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Beware the dangling carrot attached to new developments

As an urban dweller I find scooters insanely practical for city living. However, I have to admit that it was purely an emotional purchase that made me jump at the iconic Italian brand (3 times the price of the nearest Asian model) rather than practicality. There is nothing like whizzing down to the beach on a Vespa in summer like you’re living on the Amalfi Coast.

So when I read that a brand new Vespa was being included for those lucky buyers looking to purchase a 1-bedroom apartment in a new development in Melbourne I was immediately thrown into a spin.

On the one hand this is a strategy of pure genius from the seller – an emotional trigger that speaks more of the lifestyle on offer and less of the product that is actually being sold. And with an influx of around 32,000 apartments being built or coming on to the Melbourne market it’s no surprise that these sweeteners are being offered.

On the other side of things, these are often the kind of lures that lead the buyer to glaze over the quality, features or location of the property, only to commit them to a purchase price that dwarfs any added value that a brand new Vespa may offer. As a result we often end up overlooking critical factors around the property that may never have stacked up on a rational level.

Developers of new property are now promoting other incentives to draw the market in. These can include items such as furniture packages, stamp duty savings or “free upgrades”. Again, all of these temptations are designed to make us think that we’re getting more for our money than we actually are.

Rental Guarantees are another incentive that entices many unwary investors hoping to secure a high-performing investment property. Buyers look at these investments with the flawed understanding that the level of “guaranteed” income is indicative of what they would get on the open market. The truth is that these prices are often inflated and the new owner has to accept a rental return far less than what they intended once the Guarantee expires.

One of the best ways to cut through the incentive hype is to order an independent valuation on the purchase price. A valuation will usually cost around $500 and will provide comparables on properties in the surrounding area that are similar to the one you’re looking to purchase. This can be a great way of determining whether you’re paying “fair value” for the property or whether the seller has inflated the price to allow for any “incentives” on offer.

If rental guarantees are being offered, make sure these figures stack up and can be verified by independent sources as true market value. This may mean approaching a local property manager and asking them about vacancy rates in the area and whether the guaranteed rental return is achievable.

Remember, nothing is free in this world, especially in the property business. Somebody pays somewhere along the line. So when it comes to sound property investment, make sure that you’re getting what you paid for and you’re not just chasing carrots.


By Josh Masters

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