What Is Group Buying And What Are The Pitfalls To Watch Out For?

What Is Group Buying And What Are The Pitfalls To Watch Out For?

Group buying in Australia has been around for many years but has become more popular in recent years due to the prices of property skyrocketing and becoming less affordable, especially for first home buyers.

Essentially property group buying is just like other types of discount co-op clubs where members benefit from the discount purchasing power of the co-op. In a property group buy deal, a group of interested buyers band together to secure properties at discount prices usually saving hundreds of thousand of dollars on each property.

How It Works

To take part in a property group buy deal, interested buyers will usually approach a buyer’s agent such as Binvested and Advantage Property Consulting.  The buyer’s agent will then source suitable bulk buy properties which can be purchased at a discount due to the bulk purchase.

Bear in mind though, that these buyer’s agent do charge quite a substantial fee, usually from between $10,000 to $15,000 to put these group buy deals together. However, being able to save hundreds of thousands of dollars on the purchase price of a property has made this a viable option for many first home buyers and investors.

How Can These Properties Be Purchased At Such A Discounted Price?

Although group property buys can include older, established units, most deals are done on new developments of both unit and apartment blocks as well as large home and land developments.

The developers of these properties need to pre-sell a certain portion of the apartments or house and land packages in order to obtain finance for the development from the bank. Therefore, a group buying deal can save developers both the leg work and costs of having to find individual buyers for a portion of the available properties.

This is precisely the reason why they will offer the group buyers a substantial discount on the properties being offered.

What Are The Pitfalls To Look Out For Before Entering Into A Group Buy Deal?

As with any type of property purchase, individual buyers need to do their own due diligence and adequate research before entering into any property deal. Some important considerations to watch out for include:

  • Buyers need to ensure that the location of the property is in a growth area which has all the amenities that are desirable such as schools and public transport. This will ensure that the property will increase in value over time, making it a good investment choice.
  • Buying off the plan usually means that you, the buyer, can’t inspect the property before you make the commitment to purchase it. In essence, the final build may not be what you were expecting or may not suit your requirements when the property finally settles.
  • As with a lot of new property developments, there may be delays in the building works and the settlement date could go well beyond what was originally planned. This means you may need to find temporary accommodating until settlement date arrives. Not only is this an inconvenience in terms of costs incurred but also a major disruption to your lifestyle.
  • The property may never be completed if the developer goes bankrupt in the meantime, causing you to lose your deposit. Therefore you need to do thorough research on the developer to check their track record and their viability as a trusted developer.
  • The proposed development may be an area which has an oversupply of new apartment buildings and hence your property may not realise any capital growth for quite some time. This could impact your ability to sell your property in the future.
  • If you’re purchasing the property purely for investment reasons you may well be competing with other buyers in your group for tenants. An oversupply of rental homes or apartments in any area usually means that you will receive a lower rental return or worse still, your property may be vacant for a long period of time.

  • You also need to ensure that you will be able to obtain finance for the deal as your personal situation may change during the time of paying the deposit and final settlement. If even one buyer fails to secure finance, then the entire deal could be compromised.

Usually you’ll find that the buyer’s agent will vet each potential buyer to ensure that they are financially stable and able to obtain the required finance before the deal settles.

  • You may also find that the discounted price of the property may become its new market value. This could impact your ability to borrow the amount you need to settle the deal. It could also make it difficult to onsell the property at a later time.
  • Also make sure that the buyer’s agent you decide to engage is not getting kick backs from the developer or the selling agent as this means that he or she may not have your best interest in mind when finalising the deal.
  • Be aware also that the housing market could change in the time between when you paid the deposit and the time of settlement. This could impact your ability to obtain the required finance especially if the property value has dropped. On the other hand, if values have gone up significantly, you may have to come up with a larger deposit than you had initially anticipated.

Entering into a group buying property deal can certainly save you thousands of dollars on the purchase price of a new property and make it easier for you to get into the property market. Make sure however, that you do adequate research both on the property that you intend to purchase, the developer of the property and the buyer’s agent you intend to use.

It’s also advisable to talk to your financial adviser or mortgage broker to ensure that you will be able to secure the finance required to settle the deal.

About Author

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Collins Mayaki

Collins Mayaki is the Managing Director of Wealthy You – helping Everyday people, Businesses and foreign investors navigate through the competitive and ever-changing mortgage landscape to find the right loan for them. Wealthy You goes into bat and negotiate on your behalf, making the process as simple as possible for you, geared up to deliver fast results. Our Mortgage Brokers help you avoid the pitfalls, and we'll find loan features to suit your personal circumstances. Collins has more than 12 years of sales, management and marketing experience across a diverse group of companies.

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