BuyersBuyers experts warned of off-the-plan “spouts” who can advise investors and buyers to buy in areas with a high risk of oversupply.
Pete Wargent, co-founder of BuyersBuyers, said the real estate industry is currently “inundated with the promises of easy profits”.
“When housing markets are up, we tend to see the proliferation of sprites recommending their ‘free’ services to investors,” he said.
“The model often includes a one-stop shop of advisors recommending the plan units or apartments to investors, sometimes with rental guarantees and other offers to encourage consumers to take the plunge.”
Mr Wargent said sales pitches from these “spouts” are usually based on tax breaks and rent guarantees, a model considered flawed.
“What is promoted less is that the advisor is rewarded with lucrative commissions from the developers who sell the new stock,” he said.
“The problem is we know that new units have systematically underperformed from an investment perspective, and when the investor comes to sell there is an increased risk of loss on resale because then they are selling a pre-owned property that has lost its luster and novelty premium.”
This is an urgent problem, especially in suburbs with the greatest risk of oversupply.
Doron Peleg, CEO of RiskWise Property Research and co-founder of BuyersBuyers, said the closure of international borders has left some suburbs vulnerable, especially those with many new units in the pipeline over the next two years.
“Statistically surrendering the plan carries more risks, including construction errors, pre-settlement valuations that are less than the contract price, and ultimately a statistically higher risk loss on resale,” he said.
“These risks are exacerbated when you buy in a potentially oversupplied market, some of which are in all states.”
The following 10 suburbs have the highest risk of oversupply:
What investors should do?
Mr. Wargent urged investors to be wary of free advice and services.
“If you don’t pay, you’re not the customer, you’re someone else. That someone is actually paying for the consultant’s marketing campaign and sales commissions,” he said.
For most of these “sprinklers” they earn 5% of the contracted sale price of real estate.
Mr Wargent said it is best to stick with established properties as they carry lower risk and are statistically likely to yield greater capital appreciation.
“Do your own research, or if you can’t conduct your research or find and negotiate a property, hire someone independently to work on your side with no conflict of interest,” he said.
“Don’t work with a real estate salesperson or consultant who offers their services for free.”
Photo by Hiroshi Kimura on Unsplash.
Top Suburbs: Padbury, East Victoria Park, Millner, Werribee, Mt Lawley
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