With signs of the established property market beginning to ease, some buyers are questioning whether now is the right time to purchase or whether there is value in waiting.
But established and off-the-plan property don’t always move in the same direction. The factors influencing new apartment pricing are very different, and waiting for established prices to soften doesn’t necessarily mean the same opportunity will emerge off-the-plan.
The $36,000 difference a few weeks made
We saw that recently at The Boulevard Residences in Cockburn, where a buyer was considering an apartment priced at $440,000, with the added benefit of 100% stamp duty coverage.
They decided not to proceed at the time. When they returned a few weeks later, the previous release had sold out and the next stage had been released. An identical floorplan on the same floor was now priced at $470,000. Construction had also commenced, which meant the buyer was no longer eligible for the same stamp duty benefit and was now looking at approximately $6,000 in stamp duty.
In the space of a few weeks, the difference was around $36,000.
Understandably, they were sceptical. They had been told the price was going to move, but initially believed it was a sales tactic. Their children had also strongly encouraged them to buy established rather than off-the-plan, primarily because an established property could generate rental income immediately.
“Rather than trying to sell against that objection, I asked them what their ultimate investment objective actually was: cash flow, negative gearing or capital growth? Their answer was capital growth,” Nicole said.
“That completely changed the conversation.”
“In a rising market, that meant they had the potential to benefit from two years of capital growth on an asset they had not yet settled or fully paid for,” she said.
“Suddenly, the price increase wasn’t the issue. They could see that the strategy actually aligned more closely with their primary investment objective than the established-property alternative they had been considering.”
The buyers understood the logic, became comfortable that the price movement was genuine and proceeded with the purchase. They bought an identical floorplan on the same floor, essentially a few doors down from the apartment they had originally considered.
Established and off-the-plan are two different markets
This example is particularly relevant at the moment because there is a lot of discussion around what is happening in Perth’s established property market. The important thing to understand is that established and off-the-plan are really two different markets, and they don’t always move in parallel.
Nicole said the important distinction for buyers was that established and off-the-plan are really two different markets, and they don’t always move in parallel.
“Established pricing is driven largely by what buyers are prepared to pay for existing stock today. Off-the-plan pricing has a different set of fundamentals behind it: construction costs, land values, finance, feasibility and, importantly, the cost of delivering that same product in two or three years’ time,” Nicole said.
“Developers can’t necessarily reduce pricing simply because there has been some softening in the established market. If the cost to replace or deliver that apartment continues to rise, there is still upward pressure on new-build pricing.”
There’s also a timing difference for the buyer. They’re securing a property at an agreed price today, but may not settle for another two or three years.
“So the more relevant question isn’t necessarily, ‘How does this compare with an established property today?’ It’s, ‘What is a comparable new property likely to cost by the time this one is completed?’” Nicole said.
That’s why we can see established pricing ease in the short term while quality off-the-plan projects continue to move.
Slower established sales don’t necessarily mean softer apartment demand
The established market can absolutely affect buyer sentiment, but we’re increasingly seeing apartments behave as their own market. Even as parts of the established market have eased, Perth unit values are up 22.6% year-on-year compared with 18.5% for houses.
We’re seeing that strength across our own markets too, particularly in Burswood, Como, Cockburn, Inglewood and South Perth. So while we absolutely watch established stock, slower sales there don’t automatically translate into softer apartment demand.
“The right apartment product, in the right location, can create its own marke and the current data supports that.” Nicole said.
The Boulevard Residences is a good example. Our first studio apartment sale at the project was $389,000. Approximately 12 months later, we are selling the same apartment type for $495,000. That represents approximately 30% growth in the apartment price.
The original buyer is now sitting on close to six figures in potential capital growth, and they haven’t even paid for the property yet.
It’s an important distinction for buyers considering whether to purchase established or off-the-plan. The decision shouldn’t simply come down to what the market is doing this week or whether one option starts generating rental income sooner.
Established and off-the-plan property have different pricing drivers, different timelines and different considerations for an investor. Ultimately, it comes back to what you are trying to achieve from the investment and which strategy best aligns with that objective.
