This is the final stop on Sally’s journey across Australia as she looks at valuation topics and local market activity in our capital cities.
TODAY’S TOPIC: Incentives and rebate with off-the-plan property purchases
Incentives and rebates are typically used to stimulate the market when it’s slow, or in some cases as a tool to compete in an environment where supply is high and demand is low for a particular property type.
The real value of incentives and rebate offers available with off-the-plan property purchases
First and foremost it is important to note that incentives and rebates are not included in valuation reports. This is because they are not an attached feature or function of the property.
So armed with that knowledge it’s important to analyse the real value of what you are being promised as part of the sale before signing any contracts.
The most common incentives and rebates that are offered include:
- Cash backs
- Guaranteed rentals for investors (12 to 24 months)
- Vouchers for appliances and furniture
- Upgrades of inclusions
Although none of these generally add to the actual market value of the property, the cost of these incentives and rebates may still be factored into your finance arrangements as your lender may have based the finance arrangement on the full contract price.
It is a common misconception among purchasers that they have paid market value for the property, whereas in reality the incentive has already been factored into the contract price.
Some extreme cases in the past have included properties which were worth for example $400,000 and included a $50,000 incentive. Final sale contracts were drawn for the total amount of $450,000, however the “real” value of the property was only ever $400,000. The full effect of this would be felt in a softening market as the property, which was only ever worth $400,000, would then be worth $350,000, but purchased originally for the amount of $450,000. As Valuers we need to assess the market value based on comparable sales evidence and incentives/rebates are never part of the market value equation.
Incentives and rebates are not all bad news if you can see the soft, more temporary value in them. Just being more aware will help you identify the difference between a useful add-on vs a marketing gimmick.
This information is based on the most common incentive and rebate scenarios we come across. Please contact us for further information about off-the-plan property valuations.