A home is the most expensive thing most people will buy – and it can’t be returned if you have a change of heart or find out the goods are damaged.
These are the properties to be wary of and how to avoid costly mistakes.
When buying a new build, it’d be nice to assume the tradie had covered all bases during construction, Builders Collective national president Phil Dwyer said.
But putting blind faith in the builder was fraught with risk and could lead to costly headaches, he said.
A building inspector was needed to go through the structure with a fine-tooth comb. He also recommended people do a background check on the builder by getting references from friends and family or even contacting some of their previous clients.
“New builds should be completely compliant and up to scratch, but in today’s market unfortunately they’re not,” Mr Dwyer said.
“It comes down to bad workmanship and unprofessional workmanship,.”
Simon Pressley, head of research at Propertyology, said he “wouldn’t touch” a new build unless he knew the builder and had overseen the work himself.
He said there were “thousands” of non-compliant high-rise apartments in Australia plagued with issues related to flammable cladding, had massive cracks, or were constructed using cheap materials.
He said it was better to buy something older that had literally already stood the test of time.
DEFENCE AND STUDENT HOUSING
Defence and student housing can seem like a good investment, but they’re limited when it comes to resale value.
Mr Valentic said the apartments were often tied up in long-term leases with government departments or universities, so the buyer couldn’t move into them themselves.
When the time came to sell, their resale value was limited because only investors were interested in buying them, and they typically paid less for properties than owner occupiers. “Owner occupiers pay the highest for properties, they pay emotional prices,” Mr Valentic said.
OFF THE PLAN
There are benefits to buying off the plan, Advantage Property Consulting director Frank Valentic says.
One is it can give buyers flexibility to work with the builder to alter the floorplan and adapt the fixtures and fittings. But he said one big downfall was buyers were essentially buying an idea without the benefit of having a walk through the finished product.
For this reason he said it was a good idea to have an architect or other professional review the plans to identify any design flaws.
“I’d be wary of buying anything unless you’re experienced in building or development because you’re buying something unseen,” Mr Valentic said. “You don’t know what you’re going to get until you get it.”
Pete Wargent of BuyersBuyers.com.au said there was also a risk the apartment’s valuation prior to settlement would be lower than the contract value.
Mr Valentic said a conveyancer was essential to review the contract when buying off the plan because the contracts were often heavily skewed in the developer’s favour.
This includes sunset clauses, which stipulate a time frame within which a developer must obtain registration for the plan of subdivision or complete the project, and allows them to exit the contract if they don’t meet the deadline.
It was also important to pay attention to the size of the floorplan, he said, because buying a pokey apartment below 50sq m that wasn’t big enough to “swing a cat” could be seen as a risky investment by the banks, which may be reluctant to lend money or ask for a bigger deposit.
WATCH OUT FOR EASEMENTS
Buying a home on a big block could open up a world of development potential, but if the property is affected by an easement, Mr Valentic said you could kiss some – if not all – of those possibilities goodbye.
“Easements can decrease a property’s value,” Mr Valentic said.
“Because you can’t build over an easement without getting permission from the council or the water authorities, so that can really affect what you can do with it.”
Details on easements can be found in a property’s land title.
WHAT ABOUT ZONING?
Buying townhouses or apartments in shopping strips can be a red flag if an area is zoned for commercial or mixed use.
Mr Valentic said the high concentration of businesses may affect the property’s resale value, particularly if a panel beater or other noisy commercial retailer opened next door.
Lenders also may demand buyers cough up a commercial-grade deposit of about 30 per cent compared to the typical residential deposit of around 20 per cent without lender’s mortgage insurance.
Buying into a vegetation protection zone could also restrict what trees and plants the buyer was allowed to remove from their yard, he said.
BUYING IN A SATURATED MARKET
House and land packages in outer suburban, non-built up areas should come with a warning, Mr Valentic said.
If a buyer buys in an area where land is readily available, they’ll have difficulty selling because people would often rather purchase a vacant block nearby and build a new home.
“Scarcity is what drives property values. If there’s more demand, prices are going to go up. If there’s less demand, prices are going to go down,” Mr Valentic said.
Mr Wargent said areas zoned for high density development with large apartment towers, such as capital city CBDs, also tended to have high vacancy rates.
This could create cash flow problems for investors, as well as its resale value.
Floods, fires, lighting strikes and other disasters can occur anywhere, hence Mr Pressley said it was important to get good insurance.
But Mr Valentic said steps could be taken to avoid nasty surprises conjured up by the elements, and he said vendors’ statements should say if a property was in a bushfire area.
To find out if an area was flood prone he suggested looking for the words “special building overlay”. They never call it a flood zone, he said, and buying in these areas could add thousands to renovation or build costs because councils often had certain specifications that needed to be met, like making sure the home was raised a certain height off the ground.
Sign up to the Herald Sun Weekly Real Estate Update. Click here to get the latest Victorian property market news delivered direct to your inbox.
Originally published as Mistakes to avoid when buying a home