Like I say before - it ain't over till the project is completed. So better pray hard that apartment prices don't spiral downwards before project completions.
http://www.vic.api.org.au/folder/news/me...lan-buyers
MELBOURNE APARTMENT VALUES ON THE SLIDE – FALLING PRICES TO HIT OFF-THE-PLAN BUYERS
Eight out of 10 off-the-plan apartment buyers in Melbourne could end up paying more for their properties than they are worth, analysis shows.
Apartment prices across Melbourne have fallen between 7 per cent and 11 per cent in the past 12 months. The troubled Docklands development, south of the central business district, has posted median falls of 25 per cent, according to estimates.
About 20,000 deals could be affected during the next 2 ½ years as buyers, who paid a 10 per cent deposit to secure their property, are required to pay the balance.
Banks, which are believed to be undertaking their own stress testing of the market, declined to comment other than to say every deal was reviewed on a “case-by-case basis.”
Sam Nathan of property consulting company Charter Keck Cramer said: “Investors need to hold tight, to digest and maintain their focus on the long term. Property is a long-term play and we are going through a cyclical supply event.”
According to Charter Keck Cramer research, developers have been reducing supply, by about 16,750 apartments in 2010 to 11,100 last year, which is still about 30 per cent above the long-term average.
Across the Melbourne metropolitan area, which extends about 25 kilometres from the central business district, there were about 10,250 apartments completions last year, 19,250 under construction and 16,300 being marketed but not under construction.
The two most active sectors are the central business district and its five-kilometre fringe where at the end of 2012 there were 14,000 under construction, 8950 still being marketed.
There are expected to be about 11,000 completions this year and potentially 16,000 next year, or 37,000 over three years.
Angie Zigomanis, a senior manager for BIS Shrapnel, which forecasts movements in Australian property markets, warned about growing nervousness among buyers and developers.
For example, a bank might lend up to 90 per cent of the total value. So on a $1 million apartment the bank would lend $900,000 and the buyer contributes a $100,000 deposit.
If the property price on a $1 million fell 20 per cent, the bank would only be prepared to lend $720,000 on a valuation of $800,000. The buyer would have to cover the gap.
Many of the contracts were entered between two and three years ago when investors were still deeply wary of investing in shares because of heavy losses suffered during the global financial crisis.
Many sought the safety of bank deposit accounts or were advised by wealth managers to invest in properties through their self-managed superannuation funds, which provided a tax shelter in addition to negative gearing.
Analysts claimed the bulk of the deals involved investors, rather than owner-occupied property.
Agents said that many of the apartments have been sold to overseas buyers, particularly Chinese, who seek foreign investments in politically stable countries as a hedge against economic and political upheaval at home.
Andrew Perkins, national head of research for Oliver Hume Research, said the market fundamentals were strong and improving because of falling interest rates and rising consumer confidence.
Mr Perkins added that demand would continue to be buoyed by population growth and rising student numbers.
Melbourne’s status as a financial and manufacturing centre that is home to more than 4 million people rules out any comparison to the negative equity that plagued investors on the Sunshine and Gold Coast, which is largely a convention and tourist centre.
According to RP Data, unit values in Docklands fell 25 per cent during 2012, compared with Melbourne unit prices that were down 2.5 per cent.
Media Source: The Weekend Australian Financial Review
Date of Publication: 2 – 3 March 2013
Author: Duncan Hughes