While the New South Wales government is taking steps to stop people being burnt by off the plan developers, a high level official from one of Australia’s major banks has warned of other dangers off the plan buyers face.
Speaking at the HIA-Cordell construction outlook breakfast in Sydney last week, Westpac chief economist Bill Evans said the APRA-led clampdown on investor lending was presenting huge challenges for those with off the plan purchase agreements.
Evans believes APRA’s mandate that investor lending levels should not grow by more than 10% each year means many off the plan buyers could be left high and dry when it comes time to settle.
“The issues about pre-sales is [sic] a real worry,” Evans said.
“Someone commits to a pre-sale and in two years they go to the bank and say, 'Can I have my money now?' and the bank has no obligation to give them the money,” he said.
Evans is not the first to air concerns about the future of off the plan sales, with Todd Hunter, founder of mortgage brokers and buyer’s agency wHeregroup, expressing a similar opinion last month.
“I think we’re going to see a glut of people in the near future for who it will come time to settle and they’re going to get caught out,” Hunter said at the time.
“With what the banks are doing with changing LVRs from around 90% to 80% somebody who put down a 10% deposit on a $1 million dollar unit is going to have to come up with another $100,000 when it comes to settlement time,” he said.
Hunter also believes that there could be more people caught out after they rushed into agreements in the hope of cashing in on the booming Sydney market.
“With the way Sydney’s prices have been going there’s definitely going to be a cooling off over the next year or two and if that happens when it’s time to settle there will be trouble,” he said.
“If that happens and the bank values the property at less than the price you agreed to buy it for then they’ll only finance that lower amount and you’ll be hit with making up the shortfall.”