, Billburgia, Payce, Australand, etc, have very good reputation and credibility. You can search on-line to find the comments and their previous work to see whether they are of good quality.

    As for the bank valuation, my experience is that banks usually give a lower value then your purchase price for their own benefit. Actually, your propertie's real price is the market price, but not the bank valuation price. If you are considering selling your property, you may refer to other properties on sale in your area, then estimate your selling price, which I bet is much higher then the bank's valuation.

    Hope it helps a little bit...

    I myself invested in an off-the-plan property, which has great CG and a very good retal return every year... :)

    I'm a little bit cuirous to know who is the developer of your property?
     
  6. Billv

    Billv Getting there

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    Location:
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    Glenn

    Thanks for the warning.
    In a rising market you are somewhat protected but in a falling market things can turn very ugly. You're correct to say that everyone is in it for the money.

    This sort of thing happens all the time mate but we don't get to hear it.
    They usually overprice their apartments and somehow they manage to sell the first few at overinflated prices which sets the price benchmark for the rest.

    The developer will usually find you finance as well and the strata company is in it as well. I bet they have signed a 20 year strata management agreement at some extraordinary management fee......:eek:

    I wish you luck mate

    Cheers
     
  7. Jacque

    Jacque Team InvestEd

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    Buying OTP isn't without risks hence the reason why most investors prefer property that's already built. Sorry to hear your story Glen and I hope it hasn't tarnished your property investment experience too much.
     
  8. glennt

    glennt Member

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    24th Jul, 2009
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    Location:
    Adelaide
    Well folks. Thanks for all your replies.

    The developerse were Gateway Developments (Vic) Pty Ltd. There is currently a down turn in the property market. I have managed to sell the property for $467,500, I paid $540,000. The real estate agents are going to cost $10,200 for their efforts.

    I've lost in 6 monthes $82,700 plus $20,000 in mortage payments and no rental income. So a total of $102,700.

    All I can say is this has been an expensive lesson!!!!!!!!!!!!!!!!!!!!!!!!

    Glennt
     
  9. Investment_writer

    Investment_writer New Member

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    20th Jun, 2011
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    Location:
    Brisbane, Qld
    Your experience has been a real heartbreaking lesson. I encourage people to be proactive investigators and realise that people in the industry do have links with others to put on a very united front. It is also a factor that you made a decision at a time when there was a lot of building and selling activity to push up prices (inflated), but now there is a real value opportunity in some capitals everyone is running scared.

    Not every off-the-plan apartment purchase is a poor idea, as successonline said. In two years from now it will no doubt turn around once again.
     
  10. Terryw

    Terryw Well-Known Member

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    Location:
    Sydney
    A guarantee by a developer is essentially worthless. It is only as good as the person giving it. If they have no assets then it is worthless. If they have a $1mil house unencumbered but have given $20mil in guarantees then it is not worth much either. If it is a $2 company giving the guarantee = worthless!

    For me any project which is offering a guarantee rings alarm bells straight away. I would have more confidence in the project if there was no guarantee at all.

    Also, it is not much use in checking the developer. Each project would have a new company doing it. You won't find much as the company would never have done much. What you need to do is to find out who the directors are and maybe shareholders too and then google their names. Sometimes you may find court cases which they were involved in or minutes of council meetings which discuss complaints or building applications etc.

    You could also do a bankruptcy search to see if they have ever been bankrupt. But this won't really help. If someone goes down they often start up again using someone else, cousins or friends etc to become director.