Steady price growth triggers resale frenzy for off-the-plan apartments in Sydney

Buyers of some off-the-plan Sydney apartments are cashing in big time by selling before settlement after steep rises in values during the construction period.

They’re making up to 40 per cent of their original purchase price on the speculator strategy known in the industry as “Pick ‘n’ Flick”, or “Flipping”. 

“We’ve seen the value of some off-the-plan apartments rise between 25 and 40 per cent since they were bought three years ago, particularly in the CBD, eastern suburbs, inner west and on the north shore, often within a seven-kilometre ring of the city,” says Ian Bennett, director of project marketing residential at Colliers International.

“Now they’re coming up to settlement at the end of the construction period, people are looking at what they’re worth now and, in some cases, deciding to resell for the profit. That means they don’t even have to get the finance to settle, they’re only paying 25 per cent capital gains tax rather than the normal 50 per cent rate, and they still have 15 months to pay the stamp duty.”

During the first major boom in apartment building, in the late 1990s and early 2000s, many flippers made small fortunes as developers had to price their initial releases of stock lower to secure enough sales to satisfy the banks for finance from property buyers nervous about non-existent buildings. 

Now, with the market more used to off-the-plan sales, five years of steady price growth is providing a fresh resales bonanza.    

In buildings like the 133-apartment, 28-level Rise in Parramatta, the 129-apartment, 20-level Aqua in Bondi Junction, and, at the top end, at the 123-apartment 88 Alfred in Milsons Point, there’s a resale frenzy as buyers realise how much the units have risen in value. Other buildings to have undergone similar levels of resales in the past are The Hyde on Hyde Park, Ikon in Potts Point, Dominion in Darlinghurst and Stamford Residences in The Rocks.  

Many buyers, however, are happy to go ahead with their purchases, despite the possible profit of onselling them. IT consultant Muir Mathison was one of the first to buy in Qualitas’ Aqua in 2014, when all units sold out within hours. He says his two-bedroom unit has appreciated significantly since he put down the 10 per cent deposit. 

“It was even better than I thought it would be,” he says, while planning to move in later this year. “The views are simply stunning; you can see all over Sydney.”

Colliers International have five staff dealing exclusively with resales that they say number five times more than in any previous years. 

A two-bedroom apartment that may have cost $720,000 two to three years ago off the plan is now typically worth $900,000-plus, says Bennett. “Sometimes it’s people who intended to be owner-occupiers and sometimes it’s investors, who were very strong in the market back then,” he says.

Also, many buyers still like to be able to view completed apartments before they commit, particularly when prices are high. Apartments at Barangaroo, for instance, have changed hands before settlement for a good margin. The penthouse resold for $12.5 million earlier this year after being sold off the plan to an Australian expat for $10.5 million on the sales day in 2013.

Real estate group CBRE director Murray Wood says that profit on off-the-plan resales tends to be very project-specific now. It’s more likely to happen with premium-end property, apartments with views, or apartments that tend to be different from the generic and in areas with no danger of oversupply.  

Profitable resales are also happening with warehouse apartment buildings yet to settle in areas like Surry Hills. “They’re normally quite rare and people may not have been aware of them when they went on the market originally,” says Wood. “It’s also exactly the sort of thing that many buyers these days want, and maybe some people just weren’t ready to buy when they came up.

“We are seeing some speculator activity, but it is confined to property with a point of difference and where supply is tight.”

But others have warned that the bonanza might not continue. Peter O’Malley, principal of Harris Partners in the inner west, says one in six resellers in Brisbane are now facing losses because of an apartments glut. Here, five years of solid price growth have delivered profits, but who knows if that will last?

“As an investment strategy, it’s flawed,” he says. “It’s dependent on strong price growth and, at this stage in the cycle, that looks unlikely to continue. 

“When you’re buying off the plan you have to look, first and foremost, at the quality of the builder and developer to make sure it’s going to be quality, and then at the price you are paying. You need then to compare that to the broader market at that point in time. 

“A lot of off-the-plan product is priced at a premium compared to existing property, so you’re banking on the market rising between now and when construction’s completed.”