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Settlement risks low for new constructions

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As numerous residential buildings are being constructed, experts say that the settlement risks that come with apartment oversupply are not a yet a problem.

This is because steps could still be taken to prevent them, said Ivan Colhoun, chief markets economist at the National Australia Bank.

He told Business Insider that at this stage, the only issue is the slight decline in apartment prices in some areas. However, the true test for markets that are at risk of oversupply still lies in the years ahead.

“The ‘absorption’ of these apartments into the market will be required over the next 12-24 months,” said Colhoun.

“The issue of apartment supply, vacancy rates and apartment prices will be one that receives considerable attention over the next few years.”

Colhoun suggested that high interest rates and high unemployment rates need to be addressed immediately, in order to avoid the anticipated low demand from the market.

Cameron Kusher, research analyst at CoreLogic, also suggested that mortgage lenders ease up on their lending criteria for investors and overseas buyers in order to alleviate settlement risks.

“Mortgage lenders have recently tightened their lending criteria. Subsequently, some people who have committed to off-the-plan units may not be able to borrow as much as they could at the time of signing the contract,” said Kusher.

Kusher added that the properties’ worth might become less than their off-the-plan price. With so many new units competing with existing units, buyers are becoming increasingly concerned if they will still get the value that they paid for, hence heightening settlement risks.

Areas most at risk are Brisbane and Melbourne. Despite having the most number of ongoing apartment constructions, Sydney is not yet deemed to be in a similar situation due to its history of under supply.
 

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