Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 408

Whoyagonnacall? Five more risks buying off-the-plan

If there's something strange
In your neighborhood
Who ya gonna call? (Ghostbusters)

If there's something weird
And it don't look good
Who ya gonna call? (Ghostbusters)

If you're seeing things
Running through your head
Who can ya call? (Ghostbusters)

With acknowledgements to Ghostbusters, Ray Parker Jr, provided to YouTube by Arista Records.

***

In Part 1 on 10 off-the-plan risks, we covered identifying defects, managing the fixes, running the strata committee and getting what you paid for.

Part 2 looks at another five risks, with a focus on the drawbacks of buying when you cannot see the space, hear the noises, check the views and even sniff the smells.

In most cases, apartments are sold off-the-plan to enable the developer to obtain finance to begin construction. Banks often require pre-sales of 60% or more, and a project may not proceed without this early progress. Buyers will receive a refund of their deposit but they may have missed out on other opportunities while out of the market.

Buyers enter a contract and have a legal obligation to settle. Many buyers believe their worst-case scenario is forfeiting the 10% deposit but the developer may take legal action to recover other costs, such as losses or legal expenses in reselling the property. Purchase obligations are not subject to finance and the buyer may be unable to arrange a loan three years after the original purchase as their circumstances may change. A bank will only commit once the building is almost complete.

Here are five more risks:

6. What internal and external noises will the apartment suffer?

You loved those parquetry floors in the display apartment, all those years ago. Guess what! Your neighbours upstairs have the same floor. Was the sound deadening underlay installed properly? Why do they thunk-thunk around their apartment wearing hobnail boots? It goes on day and night until it drives you crazy. Whoyagonnacall?

Viewing a display apartment gives no hint of the noises inside your actual property. The sounds of traffic or trains or planes might be poorly insulated against, and even if the windows are double-glazed, you will not want to keep them closed all summer. What’s that annoying noise from the air conditioning unit next door? What’s with the music, this is not a party house. You’re kidding me, an Airbnb. Apartment buildings are sometimes shared by hundreds of people. Don’t assume they read Jane Austen each night. Australia’s top-rating television programme is Married at First Sight. Those cretins you ridicule each night are your new neighbours.

Any acoustic engineer will tell you that large buildings are never silent. There is a vast amount of equipment running 24/7, including water heaters, aircon units, lifts, garbage chutes, ventilators, exhaust fans and electric shutters. Buy the apartment above the security doors to the underground garage and you will hear the opening every time you sit on the balcony. Whoyagonnacall?

And here is the irony. The noise from each piece of equipment is masking another sound. You might hear an annoying hum from a machine which the builder agrees to fix, but when that machine is silent, you hear another one. Too low a background noise level may mean you can hear other noises in the building. And you know how they say your brain switches off to repetitive noises? Don’t believe it.

Some noises are there to stay so just get used to them. Or do you expect the conversation to go like this during your final inspection?

You: The agent told me there would be special thick glass to insulate against the road noise.

Developer: Oh, damn, did we use normal glass? Sorry about that. Let’s put the scaffolding back up and replace all the glass in all the windows with thicker glass. That will cost about $2 million but no worries, we’ll pay for it and have it done quickly with the least inconvenience to the owners.

To misquote from The Castle, you're dreamin’.

7. What are the views really like, and what’s that smell?

For many apartments, the view is a critical part of the value and price, and crucial for the amenity and pleasure of a new home. A problem with the view is not like replacing a dishwasher. It might be beyond the control of anyone on your project. A different developer may have acquired land next door and it would be devastating to inspect your new home only to find another building 11cm from your balcony.

When the marketing brochures are prepared, the photographs or artist drawings often represent an image from the penthouse, the best view in the building. Pity that’s where someone else lives. From your apartment, the view may be straight into someone’s dining room. I recently inspected a new construction with an existing 527-unit Mirvac building blocking the harbour views below the 34th floor, yet the views featured in the marketing.

Meanwhile, a friend inspected a high-end off-the-plan development on Sydney’s north shore. The penthouse was priced at over $12 million and the quality of the harbour view was critical to the value. He was sceptical of the marketed view pictured as if the apartment were on the water, whereas it was set well back, albeit with an elevated outlook. So he hired a drone and pilot to take photographs from the actual location of the future penthouse balcony and it was a vastly inferior view over houses. He did not proceed.

A common marketing technique is to take a promotional shot through a gap, ignoring the fact that the actual perspective is ‘framed’ by two large apartment blocks either side of the view.

The water view? In some places, it’s a tidal mud flat and when the tide goes out, the water is 200 metres away. Maybe you like the look of mud clinging to the roots on mangroves, but what about the smell? There are suburbs with water views where the smell at low tide forces residents to close the windows.

Nobody who buys off-the-plan thinks about smells. You know that restaurant space you saw in the glossy brochure, the ground floor retail showing happy people meeting in a great community scene. Well, the kitchen exhaust is near your balcony, and each night, the smell of tandoori chicken wafts into your living room. No matter how much you like tandoori chicken, you don’t want to smell it every night.

