Macquarie today breaks down the settlement risk confronting major developers:
Ability to settle. This refers to the availability of liquidity at settlement, or in other words does the borrower have access to the funds available to pay for the property when the time comes.
Willingness to settle. This is the capital appreciation (or depreciation) on the property since presale. If the asset price has declined by a greater amount than the deposit (normally 10%), then there is potential risk for defaults. This is also often referred to as ‘in the money’ or ‘out of the money’.
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David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.
He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.
