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Properties that the Bank thinks are risky Pt.2

4. Small units/ Studio apartments 🏙️⁠

Most banks prefer apartments to comprise at least 50 square metres of living space, not including balconies or car parking. However, with our changing lifestyles, some will now lend on properties that are 40 square metres in size. Studio apartments in the inner CBD (average size of 18 – 22 m²) will often attract negative attention of lenders and mortgage insurers. While rental returns can be above average, it’s best to steer clear unless you have a solid deposit.⁠

5. Large off the plan developments 🏢⁠

There are lots of potential issues with large off the plan developments making banks wary of this type of purchase. Banks worry about a ‘concentration risk’ and therefore restrict how many apartments they will lend on. There is also an increasing supply of these properties every year limiting the best margin returns for banks, unlike the traditional property would.⁠

6. Mining towns ⛏️⁠

These markets tend to be more investor driven with very few owner-occupiers. They also rely heavily on both the investor and mining industry therefore when a mine shuts or scales down there most likely will be a collapse in that towns property market. They are best avoided to increase the chances of borrowing with major lenders.⁠

7. Rental guaranteed apartments 🔒⁠

The cost of the rental guarantee (which is usually inflated to make the return look better than it really is) is added to the purchase price and used by the developer to justify inflated prices. In other words, you’re paying the developer upfront to guarantee the rent for you. And it’s not uncommon for the rent to drop when the rental guarantee period expires, leaving you with a hole in your budget.⁠

In summary, it’s not good enough for the bank’s money so it shouldn’t be good enough for your hard-earned cash. Perhaps take it as a warning sign and consider looking elsewhere.

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