Episode Details

In today's technology age, property forecasters are armed with all of the information in the world. So why do they keep getting property market predictions wrong? That's one of three topics I'll be discussing in today's show.

I'll also be talking about some recent statistics that explain a segment of the property market that you really want to avoid. This is one area of the property market just doesn't work.

Additionally, in today's mindset moment, I'll talk not about being successful, but about why you should embrace failure.

These stats show why you really must avoid off the plan apartments

You've heard me say it before, but now the stats prove my point.

Off the plan apartments make terrible investments!

Analysis by BIS Oxford Economics reports that of the apartments sold off the plan during the past eight years:

• Two out of three Melbourne apartments have made no price gains or have lost money upon resale. And this is despite record immigration and a significant property boom.
• In Brisbane about half these apartments bought off the plan are selling at a loss, or at no profit.
• In Sydney, it is about one in four apartments bought since 2015 are selling at a loss, or at no profit.

In other words, more investors in off the plan high rise apartments have lost money than have made money.

And of course, there are all those investors sitting on the apartments which are continuing to fall in value, but they haven't crystallised their loss yet.

In 2018, 98,000 apartments were completed across the country and 65,000 in NSW alone, according to ABS figures and the situation is only likely to worsen considering the pipeline of projects still being completed.

According to the BIS research, resales of apartments within a three to five kilometre of central Sydney, Melbourne, and Brisbane have realised consistently lower prices than established apartment resales.

To make things worse...

Today with falling property values a large portion of these off the plan apartments are completed they are valuing in at less than contract price at a time when nervous lenders are demanding a bigger deposit from buyers.

This double whammy will result in more off the plan investors having difficulty settling their purchases leading to rising defaults on settlements and major discounting by investors trying to get out of their purchases and developers trying to move their stock.

According to RiskWise, Brisbane's inner-city apartment market has about 10,000 more homes in the pipeline than it should have, suggesting the city is expected to face more defaults on settlement.

And there are long term problems as well...

There is no doubt that all those off-the-plan residential property developments have redrawn the skylines of our capital cities and many parts of inner and middle suburbia over the past decade.

The spread of high-rise living out of our CBDs to adjacent suburbs as well as into outer lying suburban strips has been remarkable.

But...

1. Many of the tiny inner-city apartments built during the boom of the past decade are unlikely to meet the needs of Generation Y as they grow older. Sure more and more of us want to live in apartments - but not ones that are so small and ones that lack amenities
2. Poor construction techniques, particularly the use of inflammable cladding, will devalue many apartment blocks. The high-profile structural problems of the Opal Tower is likely to be only one of many stories of building defects

But the biggest risk for off-the-plan units are the proposed changes to negative gearing and capital gains tax if Labor wins government.

How investor mindset moves the markets

If they're armed with all the