Ralan crashes into apartment collapse

As we know, developer Ralan has collapsed, via The Australian:

The collapse of the prolific east coast suburban apartment developer Ralan Group, headed by British-born William O’Dwyer, owing creditors at least half a billion dollars has highlighted the fragile state of the high-rise property market.

…The private Ralan Group specialised in high rise developments with a workbook of more than 3000 suburban apartments, but problems in the sector are widespread with Melbourne-based Stellar Group also put in receivership last month.

…Finance house Wingate told investors it had “a number of open debt positions” with Ralan but its position was secured by charges and mortgages over real property.

So, shadow banking losses are about to lift spreads for other developers and the crash get worse as it shakes out other over-leveraged players.

But there is another problem today, at the AFR:

Hundreds of buyers who bought apartments off-the-plan from failed developer Ralan could lose deposits of as much as $70,000 or more, after they were used by the collapsed group to pay expenses, including interest on unsecured loans.

Joint Ralan administrator Said Jahani from Grant Thornton said the “majority” of purchasers of apartments in Ralan’s $2 billion Ruby and Sapphire projects on the Gold Coast and Sydney’s The Orchid in Arncliffe had entered into “side agreements” with two Ralan subsidiaries (controlled by founder William O’Dwyer) where their deposits were released “either in full or mostly in full” as unsecured loans to the developer.

“At this initial stage, we believe that the majority, if not all, of the deposits released to RCI [Ralan Capital Investments] have been used to fund the expenses of the group including payment of interest on unsecured loans,” said Mr Jahani.

Depositors rank below a Westpac secured loan and the Wingate unsecured loan. As this news filters out into the market what idiot is going to buy off the plan henceforth? This is a doom loop.

The apartment bubble Minsky moment is here.

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