What valuers look for in new apartments (and what they don’t like)
as published in domain.com.au by Sue Williams
It’s every new apartment buyer’s worst nightmare: finding out that their property, at settlement time, isn’t even worth the off-the-plan purchase price agreed two years before.
In a rising market, it’s odds-on the value will have lifted between that happy day of perusing the plans, examining the model of the building and walking through a glamorous display suite, and settlement day.
But in weaker economic conditions, the danger is always that it won’t have appreciated at all or – horror of horrors – actually dropped, leaving the unhappy new owner in a grim state of negative equity.
Of course, the market is always an unpredictable beast, but we asked valuers at the centre of the action for their tips on what to look for in new apartments that could make them most likely to hold their price or, better still, improve on it.
Good location
Buying a property in a good, popular location is always the best way to maximise the chance of a property holding its value.
A rising market lifts the values of all properties, just like a rising tide lifts all boats, says Ron Gedeon, chief executive of the Australian Valuers Group.
“But when that tide goes down, the best properties in the best locations fall much more slowly than the ones in weaker locations,” he says.
“The quality locations are always those surrounded by services and amenities, like public transport and transport links, good schools, shopping, cafes and restaurants. You can pretty much guarantee that people will always want to move into those areas.”
It’s also important to check that similar properties to yours have been selling strongly in the area, advises Jason Field, managing director of National Property Valuers NSW.
“It’s always challenging as you’re looking in the rear view mirror at the past to predict the future,” he says. “But what’s sold in the past six months should be a good indication of what’s in demand.
“Make sure, however, you’re looking at modern, contemporary units with similar internal square metre areas to see how their sales are going, which will be more comparable.”
Research the area to find out about future changes, both positive and negative. Photo: iStock
It’s also worth looking at whether the area is changing too, either for the positive or negative.
“An area in the process of changing may have a lot more potential for price growth,” says Matthew Halse, residential director for Sydney at Herron Todd White.
“They might have new public transport coming, like a light rail station or a motorway link, a new school, access to a new shopping centre, or the suburb as a whole might be undergoing gentrification.”
Better position
It’s not always location, location, location, however, says Gedeon. Position within the location is important too.
Mosman, for instance, is a great location, but buying a new unit that fronts Military Road or Spit Road mightn’t be as good an investment as one a road back.
“You don’t want to be stuck on those very busy roads, trying to get out every morning and being frustrated by the wait,” he says.
It’s not just the location that determines value. The position within the suburb also plays a big part.
Demand versus supply
If there are a lot of apartments under construction or in the pipeline for a particular neighbourhood or area, there is always the danger of an oversupply which could negatively impact the value of your apartment.
“We look up the records of the local council and Department of Planning to see how many apartments are planned for the area,” Gedeon said.
“An apartment may be worth $800,000 in 2016 but by the end of 2019 it could be $100,000 less if there’s another 2000 apartments being built in the same area.”
The developer and builder
Valuers may also check the credentials of the developer of an apartment block. “We want to know if it’s a developer with a good track record for delivering quality product,” said Halse.
“That can be difficult as some developers may disappear and return to the market under a different name. But we always try to keep an eye on that.”
The best developers often offer buyers home owners’ warranty insurance to make sure they’re covered for every eventuality, says Halse, and the builder is also subject to close examination by valuers.
There’s no substitute either for closely checking the contract, believes Field. “Pay particular attention to the variation clause which gives the developer the right to alter things very slightly in the apartment, up to 5 per cent,” he said.
New changes to the Conveyancing Act, which came into effect on December 1 this year, mean vendors have to now notify purchasers of material changes to what was disclosed, and allow buyers to end the contract or claim compensation in some cases if they are materially impacted by changes.
The apartment itself
The value of two-bedroom or three-bedroom apartments tend to be more stable than one-bedroom units, Gedeon says. One-bedroom apartments are more often bought by investors who are more ready to flick them in a downturn, but the larger units usually go to owner-occupiers who are there for the longer-term.
Valuers also usually closely examine the floor plans of units to be bought off the plan, engineering drawings and schedules of finishes. They always want to make sure the plans are sensible – with balconies facing in a northerly direction rather than to the south – that they’re big enough and that the quality isn’t being decreased as they move closer to completion.
Larger apartments with spacious floor plans have more stable values than smaller units, valuers say.
“We don’t want them going from Miele appliances to Smeg or Fisher & Paykel,” Gedeon says. “And also, on a $5 million apartment you don’t want a 600-millimetre wide oven. If you’re paying that much for an apartment, you’ll want to entertain, and need a 900-millimetre or 1200-millimetre oven.”
The materials being used for a building also come under the scrutiny of a good valuer. They want no nasty surprises – like flammable cladding.
