Off-the-plan investors forced to face tough financing decisions

By Your Mortgage

With stricter lending rules in place, many off-the-plan investors are struggling to complete their apartment purchase and are searching for ways to defer, reduce, or offload payments through alternative funding or selling their apartments.

“More than one in three of our clients who bought off the plan are having problems,” said Peter Ristevski, a partner with national advisory group Chan & Naylor. “It is getting worse. Potential distressed buyers are growing more sceptical about the prospects of losing money--they are worried that they will be left holding the baby if things go wrong.”

Foreign buyers are not the only ones affected by this finance crunch, as it also cascades to local property investors. Many lenders that provided deposits are refusing to give additional funding to local buyers amid growing concerns that apartment values are falling due to oversupply, particularly in Melbourne.

“Buyers facing funding problems who don’t have a lump sum available might be able to use the equity they have in another property,” said Jessica Darnbrough, Mortgage Choice head of corporate affairs. “Struggling borrowers could also ask immediate family members to go guarantor on the loan so that any shortfall between the lender valuation and developer’s price tag is covered.”

Overseas financiers, mostly based in Singapore and Malaysia, are offering rescue packages for borrowers by creating private bail-out funds or buying apartments off stressed purchasers. Five-year terms start at 7.5 per cent while one-year emergency loans have interest rates as high as 12 per cent. By comparison, Australian lenders offer three-year fixed rates below four per cent.