Off-the-Plan Property and Negative Gearing: Why the Investment Case Hasn't Changed
The negative gearing announcement hasn't changed my position on off-the-plan apartments and house and land packages. Here is why the fundamentals still don't stack up.
I have never been a strong advocate for off-the-plan apartments or house and land packages as investment strategies. The negative gearing changes announced this week haven't moved that position.
It's been just on 36 hours since the announcement and my inbox, LinkedIn messages and phone have been flooded. These approaches happen from time to time - referral fees ranging from $10,000 to $30,000, paid by the developer for every client who purchases their product.
To be clear: my clients pay me to represent them independently on their behalf. My job is to act in their interest alone. Accepting payment from a developer to recommend their product to those same clients is the total opposite.
The volume since Tuesday night tells you everything about what this policy change has already become.
Here is why it rarely works as an investment grade purchase.
Off-the-plan apartments and house and land packages are typically built where land is cheap and development is viable, not where demand is strongest. Surrounded by identical stock, competing for the same tenants, in locations that lack the scarcity and owner-occupier demand that drives long term capital growth.
By the time a new build reaches you, every party in the chain has taken their margin. The developer. The builder. The sales and marketing team. None of those margins show up in the contract. None of them help your valuation.