This snippet is from one of our previous episodes: Investing in Newly Developed Areas, Getting into the Property Market, and Career as a Buyers Agent – Q&A Day

Bryce & Ben don’t shy away from the hard questions… and this one’s a cracker.

In this TPC Gold throwback episode, they respond to a listener challenge about whether they are unfairly biased against off-the-plan and new developments?

Their answer: they own the bias but explain exactly why it exists.

From strata levies on lifts tenants can’t access, to sunset clauses that leave buyers exposed, Bryce & Ben unpack the real risks hiding behind the glossy renders of new developments while acknowledging that yes, exceptions do exist.

In this episode, you’ll learn:

  • How their “bias” is rooted in back-tested data across millions of properties
  • The reasons off-the-plan properties statistically underperform established homes
  • Why boutique and small developments in investment-grade suburbs can still make the cut
  • The smart alternative to buying off-the-plan
  • How sunset clauses can leave buyers exposed (and what to watch out for)

Looking for an Investment-Grade Property?

Our Buyers Agent team at Empower Wealth specialises in finding established, high-scarcity properties with genuine owner-occupier appeal — the kind Bryce & Ben talk about on the show. If you’re ready to invest with confidence, get in touch with the team today.

__________________

If You Enjoyed TPC Gold | Our Bias Explained: Why We Don’t Recommend Off-the-Plan, You Might Also Like:

Transcript

Ben Kingsley
What are your views on that one, mate?

Bryce Holdaway
Yeah, there’s a fair point. I mean, I guess if you listen to our podcast, we’d put a blanket that 100% of off-the-plan’s no good.

Ben Kingsley
Yeah.

Bryce Holdaway
I’d probably still stand by the fact that the very vast majority don’t make for an investment grade asset because as an investor it’s about the numbers and I don’t really want to provide a concierge pool, a lift, a sauna, all that sort of stuff for the tenant. I don’t. It’s a bricks and mortar bank account. You’ve got to put a bit of emotion into the decision when you buy because you want to make sure there’s owner occupier appeal. But you don’t want to put emotion into the actual decision to buy and the deal that you’re putting up.

I’ve told the story (of) my first investment property… I was paying for a lift in a building that my tenants didn’t get to use the lift from. So that was a dud mistake. It had a pool that because there was, I think there would have been somewhere between 80 and 100 in the block… they didn’t have that feeling of exclusivity that comes when you wanna go and read your book by the pool in your bikini or your boardies. So not a lot of people used it. And then because it was so large, forever the tenants’ cars were getting broken into. I mean, that’s a generalization.

But ultimately, people value privacy, they value exclusivity, they value scarcity. And for the developer to actually turn a profit for the risk that they’re about to undertake, they want to jam as many in as they can. And for an investor, you want to buy in as few as possible as you can. So for me, we’re just at mixed purposes. But I’d agree, if you find an investment-grade suburb, you can still find off-the-plans if they’re small and boutique.

But my observation is, in the investment grade suburb, there are established suburbs that have been around for a long time. So the sites that they can get are on major roads or old petrol stations or whatever. Versus the stuff that we like to buy as a business is the 70s stuff. Rewind 40 years ago (when) we could buy them in the quiet little cul-de-sacs or the nice little secondary streets. So they’re in better positions and they’ve got a beautiful stately home either side. So I think it’s a reasonable point, but I would stand by as a general rule for first time investors, I would still stick clear of that type of product.

Ben Kingsley
Well, my bias is towards an outperform result. I actually have a bias towards getting the best return I can for my investment. Now, that leads me to looking at what I’m investing in, and in this case, it’s bricks and mortar, and I’ve done the backtesting on literally millions of properties. And I know that these properties on average get an outperform result compared to, say, buying off-the-plan or house and land packages in those areas. That is the message. And so I stand by that message. I don’t stand by a bias.

If people come and see me for a consult, it’s very clear that they’ve got a bias towards investing in property and in residential property predominantly. So we’re having that conversation around, you know, are we diversifying here or not? You know, I understand it, it’s tangible for me. There’s less volatility in it. I understand the scarcity of it in terms of its essential need at shelter. So I want to put my money into investing in property. All right, do we want to get a general result or do we want to get an outperform result? Ask anyone. Of course I want to get an outperform result. So my view is, Brad, you’re right. I do have a bias and my bias is based on statistics and references to the facts. So I’m happy to say that I have that bias for the outperform result.

And I’ll back up what Bryce just said a moment ago. Does that mean that every off-the-plan purchase and every medium and high density property in Australia is a dud? Absolutely not. There are some unbelievably amazing opportunities in certain pockets, uninterrupted views. I think I’ve referred to the toaster before, looking out over the Sydney Harbour, looking at the bridge, looking at the Opera House. Those properties have performed incredibly well. Effectively on the fridge of the city, amazing outlooks, all of that type of thing.

So there are always exceptions to the rule. And if you can identify those exceptions to the rule, backtest how the performance of that’s probably gone rather than taking a stab in the dark on anything new, because we know statistically also that between 25% and 50% of most of the planned purchases come in under value. So that’s telling us something. So you know, we don’t want to shoot it down completely because there are amazing opportunities in that space. But when we’re listening and educating property investors, we just need them to go in eyes wide open. And our eyes wide open is that our data tells us that they don’t perform as well as owner-occupier appeal properties: high scarcity, high amenity, all of those things, convenience, the practical reasons why we buy, and we get on the coattails of the emotional buyer.

Bryce Holdaway
Very good, Ben. We do have a strong bias that’s unmistakable and we don’t apologize for that, but that’s a very good point there, Brad. But I would say if you really like the development, I’ve said it a couple of podcasts ago, don’t necessarily be the off-the-plan purchaser. Be the second and subsequent purchaser, because the biggest risk anyone takes…

I’ve been involved in off-the-plan transactions as an advisor in the early part of my career, where clients paid a deposit, waited a long period of time for the properties to be built, and then the developer exercised the sunset clause because they could get more money if they sold it later. So you take on the extra risk so they can get the finance, but you don’t necessarily guarantee it’s locked in. And vice versa if the developer is struggling and they cut corners, and then you need to be the person that goes back and gets the defects done.

Ben Kingsley
So awesome advice there, mate. Awesome advice.