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Pre-Sales Savaged as Nervous Buyers Crave Certainty

Posted by Nathan McCullum on 04/05/2023
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By its very nature, buying off-the-plan comes with a degree of uncertainty, but the growing number of building company collapses, relentless interest rate hikes and construction delays is taking a toll in a number of markets.

Selling off the plan in the current market is a tough job—nervous buyers insist on being able to walk through properties as they near completion as a sign of certainty that they will get what they paid for.

OpenLot.com.au says a growing number of people who bought residential property via off-the-plan contract are looking to on-sell prior to settlement.

Founder Qi Chen says that just 22 per cent of seller requests on the listings site were for off-the-plan properties in 2021.

This rose to 47 per cent in 2022 as interest rates rose.

Construction problems and a rental crisis will continue to drive buyers to purchase established homes to avoid uncertainty, Ray White chief economist Nerida Conisbee says.

▲ New home builds will be slow, says Ray White chief economist Nerida Conisbee.

Data indicates the number of new home approvals is now trending to its lowest level in more than decade.

In February, 12,661 homes were approved, a 30 per cent decline from 12 months ago, Conisbee says.  

“In historic terms, this is exceedingly low but many of these homes will not be built quickly given construction cost increases,” she says.

“Many people who would otherwise have bought a new home will be pushed to the established market, either because the cost to build a new home is too high, it is difficult to find a builder or simply there is no availability in the suburb they want to live in.”

In fact, demand for off-the-plan listings in Australia has fallen by 60 per cent, Geonet Property and Finance Group chief executive Chad Egan says.

The off-the-plan specialist says the period between signing on the dotted line, paying a deposit and settling can be incredibly stressful for would-be homeowners.

▲ The focus has shifted to investors, says Geonet Property and Finance Group chief executive Chad Egan.

“To accommodate this shift, we are seeing off-the-plan developers restructuring their original masterplans into cash-flow positive and built-to-rent homes, and focusing more on the investor market rather than owner-occupiers,” Egan says.

In particular, he says, there has been an increase in demand for off-the-plan properties that offer multi-tenant housing and properties that come under the National Disability Insurance Scheme (NDIS). The nation needs another 33,000 homes by 2032 under the scheme.

Financial advisor and buyers’ agent Nathan McCullum reports some consolidation in sales activity in the off-the-plan market as buyers spend more time looking before closing a deal.

“There’s definitely a lot of projects on the market that were launched a couple of years ago that still haven’t sold across NSW,” the McCullum Advisory director says.

“Sales volume hasn’t slowed down, but the length of time to get to the transaction is a lot longer—buyer are taking more time to make a decision.”

In many cases, buyers lack confidence that they will get the product they’ve been promised.

▲ Buyers want certainty, says financial advisor and buyers’ agent Nathan McCullum.

Developers need to understand that the market has evolved and buyers are smarter, McCullum says.

“They know they’ve got more choice. They’re well informed about the market and your reputation out there,” he says.

“Buyers want certainty that a developer has a track record. They want to see the property, because they’ve seen the headlines about developments falling over.”

Working closely with strata managers and building managers to ensure the building handover is seamless and placing a greater focus on greater customer service is crucial, McCullum says. 

The dampened market is prompting some wary developers to sit it out until the market improves, while others are securing funding elsewhere and pushing on.

Developer and builder Pitard Group recently revealed it secured funding to largely complete its $130-million apartment project in Melbourne’s Elsternwick before it began its marketing campaign.

▲ Seafarers in Melbourne: Colliers says buyer enquiries are the strongest they’ve been since 2016.

However, off-the-plan sales remain steady for pockets of the market that are meeting buyer demand for premium and unique properties.

Colliers director of residential, Victoria, Nancy Monitto, says buyer enquiries are the strongest they’ve been since 2016.

There’s also an understanding that supply in Melbourne will significantly drop due to the construction delays, which is further incentivising buyers to invest in near-completion projects, she says.

Colliers has been pushing forward with its waterfront Seafarers development in Melbourne, which began off-the-plan in 2020.

While some apartments in the 113-apartment development atop an eco-luxury hotel development remain on the market, Monitto is confident.

“Buyers definitely want all of the boxes ticked, but genuine large format owner-occupied properties are few and far between and are heavily sought after in the market.

Source Urban Developer – 3rd May 2023

https://www.theurbandeveloper.com/articles/off-the-plan-sales-decline-construction-rates-rise-development

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