A growing number of people who bought residential property via an off-the-plan contract are seeking to on-sell prior to settlement.
OpenLot.com.au founder Qi Chen notes that just 22% of seller requests on the listings site were for unsettled off-the-plan properties in 2021, but this rose to 47% in 2022 as the Reserve Bank of Australia (RBA) began to increase the cash rate.
Qi adds that the upward trend is continuing in 2023.
“We saw a large jump in the number of seller requests in 2022, which had more than doubled compared to 2021. So far, this year is continuing with the same trend”, Qi said.
“We’re anticipating developers could be facing up to 5% of their off-the-plan contracts failing at settlement due to buyers not being able to get finance”.
“In this case, the developers will need to find a new buyer to buy this property”, Qi warned. “Some [buyers] could struggle if the nomination contract isn’t competitive in the resale market”.
Diaswati Mardiasmo, chief economist at PRD, likewise warned that “people who might have cleared their bank’s serviceability tests 12 months ago may struggle to pass this same test today as a result of rising interest rates, particularly if they haven’t had a decent pay rise in this time”.
Whereas Sally Tyndall of RateCity warned that “if your bank valuation comes in significantly below your agreed purchase price, you may need to make up the difference, or sign on to a mortgage with a much higher loan-to-value ratio which could trigger higher rates and a requirement to pay lenders mortgage insurance”.
“Some borrowers could even find themselves in negative equity before they’ve even stepped foot in the property, making it all but impossible to find finance at all, unless they can find extra cash elsewhere”, Tindall said.
The outlook for the off-the-plan apartment market is bleak.
With dwelling values falling amid rising interest rates, banks are being more conservative with their valuations.
Borrowing capacity has also shrunk by around one-third since the RBA began lifting interest rates.
As a result, buyers that committed to an off-the-plan purchase a year ago could see their loan applications knocked back at settlement.
Alternatively, they may be forced to scramble for a larger deposit to cover the decline in the property’s value.
Many off-the-plan buyers, therefore, could lose their deposit.
The slump in the off-the-plan market is also concerning given rental vacancy rates are already at record lows with rents soaring at double-digit rates.
With record immigration now arriving in Australia, the nation needs more housing supply than ever, not less.
