Property industry urged to act so off-the-plan buyers aren’t “blind-sided”

Adam Smith 28 July 2016

danger aheadThe property industry has again been warned of the risk posed by a glut of apartment construction.

Property data company CoreLogic has previously warned that high levels of unit construction could pose a risk of oversupply, potentially meaning off-the-plan buyers could face difficulty at settlement time. The company’s executive general manager of commercial Craig Mackenzie has reiterated the warning, saying the property and finance industries need to make moves to manage the risk posed by an “unprecedented” number of units approved for construction.

“Whilst demand for unit stock has undoubtedly increased, there are concerns that new supply has effectively overshot the mark in particular geographic locations, increasing concerns around the risk attached to some projects currently under construction,” McKenzie wrote in a post for CoreLogic.

McKenzie said there was growing concern that pre-settlement valuations for units could come in much lower than the contract price, meaning a proportion of contracted sales would not proceed to settlement. He said the capital growth many off-the-plan buyers expected to occur between contract and settlement has, in many cases, not eventuated.

In addition to low valuations, McKenzie said mortgage lenders had tightened their lending criteria for investors. He also pointed to moves by the major banks to restrict lending to foreign investors, which he said was significant “given a material proportion of off-the-plan unit sales are to overseas buyers”.

In light of this, McKenzie warned the property and mortgage industries to take action.

“It is incumbent on the property and mortgage finance industries to manage this risk in a proactive manner to ensure consumers are not blind-sided and that any downside risk is mitigated to the greatest extent practicable,” he wrote.

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