Justin Lawrence – a partner at Henderson & Ball Lawyers – believes Australian homebuyers are dropping like flies amid rising material costs, the prospect of rising interest rates and falling house prices Off-the-plan properties:
“We could have a crisis if some buyers are negatively re-evaluated by lenders saying they pose too much of a risk for us,” says Lawrence…
Sam Lally of Buyer’s Advocate Australia says at the end of the day, “The loan-to-value ratio of a property still has to be right for a lender”…
Those who have recently signed purchase agreements may find that when completed, their valuation will be much lower than it is now, he says.
The risks associated with buying an off-the-plan property or buying a piece of land and building your own have risen sharply this year.
First, with almost all builders struggling to make a profit and many falling into management, there is a risk that a property buyer will have to pay a mortgage on an unfinished home that they cannot move into.
Second, rates are likely to rise aggressively from here, with most economists expecting another 2% of rate hikes and futures markets another 3% of rate hikes.
In either scenario, Australian property prices could fall precipitously, leaving both the buyer and the first builder with negative equity.
The off-the-plan buyer would then face a significant discount to their original mortgage rating, meaning they would have to make up the difference to qualify for a mortgage. Off-the-plan buyers who fail to raise additional funds and pay their contract risk losing their down payment and, in the worst case, could also be sued by the developers.
Given the risks, prospective buyers should avoid the new construction market and seek an established home instead.
Leith van Onselen is Chief Economist at MB Fund and MB Super. He is also Chief Economist and co-founder of MacroBusiness.
Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.
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