Home buyers may start abandoning their deposits on off-the-plan apartments following a myriad of concerns in the off-the-plan sector this year, a Sydney-based real estate agency has said.
Douglas Driscoll from real estate agency Starr Partners, said home buyers may give up their deposits and walk away as many of them reconsider whether the property is overvalued.
“In 2015, we saw a lot of developments granted planning permission but I think heading into 2016 we will see them feel a bit of pain because some purchased their sites on such narrow margins. As market levels fall away slightly, some developers might struggle to cover costs,” he said.
“Towards the end of 2016 we might start to see some investors potentially walk away from their deposits because they perceive that they paid too much for it in 2015 and see that it’s no longer worth the risk."
Whilst Driscoll is warning buyers not to have a “knee-jerk” reaction, Mark Mendel, the chief executive of off-the-plan consultancy firm iBuyNew, says Driscoll’s prediction isn't entirely plausible.
“I think we would only see that if prices in Sydney had a rapid fall. If you look at the history of Sydney property cycles we have a period of strong growth for three or four years and then a period of six or seven years where things slowdown a bit,” Mendel said.
“I don’t think people are at the point where they’re ready to lose their deposits, I mean something like $70,000 or $80,000 is a lot of money. I think people will be more likely to take the rental return and wait until capital growth picks up again,” he said.
However, Mendel does believe there will be some projects that never eventuate.
“I think we’ll see a drop in the level of activity. A lot of the developers who bought sites on option aren’t going to go through with it and they’ll hand the land back.
“We’ll see construction drop off, but the bigger boys in areas like Green Square will keep going though.”
While construction activity has been high as developers have looked to cash in on the boom, Mendel doesn’t believe there is much chance of Sydney having any oversupply issues.
“Population growth is still strong enough that there’s room for more housing.
“We might see some little pockets of oversupply, but in places like Melbourne or Brisbane there has been a lot more apartments go up and they’re still selling. Vacancy rates there may be a little higher, but they’re nothing terrible.”