5% of Melbourne OTP apartment buyers walk

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By Leith van Onselen

The AFR’s Larry Schlesinger has reported today that roughly one in 20 Melbourne off-the-plan (OTP) apartment buyers abandoned their purchases in June, with roughly two-thirds of those foreign-based, according to law firm Maddocks:

The law firm processed over 800 apartments contracts in June and recorded that 5 per cent of deals did not settle. This compares with a historical average of about 3 per cent. Default rates were just 2 per cent between February and April, but volumes were lower…

While still a small proportion of settlements, rising defaults indicate more purchasers are struggling to obtain financing following the major banks pulling back from lending to foreign buyers…

The Maddocks figures are a good indicator of the wider apartment market – the firm handles about 15 per cent of all off-the-plan sales in Melbourne each year worth around $3 billion.

The news follows the recent curbs on foreign borrowers by Australia’s lenders, as well as last month’s survey by the Urban Development Institute of Australia (UDIA), which revealed that 60% of developers are struggling to obtain funding to complete planned projects.

It also follows concerns raised in June by Charter Keck Cramer that nearly half of Melbourne’s off-the-plan apartments have been purchased by foreign investors, leaving the industry dealing with an “unprecedented level of supply” – a view supported by Four Corner’s recent Home Truth’s special report, which showed a large proportion of apartments being left vacant.

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For what it’s worth, yesterday’s dwelling approvals data from the ABS revealed a rebound in Victorian high-rise approvals to 17,768 in the year to June:

ScreenHunter_14323 Aug. 03 07.36

Given that high-rise approvals totaled around 40,000 in the two years to June 2016, and that there’s at least a two-year lag between approvals and completions, there’s a huge pipeline of apartments in Melbourne that will still need to settle. This raises the prospect of significant settlement risks affecting the overall apartment market.

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About the author
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.