Benefits of buying positive property off the plan
There is significant new development occurring in some of Australia’s positive property hotspots such as the Northwest and Central Queensland, offering investors a variety of opportunities to invest off the plan.
Many consider off the plan property to be a high risk investment but with thorough due diligence it can generate excellent returns with low cost entry.
One of the major draws of buying off the plan is that a deposit of around 10% will secure the property. Pre-approval on finance will be required but the balance is generally not be payable until settlement.
With construction completion often taking six to 12 months, there is an extended timeframe for settlement and investors can take advantage of this to improve their financial position and benefit from any capital growth. As the property is purchased based on a fixed price contract, any equity the property generates between the deposit payment and settlement is the investor’s capital gain.
New properties also command top rents and investor profits can be further increased by taking advantage of tax depreciation, which is maximized for new properties. They also have minimal maintenance costs.
In addition to conducting comprehensive market research, it is vital that investors conduct due diligence on the developer. The developer’s track record, design and quality of projects, and capacity to deliver on schedule should be analyzed before committing to buy.
This includes investigating factors that can significantly affect a property’s value and rental yield such as floor plans, fittings, finishing’s and appliances.
Workmanship and products should be of high quality with suitable warranties. Ensure the process for rectifying defects is clear and assess the options for the customization of floor plans and fittings if it will add value and attract quality tenants.
Investors should review the contract carefully and seek legal counsel if they need clarification on the term and conditions.
Off the plan purchasing typically offers a low cost entry into the property market and in some states investors can avoid paying full stamp duty, making it a desirable option for first time investors.
Central Queensland: The New Frontier for Positive Property
The trends that have characterized the positively geared property markets of the Pilbara boom towns can now be identified in the resources hubs of Central Queensland, providing investors with opportunities for portfolio diversification.
Over the past decade, the development of large resource projects, significant infrastructure investment, sharply increasing workforces, massive demand for accommodation and a severe undersupply of rental stock have caused both rents and house values in the Pilbara towns of Hedland, Karratha and Newman to skyrocket.
The Pilbara’s major iron ore and LNG projects are now in their operational phases. Housing markets remain strong and continue to deliver investors leading rental returns but growth is stabilizing to more sustainable trends.
In contrast, Gladstone, Central Queensland’s industrial centre is very much in development. An established Alumina refinery has contributed to a healthy rise in house prices over the last several years, but its coal and LNG industries are still in their infancy.
Three LNG projects are currently in construction and another 14 infrastructure projects are in the pipeline (coal terminals, additional LNG and other mineral processing facilities). The value of these projects totals $105 billion – dwarfing Port Hedland’s $12 million, the Pilbara’s top town for infrastructure investment.
Moranbah is the Bowen Basin’s coking coal hub and services more mines than any other town in the country, drawing comparisons with Newman’s proximity to the Pilbara’s many iron ore operations. Moranbah has also seen its housing market strengthen following the commodities boom. It has $15 billion of approved and planned projects, including 14 coal mines to add to its existing 14.
While current and anticipated development in both towns is unsurpassed in Australia, investors will be aware of the softening of the market in recent months – a result of an increase in land availability and new residential development.
However, a combined $120 million in current and planned projects, a diversified long term commodities industry and projected population growth which is unlikely to be met with sufficient housing supply, they continue to make a strong investment case for the positive cash flow investor.