Apartment giveaways escalate

Via the AFR:

Real estate agents and developers are offering rental guarantees, even advertising on personal ad website Gumtree, in a bid to push sales in a slowing housing market.

Last month, Melbourne developer Growland offered a 6 per cent yield guarantee for two years on new apartments purchases at their Victoria Square project in Footscray.

Brisbane, suffering from a glut of units, is rife with 5 to 6 per cent guarantees over three to five years for properties in areas such as Wulkuraka, Logan Central and Bowen Hills.

The practice is also picking up in Sydney. On Gumtree, agents guarantee up to 5 per cent for between two to three years for apartments in Sydney fringe areas like Hurstville, Holroyd, Rockdale and Engadine.

Chinese-based agency Macland is advertising a 4 per cent guarantee over three years for Cumberland Green apartments in Rouse Hill. Buyers also go into a draw to win a new car.

Comments

    • It’s about the balance sheet.

      If they actually sell even one thing for a discount, their entire “assets” line has to be written down to the new mark-to-market value.

      Which affects their Debt:asset ratio and all sorts of things.

      But if they sell something with a promotional rebate (steak knives) they don’t have to because the sale price is still officially the high number they need.

      It’ll screw their cashflow a bit, but they can probably survive that. What they can’t survive is a margin call.

    • Yeah, but you need to keep it very quiet or find cashed up buyers as lenders will often discount the valuation for any rental guarantees, gifts or rebates (if not already discounted by the valuer).

  1. HadronCollision

    lolz Logan

    How rock solid are these guaranteed rates of return please

    Also, if the REA goes out of business, who backs the guarantee.

    Why not just drop the price to get actual OOs through ze door


    • Why not just drop the price to get actual OOs through ze door

      The moment prices are dropped is the moment Wile E. Coyote looks down. Look down he will, but given the Coyote already knows what happens next, a little bit of hesitation is natural.
      Besides, these things have almost no value apart as a vehicle for speculation – and in the event of price falls that means they have no value at all.

  2. The Horrible Scott Morrison MP

    More complaints?! The World’s most valuable real estate, guaranteed rental returns, free cars, AND you get to live in lovely Logan or Ipswich. You really are a glass half empty kind of guy.

  3. I believe the apartment market is in the dumps, but honestly, these things have been around for a long time. Rental yield guarantees, furniture packages thrown in an all that – nothing new.

  4. This commission into the finance industry will expose an avalanche of fraud.
    The blanket will be lifted on the ponzi of real estate and associated finance.
    Anyone taking out finance now surely must have a statement outlining their ability to repay the debt over time.
    That notice out of the blue from Finder last week on the enforced holidays over Xmas adds a new dimension. As ole mate B discovered, no full time job is secure.
    When the punters are stood down they will bleat to whoever has an ear on how their financial advice led them down this path to the poor house.
    This is turning into a full blown jungle

  5. AlbyManglesMEMBER

    they are trying to flog 2 bedroom dog boxes in rouse hill, 42 KILOMETRES FROM THE CBD, for 600k, they should be worth 200k maximum, there is a long way to go

      • The Traveling Wilbur

        7 years? With your uncontrollable cudgel-like wit (compliment), really? Which hospital did you prefer?

        I mean you must have ended up picking a favourite after all the visits resulting from all the beatings you ended up taking? (still a compliment btw).

      • Mining BoganMEMBER

        Ha! Anyone who never got a smack in the face at The Vault for being a smart-a rse wasn’t trying…

      • TTW – see here – I do have a good self-preservation sense so I tend to not to get into smart-assery with the local population of pillocks: a) it’s wasted on them and b). stabbing is a valid response when you run out of vulgarities in your vocabulary, according to the local traditions.

        But above all – as a rule of thumb – I am not a bar/pub-person… I find them incredibly boring, loud and expensive – I’ve always had alternative means of spending time with those who matter and keep the amount of bodily orifices to the exact number I was born with.

