In this week’s report on development Tracey Cook looks at pre-commitment.
PRE-SELLING property off the plan has become more widespread in the Perth market in recent years, fundamentally changing the way property is marketed and how it is designed.
Driving Perth’s market is financiers’ requirements that developers have a certain level of pre-sold properties to substantiate market acceptance of their development.
Inner City Housing Development Association president Laurance Goodman said while pre-sale finance requirements varied from development to development, the general rule was around 50 per cent, ensuring that financiers had a no-lose situation.
“Very few developers can go on without pre-sold requirements,” he said.
Mr Goodman said implementing a level of pre-sold requirements into finance agreements had dictated the method of selling, the terms of the contract and the design of the building.
“It [pre-selling] totally alters the whole face of marketing.”
With the aid of sophisticated electronic imagery, today’s buyers can virtually walk around a property that does not exist.
Mr Goodman said buyers could visit off-site display homes and view what the kitchen and bathroom looked like.
The orientation, insulation, plumbing and general structural integrity of a building can easily be swept away when speculating about a view of the colour of the bathroom tiles, however smart buyers looked past glamorous marketing tools and examined who was developing the property and what their reputation was, and went carefully through the documentation of the contracts, Mr Goodman said.
“It is necessary to examine what is being promised; if you can’t read a contract properly and don’t understand the specifications of the building, a builder can give you exactly what is promised and you will still not be pleased with it,” he said.
Some developers build with tilt slab concrete construction and all internal walls are gyprock, while others use brick, steel and concrete. Once it was all covered in it was hard to tell the difference, Mr Goodman said.
Selling a title to a property that doesn’t exist requires a totally different marketing approach and, as a result, tends to attract investors rather than owner-occupiers.
“Owner occupiers don’t buy off the plans like investors. The more you sell off the plan the higher the percentage of investors,” Mr Goodman said.
Pre-sales are driven by investors, meaning a different kind of property is usually built, one that’s designed to give tax advantages and provide better returns for small investments.
Pre-sales offer a number of benefits to the investor. Building construction usually takes six to 18 months to be completed. Often in an active market, if the property being marketed actually existed, an investor may miss out on it and the depreciation tax advantages.
Banks now offer a smorgasbord of finance packages catering for end-purchase finance.
While buying property through pre-sales can open investors up to unscrupulous operators, Real Estate Institute of Western Australia public affairs director Lino Iacomella said pre-selling was an established feature of the Perth marketplace that was driven by financial requirements, rather than speculation.
Mr Iacomella said that as Perth had a younger, still growing apartment market, financiers and developers were required to have higher pre-sales numbers.
Only in the past five years had the market recognised that the number of riverside sites was finite, with investors moving to buy prime river sites for apartment developments.
“Pre-selling has a good track record in Perth; it is different to Sydney and Melbourne where there
is a greater speculative aspect to pre-start purchase,” Mr Iacomella said.
Buyers should make themselves familiar with the contract, what they had committed themselves to, the developer and their past developments, and what financial commitments were required from the strata title agreement, he said.
