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EXPOSED: If you’re not getting a free car or other incentive with your unit purchase you’re missing out

There’s been plenty of chatter in recent weeks on the growing stimulation of the property market, the climb of house values and the overall confidence boost in the market but one property analyst warns units are still not being sold.

Anna Porter, Principal of Suburbanite, property analyst and market commentator reveals agents are ramping up the incentives to move stock in the market as units are not being bought.

“There are currently more than 550 units listed for sale in the Sydney 2000 postcode, more than 350 in Chatswood 2067 postcode, 800 in Sydney Olympic Park and the list goes on,” says Porter.

“Units and apartments are oversupplied and developers are starting to feel the pinch.”

Porter warns there are a number of different incentives across the country currently being offered for unit stock and reveals that only a few new developments are taking to market without an enticing offer.

“Anything from reduced rates to free cars and even furniture gift cards are currently being offered,” says Porter.

“There’s a development in Sydney Olympic Park which is even guaranteeing rental income for 2 years for the first 10 buyers.”

While buyers may consider this a good way to bag a bargain, it is usually a sign that the market is chasing itself down or cannibalizing itself.

The Prinicpal of Suburbanite, a National Property Investment Firm, warns you can end up with a property that has negative equity very quickly.

“Don’t be lured in by the car that comes with the unit or the holiday, focus more on getting the right property for the right price and save yourself money over getting a holiday,” she advises.

“The developer will factor the cost of the incentive in the price. You must ask yourself, would you rather save $20,000-$30,000 or get a cheap holiday.”

Porter shares that if the developer is that desperate to sell to the point they are offering big incentives, this can usually indicate that you have good buying power and you can drive the price harder too.

“When the incentive is by way of guaranteed rental income for a period or mortgage repayments, be sure you have done your research on affordability after these incentives finish,” she informs.
“Ask yourself (or team of property professionals), is there a vacancy issue in the market and if you will have to reduce the rent to get a tenant or have large gaps between tenants once the guaranteed period expires. If so, make sure you can afford that.”

“Have you also considered your ability to repay the loan after the incentive period?”

She advises aspiring property buyers to remember that the developer factors this in to their pricing, it could be better for you to get them to discount the price of the property instead or offer you a lump sum cash back on settlement so the money is yours upfront.

“There is also risk in the rental guarantee or mortgage repayment offers. If the developer goes bust or simply walks away from the development then how do you get the money from them? It can be very hard to recoup those funds without a costly legal battle,” she warns.

“So, getting the cash, discount or item upfront at settlement is a lower risk option.”

Another important factor to be aware of is if you are getting bank finance on the property, the lender and their valuer will discount any incentives as lenders won’t actually lend on them.

“If there is a cash back on settlement the valuer will typically adjust the value back to market and then your lending will be on that amount. Ie: you pay $500,000 on t e contract but are getting $50,000 back on settlement or via monthly ‘interest payments’,” she explains.

“The valuer will usually value the property at $450,000 as that is what you are actually paying, and this will be what the lender extends the loan on. If you signed the contract without any finance clauses, you could be stuck trying to get finance on the inflated contract price.”