  6. Alexandria and surrounds in Sydney has gone from 663 vacancies 5 months ago to 600 a month later to 905 today. Loads of 2 week free and negotiable. Tonnes more to be completed over the next 6 months especially. I would say it’s absolutely on like donkey kong but cannot understand how job vacancies keep rising. Who on earth is hiring?

    • bad news, what you are seeing is seasonal and not structural. International students go home when the semester is done. With UNSW ramping international student numbers to the moon there will be plenty more looking for rentals in the new year.

      • Indeed – there will be a huge shortage in the new year as students and immigrants flock to the cities.

    • kiwikarynMEMBER

      Employers are just replacing one 457 worker with an even cheaper 457 worker. Send the old one home when the visa expires, get a new one on less money than the old one. Still no jobs for actual Australians.

      • no 457 rents their own place KK

        they all fly in and board with existing sharehouses. the turnover of 457s would have minimal impact on existing rental stock.

        the above point about end of uni semester, when the entire household would go to their respective homes for the summer is probably more relevant, but still doesn’t explain it all

  7. Was passing through northern Melbourne the other day. Wollert and a couple of other burbs – 600-700k houses with Jack in terms of infrastructure, mainly Indians and other migrants walking around in generic work uniforms – God knows how they’re affording this.

    These areas on the perimeter will be deserted when it starts heading further South.

  8. A 6 percent yield guarantee for 5 years that’s interesting, but who is financially standing behind this guarantee?
    what’s the 5 year guarantee of a soon to be bankrupt apartment builder actually worth?
    as they say, a fool and his money….

    • A rental gurantee is not 6% in your pocket. It is sublet by the developer who is the main tenant. So say its a $500,000 unit, you will receive $576 a week. However, the developer is letting it out at market rates of $450-$500 so it is only really costing them the difference + vacancy.

      In the grand scheme of things it is a circa $25,000 hit to their pocket over 5 years if rents don’t increase. If the rent hits 6% the developer pays nothing…

      This scheme allows the developer not to reduce prices and suffer valuation consequences on other sales in the block.

  9. SoMPLSBoyMEMBER

    ‘Buyers also go into a draw to win a new car.’
    That’s certain to jam the lobby with folks waving purchase agreements.
    And when that begins to taper off, they’ll deploy the secret weapon of the car dealers-;the inflatable giant gorilla perched atop the building makes the cold, calculating,savvy and astute buyers soft as crumpets and weak as tea for the ‘closers’.

  10. kiwikarynMEMBER

    Those rental guarantees are simply built into the price, and when they expire not only do you find your rents halve on the open market, but you take a massive hit on the capital value as well.

  11. MediocritasMEMBER

    Invest in an illiquid asset with ridiculously high transaction fees in an overvalued market where capital loss is a distinct possibility for 4-6% yield?

    Yeah, nah.

  12. I was told that a billboard just went up at Manus Island. Two apartments for the price of one if you sign now and bonus water wings for the entire family with a bottle of shark repellent.

  13. [email protected]

    Dropped me a note today to ask if i wanted to come see the show room… then i see the AFR article.. but I’d already demanded 20% off the list price.

    Lets see what old mate comes back with… he’s curious as to who else is giving discounts… furniture and “free” cars on the way!

    • Seriously, their website indicates that they have completed 1 project have 1 selling and about 5 ‘coming soon’.
      If they have a land bank for 5 projects and only have cash from 1 completed they are probably leveraged out the wazoo.

      Don’t like their changes of survival. Especially with dropping site prices.

    • cuturhairMEMBER

      That area in Footscray is going to be jam packed when they’ve finished developing. Sure there’s a train station nearby and there’s a few Dynon road buses, but there’s limited road access. If you buy make sure your view won’t be cut out by any future developments they have planned.

  14. Some Facebook post from the local newspaper about the north west of Sydney primed for growth.
    I questioned who actually wants this growth and whether we have enough 7-11s to employ them all.

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