8. Why is that community coffee shop still an empty space?

Many apartments are mixed-use developments, with the ground floor devoted to commercial space, sometimes offices but often coffee shops and restaurants. The brochure shows food places full of smiling faces sipping great coffee, and buyers picture themselves meeting up with friends for a morning latte with apple danish, looking out on landscaped gardens. The sun is shining, you expect to WFH more, and it will be paradise.

But a coffee shop cannot be supported by a hundred apartments. It needs a lot of passing trade, and COVID has killed many of these businesses. Commercial spaces may lie idle for years, or forever, with owners hoping some sucker will fit out and rent a low traffic area. Eventually, the ‘For Lease’ signs hang down on yellowed tape, gathering dust, making the whole ground floor of the building feel sad and desolate. Try selling the promised vibrancy to a new owner. 

9. Why can’t I sell my apartment for more than I paid for it?

Agents sell a dream, you are selling a reality.

The developer spent millions of dollars on promotions and marketing, maybe $50,000 an apartment on top of agents’ fees. The project appeared on the cover of national magazines with gushing articles written by compliant journalists whose other job is to encourage advertisers. The building was promoted in Hong Kong, Singapore and China, the display model was an architectural masterpiece, and there were a hundred people in the queue during your first look.

You simply cannot compete with this level of glitzy promotion when it comes to selling your completed two-bedder. And the bad news is, there are five other two-bedders for sale in the same building for the same reasons you want to sell, and all those agents' signs at the front door look really tacky.

All those things you missed or glossed over or ignored in the original frenzy are now obvious. The living area is dark and buyers notice you switch on all the lights during inspections. The balcony barely fits a decent table. The study is more of a cave than a place you want to WFH. And, oh dear, there’s a solid column in the middle of your living room that was not on the original plan.

10. Is that common property or is it mine? 

In many cases, it is obvious what common property is: external walls, roof, foyer, lifts, stairwell, pool and driveway. Some owners believe they are only responsible for maintaining their own apartment but common property is jointly owned by all owners through the Owners Corporation (OC). Everyone pays for its maintenance, although features such as swimming pools and gymnasiums are used by a few. It leads to disputes over the standard to which the common property should be maintained.

The strata plan usually shows common property boundaries, but it can be confusing exactly where to draw the line. The flooring in an apartment is common property but not the carpet. A pendant light which hangs down from the ceiling is not common property but a downlight installed in the ceiling is. External doors and windows are common property, which means a broken window is paid for by all owners. Some owners begrudge paying for damage in the apartment of others, such as a lifting floor tiles or a blocked drain.

Any owner who wants to modify common property must seek permission from the OC or SC. An owner with a garden space nobody else uses may ask for an 'exclusive use' by-law, which is sure to generate opposition, even from owners who have never set foot in the garden.

In mixed-use developments with commercial premises, there may be disputes over signage, customer parking and usage. Another friend has battled for years in his apartment building to prevent a 24-hour call centre moving into the commercial space with access via the main foyer, fearing the coming-and-going of strangers at all hours will change the residential nature of the building.

The Design & Building Practitioners Act (DBP Act)

The DBP Act 2020 imposes obligations on builders to improve compliance with the Building Code of Australia. It requires each step of construction to be documented and compliant with the intention of improving the culture and competence of the industry.

This relatively new legislation remains untested in practice, especially managing defects post-settlement. A criticism is that it works to the standards of the Building Code but many high-quality apartments are specified to much higher standards. Builders are supposed to lodge details of 'variations' from original plans but there are few details on what qualifies as a variation. Every project evolves as it is built. Both owners and builders worry that the increased compliance will delay completion of buildings.

Another criticism is that whereas the Home Building Act requires the owners to pursue the builder in the first instance, the DBP Act allows owners to make a claim on everyone involved, including contractors and smaller businesses as well as the larger builders and developers. A major dispute could bring many more parties into the room, adding complexity and legal costs to the rectification.

Nevertheless, there are some encouraging signs, with the NSW Building Commissioner David Chandler publicly identifying buildings with defects and handing out remedy orders. It includes the buildings on this list.

Many defects surface long after settlement with complex legal implications, and it will fall to the owners to identify and manage a lengthy legal battle.

Unfortunately, there are no friendly defect busters to call "If there's something strange in your neighborhood."

 

Thanks to Martin Davies for assistance with this article although errors remain mine. Martin provides advice to owners' corporations and developers on addressing building defects. He works with both sides as it is in everyone's best interests to sort out the defects before they become major problems. He can be contacted on strata.projects.au@gmail.com.

Graham Hand is Managing Editor of Firstlinks. This article is general information and does not consider the circumstances of any person.

 

6 Comments
Chris
May 24, 2021

No more pieces on off the plan until I stop shaking. Trying to convince my wife to downsize but caravan starting to look safest option!

