Many off-the-plan apartments have not made significant gains on resale, experts said, as the property type comes into focus after this week’s budget.
Buyers of new homes will still be able to access negative gearing tax concessions once the arrangements are scrapped for buyers of established properties from July next year.
But owners of new apartments may find their asset becomes less attractive to future purchasers who will not enjoy the same tax break.
Angie Zigomanis, head of data at Quantify Strategic Insights, who has previously researched off-the-plan unit performance, found the property type tended to record less price growth than established homes.
“We tended to find the price change between the off-the-plan sale and the subsequent sale was a lot lower than the price change between an existing apartment selling at the same time and subsequently selling again at the same time the off-the-plan apartment resold,” he said.
“That first resale tended to perform not as well as existing apartments.”
He said investors had chosen new apartments for the tax depreciation benefits available for new homes. As the next buyer didn’t get the same benefits, they did not have the same incentive to pay the same price, he said.
He thought after next July, new apartment buyers will own an asset that can only be sold to a subsequent buyer who does not get the same negative gearing benefit nor the same depreciation benefit.
“The risk is, unless you’re in a very strongly rising market overall that might lift all boats, you’re not going to get a profit on the resale, because the next buyer is not going to be willing to pay the same price.”
Cotality research director Tim Lawless said inner city high-rise units had not performed as well as outer fringe house and land regions, although there were exceptions and some off-the-plan developments performed well for capital gains.
He highlighted areas where there has been significant supply of new apartments.
“We can see in precincts where high-rise apartments are common or where there has been an influx of unit supply, both the rate of value change has been low to negative, and the portion of loss-making sales has been high,” Lawless said.
For example, in Sydney Olympic Park, unit values had declined by 15.1 per cent over the past decade, while the Melbourne CBD unit market fell 8.4 per cent, Cotality data shows.
In the December quarter of last year, almost half of units sold in the Melbourne local government area traded at a loss, and nearly 29 per cent in Sydney’s Parramatta.
Michael Fotheringham, managing director of the Australian Housing and Urban Research Institute, said price performance depended on what type of new unit and where.
“The studio apartments that were built in great numbers in Docklands, no, have not appreciated. In Melbourne generally we built a lot of apartments over the last decade relative to everywhere else,” he said.
He thought resales had recorded more price growth in Sydney because there were fewer homes delivered.
When Sydneysider Jordan Galea started looking for an investment property in 2021, he considered all options, including buying off the plan. At 20, he described himself as “clueless” about money but understood that bricks and mortar represented a “solid foundation” for investment.
“I did my own research in the Sydney market. I thought [buying off the plan] wasn’t a bad idea in terms of affordability to buy an apartment,” said Galea, who runs a mechanics workshop. “That made sense, but spending on strata fees, there are a lot of things that factor into it.”
Instead, he bought a house in the Hawkesbury region where he lives and where his father owns four properties.
The now 25-year-old he is focusing on buying another house, but didn’t rule out off-the-plan.
“Depending on the price and the location, buying off the plan would seem like a good decision if you got to keep the negative gearing. I don’t think it would be a bad idea.”
His property investment advisor Gianni Musumeci from Leverage Property Advisers expressed caution about off-the-plan apartments or house and land.
“Am I going to buy a cookie-cutter house out in the sticks to take advantage of the tax benefits or apartments that have an overwhelmingly high supply and they typically have major defects?”
Musumeci said for long-term investors, negative gearing was just part of the story.
“When we look to invest, it is never about simply reaping the benefits of those taxes. The question is: does it help me achieve my financial goals? Am I financially viable enough to hold onto this asset in the long term?
Melbourne business coach Lisa Guglielmino, 59, began investing in off-the-plan properties five years ago, as she and her husband planned for retirement.
They have two investment properties – a house and land package in Eynesbury, in Melbourne’s outer-west, and an apartment in Queensland.
She said “mum and dad investors” wanting to buy off-the-plan must be willing to weather short-term losses for a longer-term gain.
“It’s a stretch, because the value of the [Eynesbury] property hasn’t gone up,” she said. “It’s actually costing us because the rent also hasn’t gone up, ever … interest rates have gone up but the rent hasn’t.
“We’re betting on the fact that in 10 years’ time it’ll be a really good investment.”
She would consider buying off-the-plan again, but thought investors with the appetite to buy new developments were already in the market.
“Off-the-plan’s risky. You’ve got to trust the people that you’re investing in,” she said. “It was already an anxious economy for the small investor anyway. I think it will definitely slow them down.”
Her mortgage broker, Mortgage Choice Williamstown’s Jonathan Lee, agreed.
He’s an advocate for investing in new property, but his advice to clients after Tuesday night was “don’t do anything right now”.
“I don’t know how the lenders are going to do this,” he said. “Are they going to have a checkbox to go ‘Is it a new property or is it an old property’?”
Robyn Willis is a property reporter and the former lifestyle editor for The Sydney Morning Herald and The Age.
Elizabeth Redman is the national property editor at The Age and The Sydney Morning Herald.Connect via X or email.