Help! My property is undervalued

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July 24 2018
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Home-owners across Australia may feel uneasy about the softening market, but off-the-plan investors probably have it the worst.

SMSF trustees have been warned to stay away from off-the-plan property as property prices fall and a slight apartment oversupply takes effect.

According to Omniwealth lending specialist Alfred Moller, off-the-plan investors are “starting to feel the pressure” as their properties slide from their original value.

He said investors in this situation should consider their ‘Plan B’, and the five considerations that come with it.

1. Do you have sufficient savings to meet a shortfall?

“If you purchase a property for $600,000 and it is valued at only $550,000 you would have to cover an additional $40,000 to settle,” Mr Moller said.

“The alternative is to borrow within lender's mortgage insurance (LMI), which is an insurance paid by you to cover the bank’s risk.”

2. Could you sell investment assets?

The second option to consider is whether assets like shares or other liquid assets could be used to cover the shortfall.

“Selling shares can be a great idea to cover a shortfall if you do not have savings, however you should be aware of potentially triggering a capital gains tax (CGT) event and you should talk to a qualified accountant first to be clear on your tax obligations,” he added.

3. Have you thought long term?

A momentary dip probably wouldn’t cancel out the long-term gains over five or 10 years, Mr Moller said, reminding investors to be prepared to hold the property over the long term.

“Keep in mind that you do not experience a loss until you sell your property, so any short-term market fluctuations will not impact you,” he said.

4. Let’s rewind – should you even buy this off-the-plan property?

There are evident risks in the off-the-plan market, Mr Moller said. This means investors can expect unfavourable valuations and some apartments in the Sydney metro area could be valued $80,000 less.

He said investors should be aware that, according to the Australian Bureau of Statistics, a further 19,038 units have been approved for April 2018 across the country. That’s a 5.7 per cent increase on April 2017.

5. Which suburbs are at risk?

“As the onslaught of completions and approvals outlive the perceived ‘property boom’, I expect no immediate improvement in the valuations of off-the-plan properties,” the lending specialist said.

“High-density residential developments such as Waterloo, Zetland, Parramatta and Docklands [in Sydney] are particularly at risk.”

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