Article by: Michael Bleby
Source: The Australian Financial Review, 30 March 2016
Central Melbourne off-the-plan apartments fell about 11 per cent in the first year between their original purchase and pre-settlement valuation, figures from valuation firm WBP Property Group show.
The average 11.5 per cent decline – equivalent to nearly $68,000 in dollar terms – in the value of 14 apartments WBP valued within a year of their sale date gives an indication of the extra equity buyers of off-the-plan apartments may have to produce when the projects into which they have bought come due to settle.
Banks rely on the valuations of firms like WBP and are using lower values, as well as a string of other conditions, to reduce their exposure to what many regard as oversupplied apartment markets.
“In 2015, WBP conducted a research study on off-the-plan sales following a growing number of transactions falling short of purchase price at time of settlement,” WBP executive chairman Greville Pabst said.
“In some cases the funding gap is minimal, but can also amount to thousands of dollars. Should a borrower be unable to bridge the funding gap, they risk being unable to complete the purchase, which often results in loss of deposit and potential for legal action on behalf of the vendor or developer.”
An estimated 44,784 apartments are due for completion and settlement this calendar year across Sydney, Melbourne and Brisbane, up almost a quarter on last year’s 36,486, and buyers of those apartments will have to either cover the gap that banks won’t meet, even if they previously agreed to at time of purchase, or let the property go and lose their deposit. Concern is rising about whether buyers will be able to meet those commitments.
APARTMENTS HAVE FLATLINED
Resales data shows Melbourne apartments losing up to 30 per cent of their value.
Rental prices of inner Melbourne apartments have largely flatlined over the last four years as a result of rising supply, consultancy BIS Shrapnel said in its latest Inner Melbourne Apartments market brief.
The picture is not all bad, however. While new apartment supply is expected to pick up to nearly 8000 new apartments per year in the three years to 2019 from an average 6000 in the previous four years, growing demand from offshore buyers is offsetting any local weakness, BIS said.
“Overseas buyer demand is being supported by low borrowing costs, relatively buoyant economic conditions in their home country, and a preference to invest in a more transparent and stable political environment,” the report said.
The Melbourne central business district will account for 40 per cent of all new stock, followed by Docklands (18 per cent) and Southbank (15 per cent), BIS Shrapnel said.
The revaluations by WBP, the country’s fifth-largest valuation firm, also show an average 10.5 per cent reduction on homes with the 3000 central Melbourne postcode revalued two years after original purchase and a 7.1 per cent reduction on those revalued up to three years later. The figures are based on the price details of 197 homes in the Melbourne CBD.
The figures for the Melbourne CBD are part of a wider study by WBP of 1794 properties purchased off-plan between December 2009 and August last year. The data does not identify any individual properties or projects.