Off-the-plan pain as buyers lose building deposits

03 July 2020

Some off-the-plan apartment buyers are having to cut their losses and walk away from their deposits.

An apartment oversupply and soft demand has seen the value of off-the-plans drop and it could cost buyers up to $90 million in lost deposits.

One in ten off-the-plan apartment sales has collapsed in the past three months in Melbourne as banks have in some cases rejected final loan approvals, forcing buyers to lose their deposits.

Of the 35,000 off-the-plan settlements between March and June, over 3,000 of them fell down and that has the potential to lose buyers $87 million in deposits, and possibly more as developers apply other charges for pulling out.

CoreLogic research analyst Eliza Owen said the trend of off-the-plan apartments being worth less at settlement than at purchase was not only because of the pandemic.

“Undervaluation of off-the-plan apartments across Sydney and Melbourne has been rife over the past two years, averaging 46.4 per cent in Sydney and 42.7 per cent in Melbourne,” she told Australian Financial Review.

“This is the result of falling levels of investor interest off the back of temporary prudential lending measures, against increased levels of apartment completions across these cities.”

“However, COVID-19 will have a compounding effect on some off-the-plan unit markets through border closures and job losses.”

“The additional downward pressure on rent returns created by localised increases in vacancies will make inner-city apartments less desirable, and this could lead to an increased portion of under-valuation events.”

Unfortunately for those whose circumstances have changed during COVID and no longer qualify for a loan, they not only risk losing their deposit but also risk having to pay for damages if the developer can’t sell for the same price.




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