An online property agency has warned that “thousands of buyers” of off-the-plan apartments in Victoria could lose their deposits following changes in design standards.
The upcoming Better Apartments Design Standards, which will come into effect in Victoria in March 2017, set minimum size standards for rooms of off-the-plan apartments.
Although the new standards do not go as far as setting minimum apartment sizes (as is the case in Sydney, where one-bedroom apartments must be a minimum of 58 square metres), iBuyNew Group Ltd has suggested that the big four banks are tightening up their lending policies, and are “refusing to lend for one-bedroom apartments smaller than 50 square metres”.
It added that this could mean those who have bought off-the-plan apartments that are scheduled to be completed this year could lose their deposits if the finished apartment does not meet the new standards.
iBuyNew CEO Mark Mendel said the situation is unfair as banks had applied different standards for the developers of the apartment projects.
He commented: “If banks are prepared to fund a development for construction then they should take the same stance on providing finance when it comes to the buyers of those off-the-plan apartments.
“Many Melbourne apartment projects due to be completed in 2017 were designed in 2014 or prior, before the discussions about the new design guidelines had even been made public.
“The banks should be offering to fund the buyers of those apartments under the same policy that exist[ed] when the construction started.”
Mr Mendel added: “Buyers of off-the-plan apartments should be able to go to the bank that funds the construction and take out a pre-approval that will last them until settlement.
“This reduces a part of the risk for the buyer as they don’t have finance risk. It also reduces problems for the developer as they don’t have settlement risk and overall it’s a win/win situation for the bank.”
The iBuyNew warning comes amid increasing concern over the off-the-plan market. In October last year, the Reserve Bank of Australia warned that off-the-plan purchases could fail to settle as more apartments come online.
In the last Financial Stability Review, the RBA wrote: “Liaison with the property industry points to some concern that this will become more common in Brisbane, Melbourne and Perth.
“These concerns arise from a combination of tighter financing conditions for purchasers (especially for non-residents and those reliant on foreign income) and valuations at settlement below the contracted price.
“Liaison with banks and industry suggests that in Melbourne, and increasingly in Brisbane, valuations for off-the-plan apartments are often a little below contract prices. However, the magnitude of the difference varies across individual projects and apartments…
“In weaker markets, such as Perth, there have been some instances of developers offering discounts to contracted prices to ensure that settlement occurs. In some cases, larger developers have also offered vendor finance to foreign buyers who could not access bank finance.”
The bank also revealed that in Perth, the expected flow of new dwellings is “more modest” relative to the stock and is geographically dispersed, but “these dwellings are entering the market at a time when housing prices and rents are falling and population growth is slowing”.
[Related: SMSFs warned on ‘off-the-plan nightmares']