Australia overseas real estate purchasers at risk for off-the-plan sales completing in 2016

In 2015 the Australian Prudential Regulation Authority (APRA) announced that the big banks must hold more capital against their gargantuan mortgage books to provide a buffer against defaults. October 19, 2015 By Scott O. Talbot

Australian banks are now progressively reducing their loan-to-value ratios (LVRs) on investor loans from 95% down to 80%. Overseas investors the hardest hit, slashed from 80% down to 70%, in most cases.

Mortgage rates are likely to rise as a consequence of the more stringent capital requirements however, many economists anticipate weaker off-the-plan sales into 2016. A weaker off-the-plan market translates to valuers down valuing purchase prices in certain precincts with a high level of apartment stocks and over supply risk.

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Australia overseas real estate risk assessment

With an unprecedented influx of Asia based property developers raising our cities skylines, many of Australia’s apartment stock has been heavily marketed overseas and Mr McCann’s comment that Lend Lease sales represented about 10 per cent, does not represent a majority of the off-the-plan stock in the market place.

Without any reliable data to support this sentiment, it is common knowledge that many of Melbourne and Sydney’s projects are predominately sold to overseas investors. Switching your Google browser to point to Singapore, Malaysia or Indonesia for example and using common keys words reveals an a variety of Australian investments options for overseas investors.

The statement of a 10 per cent to 15 per cent price increase is fair but, the fear is that the valuers assessment for finance at settlement could reduce values 5%-12% lower than the contract price when they take into account supply and demand and a number of market factors.

Moreover, any market appreciation within a project (sold off-the-plan) cannot be realised many months or a year after completion. True property appreciation can only occur when a property owner places their investment on the market and a sale is made that will be recorded by RPData. Until this data is available with RPData, capital appreciation is purely speculative and valuers will be relying on other comparable resales in the precinct.

As Australian banks are progressively reducing their loan-to-value ratios (LVRs) on investor loans there is a high settlement risk for property developers whom have a large number of off-the-plan sales overseas.