JR
May 24, 2021

i m a lawyer and regularly advise clients to think carefully before buying off the plan. Yes- Stamp duty can be saved; however the other problems so well enumerated in the two articles would put me off buying until I see the finished product. At times of steep rising prices some fortunate speculators who buy with the aim to sell before, or soon after completion do make a profit. That is not the situation now.

Jessica
May 23, 2021

Some of these risks apply to buying a place anywhere (eg noisy neighbours) not just off the plan. To add balance from someone who loves living in an apartment, here are a few points:
* less maintenance than a house. while people complain about strata fees, it is a payment for looking after your building, and someone else does the work.
* anytime you want to go away, just close the door and leave. not fussing about the garden or locking up everything.
* views from high floors in the building, which are very expensive to find in a house.
* new friends in the building. we have a community that I never felt in a house.

The fixer
May 21, 2021

Friends in high places: The Victorian Budget has bailed-out apartment developers by waving stamp duty on newly completed homes that have been unsold for a year or more and extending stamp duty concessions to new off-the-plan purchases worth up to $1 million from 1 July.

Chris
May 20, 2021

Great article, you nailed most of the issues, but another one I am aware of is car parking disputes. Unknown cars parking in your spot can create heated arguements.

Alex
May 20, 2021

I moved into an apartment over five years ago and the coffee shop with verandah area I was looking forward to sitting in the sun but it has never been occupied. The nearest coffee is a 10 minute walk to a place usually in the shade.

 

Leave a Comment:

     

RELATED ARTICLES

Whoyagonnacall? 10 unspoken risks buying off-the-plan

The looming excess of housing and why prices will fall

The great divergence: the evolution of the 'magnetic' workplace

banner

Most viewed in recent weeks

Is it better to rent or own a home under the age pension?

With 62% of Australians aged 65 and over relying at least partially on the age pension, are they better off owning their home or renting? There is an extra pension asset allowance for those not owning a home.

Too many retirees miss out on this valuable super fund benefit

With 700 Australians retiring every day, retirement income solutions are more important than ever. Why do millions of retirees eligible for a more tax-efficient pension account hold money in accumulation?

Is the fossil fuel narrative simply too convenient?

A fund manager argues it is immoral to deny poor countries access to relatively cheap energy from fossil fuels. Wealthy countries must recognise the transition is a multi-decade challenge and continue to invest.

Reece Birtles on selecting stocks for income in retirement

Equity investing comes with volatility that makes many retirees uncomfortable. A focus on income which is less volatile than share prices, and quality companies delivering robust earnings, offers more reassurance.

Comparing generations and the nine dimensions of our well-being

Using the nine dimensions of well-being used by the OECD, and dividing Australians into Baby Boomers, Generation Xers or Millennials, it is surprisingly easy to identify the winners and losers for most dimensions.

Anton in 2006 v 2022, it's deja vu (all over again)

What was bothering markets in 2006? Try the end of cheap money, bond yields rising, high energy prices and record high commodity prices feeding inflation. Who says these are 'unprecedented' times? It's 2006 v 2022.

Latest Updates

Superannuation

Superannuation: a 30+ year journey but now stop fiddling

Few people have been closer to superannuation policy over the years than Noel Whittaker, especially when he established his eponymous financial planning business. He takes us on a quick guided tour.

Survey: share your retirement experiences

All Baby Boomers are now over 55 and many are either in retirement or thinking about a transition from work. But what is retirement like? Is it the golden years or a drag? Do you have tips for making the most of it?

Interviews

Time for value as ‘promise generators’ fail to deliver

A $28 billion global manager still sees far more potential in value than growth stocks, believes energy stocks are undervalued including an Australian company, and describes the need for resilience in investing.

Superannuation

Paul Keating's long-term plans for super and imputation

Paul Keating not only designed compulsory superannuation but in the 30 years since its introduction, he has maintained the rage. Here are highlights of three articles on SG's origins and two more recent interviews.

Fixed interest

On interest rates and credit, do you feel the need for speed?

Central bank support for credit and equity markets is reversing, which has led to wider spreads and higher rates. But what does that mean and is it time to jump at higher rates or do they have some way to go?

Investment strategies

Death notices for the 60/40 portfolio are premature

Pundits have once again declared the death of the 60% stock/40% bond portfolio amid sharp declines in both stock and bond prices. Based on history, balanced portfolios are apt to prove the naysayers wrong, again.

Exchange traded products

ETFs and the eight biggest worries in index investing

Both passive investing and ETFs have withstood criticism as their popularity has grown. They have been blamed for causing bubbles, distorting the market, and concentrating share ownership. Are any of these criticisms valid?

Sponsors

Alliances

© 2022 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. Any general advice or ‘regulated financial advice’ under New Zealand law has been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892) and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. For more information refer to our Financial Services Guide (AU) and Financial Advice Provider Disclosure Statement (NZ). You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.

Website Development by Master Publisher.