Desperate developers puke cash for unwanted apartments

As stalled developments mushroom across Australia’s east coast following a surge in completions:

The AFR reports that desperate developers are offering up to $20,000 in cash to clear the backlog of high-rise apartments and house-and-land packages:

Cash payments of $20,000 are being offered to buyers of high-rise apartments around Melbourne’s central business district amid concerns about construction and safety that have affected sales, discouraged potential tenants and hit investment returns…

Commissions of $5000 and discounts of 15 per cent for land and house packages are being offered by Bond Development Group for recommendations to buy in estates on the outskirts of Geelong, 75 kilometres south-west of Melbourne.

Other land and house packages on the outskirts of Sydney and Brisbane, typically selling for less than $500,000, are being promoted to advisers with “generous land commissions for house and land packages”. Living Sanctuary is offering 3 per cent for land and $33,000 for houses, including GST.

…buyer fears about high-rise apartment fires and construction risks are causing sales times to blow out by more than 60 per cent compared with a year ago, creating bottlenecks for sellers, the agents say.

The report comes as the latest CoreLogic data shows that the current house price rebound is being driven by the premium end of the market in already established areas:

Demand has evaporated in the high-rise apartment space amid growing concerns over dodgy building standards, flammable cladding, as well as falling overseas buyer demand.

The worst is still to come as newly completed apartments continue to flood the market, alongside more reports of faults and developer bankruptcies.

Avoid the high-rise market like the plague. It carries loads of risk with little upside.

Unconventional Economist

Leith van Onselen is Chief Economist at the MB Fund and MB Super. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.

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