Developers are offering 10 per cent commissions and 10-year rental guarantees. Too good to be true? Here’s what investors should be asking.
Property developers are offering huge commissions and rental incentives to off-the-plan buyers and their advisers in a bid to boost demand as prices fall,Commissions of around 10 per cent are being paid to advisers recommending apartments – for example, around $44,000 for a $486,000 sale in Perth .
“These properties would be unlikely to be recommended by advisers unless there was a big financial incentive for them,” says Sydney-based buyers’ agent Patrick Bright.“In 99 per cent of cases, a buyer or investor would be better off buying an existing established nearby property being sold by a local agent,” Bright says.
Rents are rising by up to 30 per cent as vacancies hover at record lows of about 1 per cent because of increased demand from overseas workers and students returning after the easing of COVID-19 restrictions, says SQM Research, a property market analyst.rose and capital returns fell, according to CoreLogic, which monitors property markets.
Bright says: “Anything good that is well priced in a good location should not require a rental guarantee. Companies are offering the guarantees so they can pump up the price of the property.” Potential risks are even greater for rental guarantees being offered online for overseas investment properties, such as 20 per cent returns for five years on apartments in Dubai.What rent is being charged for similar properties in the area? Are tenants willing to pay as much as the developer’s guarantee? What are the prospects for capital growth? What are local vacancy rates?
Has the developer inflated the property price to cover the rental guarantee? Check the cost of similar properties in the area.
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