The art of buying property within Australia’s CBDs

The appeal of living in the heart of a capital city is huge for those seeking a city-dweller’s lifestyle but there are many elements that buyers need to be mindful of before they sell the cars and give away the lawn mowers.

The first relates to lender scrutiny.

The banks may prove a little less enthusiastic about the city life when it comes to handing over the loan money.

Lenders are sensitive to floor area minimum sizes, and it’s a common pitfall for the uninitiated. 

While lending policy varies, a common acceptable minimum floor area sits at 50 square metres. This is specifically based on the internal area, not including balconies, eaves or car spaces. Often developers and agents will cite measurements that include these elements, but lenders are less forgiving.

Once a unit’s internal size is below 50 square metres, challenges start to arise for a borrower. Many lenders will consider units with floor areas as low as 40 square metres, but the requirement for a 20 per cent loan arises.

First home buyers with insufficient deposit savings can suddenly find themselves unable to get a loan. The implication of this can be the loss of a deposit; a nightmare for any buyer. If in doubt about the floor area meeting the lending threshold, buyers should consider a finance clause.

City dwellers also need to be aware of the likely costs associated with running a tall building.

Lifts are expensive to maintain, and the cost is always reflected in the strata fees. Window cleaning services for high rise buildings come at a cost too, and often city buildings offer pools, spas and gyms.

For those offering concierge and/or security, the strata costs can reach (and sometimes eclipse) $20,000 per year.

Lenders factor in the running costs when borrowers present their loan application. High strata fees can reduce borrowing capacity because the lenders recognise that the owner will be facing higher living expenses.

All buyers should be very clear on the strata fees applicable to the dwelling they are considering, and they should also read the strata minutes carefully.

Strata blowouts and lost views

A thorough legal review will identify issues associated with the strata, but a call to the strata manager is always advised too. Checking to see whether any new items or issues have been raised since the last AGM is prudent. Such matters can often represent significant future costs, frequently in the form of a special levy.

Buyers should never enter a high rise purchase blindly. A conveyancer or solicitor review of the contract is a must-have.

Further developments in the area, including civil infrastructure projects are tough to predict. No buyer wants to discover a planning approval for something they don’t want nearby.

Being familiar with the city’s future-plans can give buyers a better idea of some of the leading projects on the table.

A call to the city council’s planning department will help glean information about existing applications and approvals, but it is important to note that nobody owns a view. The value of an apartment that commands a great, northerly vista can be quickly eroded when a development for a neighbouring tower is approved.

Not all apartments have a strict policy on short stay accommodation either.

Being familiar with the strata rules for the building is important. There have been hundreds of stories about Airbnb guests being disruptive and noisy. Checking in with the strata manager will quickly identify whether a building is closed to short-stay activity or not.

Some buyers get excited by the idea of a bargain, but bargain buys can spell trouble when it comes to city apartments.

A common reason for a bargain relates to car parks, or a lack thereof. The saleability of an apartment without an associated carpark is tough. While a buyer may deem that they don’t need the car space, it becomes challenging to find a buyer who is as nonplussed about the car space.

Other bargain-drivers include no balcony space, but like car parks, the future buyer pool is limited when an apartment doesn’t offer an outdoor space.

Some of the invisible bargain causes can relate to maintenance, structural, plumbing or cladding issues. If vendors are aware of an expensive problem plaguing a building, they may be quick to sell, prior to the works being properly costed and levied. Without a contract review or a discussion with the strata manager, a buyer could be none the wiser.

Off-the-plan price comparisons difficult

The final tip relates to off-the-plan purchases.

Pricing schedules can seem fixed, and developers are particularly good at selling the dream. However, tracking the actual sales prices is far more challenging for buyers. Sales prices aren’t usually captured, and when they are, they aren’t always accurate.

Developers often offer rebates to buyers, and these rebates are paid/credited at settlement.

The contract price isn’t always reflective of the true price for the apartment. Buyers who are unaware of this may determine their purchase price based on comparable sales analysis, but without a clear idea of the magnitude of the rebates they are flying blind, so to speak.

Pricing is just one challenge associated with off-the-plan purchases. Some of the more sinister risks include material changes and sunset clauses.

A developer is permitted by law to vary an apartment between the sale date and the settlement date. While the material change is supposed to be limited to a small percentage, (floor area, design style, appliance variation) this can be quite upsetting for a buyer if they end up with a product that is not exactly what they thought they had signed up for.

Sunset clauses relate to the ‘expiry date’ for the contract. The developer has a period of time in which to complete the build and settle the property with the purchaser.

Some sunset dates span years, which can sound lucrative for a buyer who is keen to capitalise on a rising market with a small deposit. The upset arises when values decline, or when a borrower’s personal situation changes, precluding them from being able to obtain finance.

There have been situations also, where developers have run past their sunset date and have cancelled the contract with the former buyer, only to enter into a new contract for a higher price tag with another buyer. Off-the-plan sales are not for the faint hearted.

Many people live in the heart of our capital cities. Melbourne’s central business district, as an example, is home to over 26,000 people.

Our cities offer an exciting lifestyle for inner-urban residents, but like all significant purchases, high density city living requires research and due diligence.