Why Off-the-plan Apartments Don't Work - With Junge Ma

You might think buying an off-the-plan apartment has potential because it's in such a good location. But today, I'm going to prove to you why buying an off-the-plan apartment could literally be one of the worst property investment decisions you've ever made. If you have a friend who's about to buy off-the-plan, send this episode to them because we're about to cover exactly what the data says over the long term and why off-the-plan is not how true property investors create wealth. But don't take my opinions for it. Let's jump into the data right now.

I'm Junge Ma. Let's get into it. So in this episode, let's go through five statements that we usually hear about how good off-the-plan apartments are, and let's bust them one by one. So statement number one, off-the-plan is an affordable option to enter a big city market. In many cases, you can pay as low as 5% deposit to secure an apartment, especially when there is developer promotion or you're a first-home buyer or if it's a big developer and they offer flexible deposit terms.

In many cases, you can use as low as 5% deposit to secure an apartment. Sometimes the developers would have promotions. Sometimes a big developer can have flexible deposit terms. Or if you're a first-home buyer, I believe many developers have their first-home buyer schemes in addition to government grants. That sounds really attractive, especially if you're in a really expensive market like Sydney.

Sydney's median house price now is above $1. 4 million, while unit median price is now just around $800,000. And if you're looking at a one-bedroom because you're a first-home buyer, it could be even lower, like in the sixes. Again, pretty attractive, right? But before you really get into it, I want you to calculate your opportunity cost by locking yourself in this apartment for two to three years instead of buying something established in a different location.

So let's use some suburbs as examples. Say in 2023, you've got $60,000, $70,000 in savings, and you want to get into the property market. You're in Sydney, so naturally you would like to buy something in Sydney. With that deposit, you couldn't have bought a house, and you wanted something new and shiny, so you decided to buy an off-the-plan apartment in the suburb of Wentworth Point. Wentworth Point is full of fancy apartments, and they're developed by a well-known developer, so it sounds safe and a great choice.

In 2023, your deposit could probably afford a one-bedroom apartment off the plan, around $650,000. So you put down your deposit and waited for settlement. In 2025, two years later, when the settlement came, based on the suburb unit market data, the value of that apartment should have gone up by 4. 4%. And now, let's go back to 2023 and see if you didn't go for this one-bed apartment but went for somewhere out of Sydney.

Let's see what you could have got. I'll give you two examples. One is Annandale, a suburb in Townsville in North Queensland, and then the second example is Happy Valley in Adelaide. So Annandale. Back in 2023, the median house price there was $470,000, well below the apartment price in Sydney.

And after two years, median house price there is $670,000. That is 42% growth in just two years. And that is 10 times of the unit value growth. And then Happy Valley in Adelaide. If you're a fan of capital cities, Adelaide should seem safer than Townsville, so you may feel more comfortable with Happy Valley.

In 2023, the median house price there was $630,000, just as much as the one-bedroom apartment in Sydney. And then after two years, the median price in that suburb is $786,000. And that is 25% increase in value. Through the comparison, I guess it's easy to see that by putting your money in this asset that doesn't grow really well over time, you're losing lots of potential growth. So let's summarize.

If you had bought the Wentworth apartment, you would get 4. 4% growth. If you went to Townsville, Annandale, you would have achieved 42% value growth. And then if you went to Adelaide, Happy Valley, you would have got 25% in value growth in two years. And it's not just those suburbs.

In the long term, units in general don't perform as well as houses, especially when there is oversupply issues such as in Sydney, Melbourne, Brisbane, these big cities with large numbers of apartments. I'll give you some numbers. Greater Sydney in the past 10 years, house prices went up by 78%. And over the same period, unit prices only went up by 22%. So that is more than three times difference.

And then Melbourne. Melbourne's house prices went up by 53%. And its unit prices went up by just 23%. And Brisbane. Brisbane's unit market didn't do really bad.

Value increased by 64% over the 10 years. But it's not as good as how the houses have performed. And how much have the houses grown? 101% in 10 years. So as you can see, while it seems cheaper to enter a big market, it doesn't necessarily mean that you will achieve a good growth when you make this decision.

And the second statement is off-the-plan properties or off-the-plan apartments usually have amazing facilities like pool, gym, sauna, and so on. While they do look great, if you live in a building, you may enjoy them a lot. But for an investment property, they may be bad ideas because they do affect your cash flow day by day. Here are three examples here. All very nice buildings.

The thing is, the more facilities you have or the fancier facilities you have, the more likely you'll be paying high strata levies. Here I have three examples. In Sydney, Melbourne, and Brisbane. First one, 82 Hay Street in Haymarket. That project is named Darling Rice.

It has pool, gym, community meeting rooms, and rooftop gardens for barbecue. Take a two-bedroom apartment in that building, for example. The quarterly strata levy is now $1,833. And that'll be annualized to $7,332 per year. In this building, the weekly rent of a two-bed, two-bath apartment is $1,500.

And your annual strata fee is approximately 4. 7 times of your weekly rent. Imagine you're having five extra weeks of vacancy. To me, that's huge loss. And in this scenario, you don't really need to imagine because that's actually what's it costing you.

And now our second example in Melbourne is a two-bedroom apartment in South Bank Grand in Melbourne. Similar to Darling Rice, it also has pool, gym, barbecue area, and so on. The quarterly strata levy here is $1,339 for a two-bedroom apartment. And its weekly rent would be $660. So that is eight times of your weekly rent.

Two months of extra vacancy. Now the third example, River Park Central in Brisbane. Again, a two-bedroom apartment. In the building, we have pool, gym, barbecue area, and everything. The quarterly strata levy here is $2,482.

And then the weekly rent is $810. Strata levy would be 12 times of your weekly rent. And that is three extra months of vacancy. That feels painful. Now how does buying off the plant sound so far?

Then the third statement, you have more time to prepare for finance. For this statement, let's forget about how badly unit markets or off-the-plant apartments would grow. Let's just compare buying now versus buying in two years when you have more cash for deposit or when you have higher borrowing capacity. I've made this little model. Assuming now that you have $120,000 in savings or equity and you can save $30,000 per year.

And all the investment properties you're going to buy will sustain themselves. Meaning you will not put any money out of your pocket and you can still save $30,000 per year. Now with your $120,000 deposit, you can comfortably afford a $600,000 property. Let's assume that the average annual growth will be 6%. In 2035, that is 10 years time, this property will give you 79% value growth.

And then at the same time, over 10 years, you would have saved $300,000. Assuming you're not buying anything else. And then in a different scenario, you think buying a $600,000 property is a good idea. You want to save more and you want to get pay rises so that you can afford a better property in two years. Your borrowing capacity can afford you a $900,000 house.

And from 2027 to 2035, that property will give you a 59% value growth plus 8 years of extra saving of $240,000. So comparing these two scenarios. One, you're getting 79% in value growth and $300,000 extra savings. And two, you're getting 59% in value growth and $240,000 extra savings. Which do you think is better?

That's why we always say time in the market is always better than timing the market. State number four, it's a brand new building. It's low maintenance. It sounds like right, but unexpected things could happen. I'll give you just one example here.

We've seen a lot of examples of unexpected issues. And now here, I'm just going to give you one of them. There is this apartment building called Harbor Mill Apartments in Piermont, Sydney. It was sold off the plan in 2012, settled in 2015. Just two years later, in 2017, the Grenfell Tower fire happened in London.

And soon after that, this building's cladding was detected as high risk and needed remediation.