Buyers are walking away from sales and losing their deposits.Melbourne’s outer-suburban property market is facing a serious slump as distressed buyers and builders cancel one in every three new home purchases.
The collapse in sales could have serious repercussions for the state economy and the building industry, which employs more than 250,000 Victorians.
“We’ve never seen this before, so it’s a very strong signal that the fundamentals are wrong,” said Colin Keane, director of analyst group Research4, who compiled the new research.
He said the current cancellation rate of more than 30 per cent compared to an average two years ago of about 5 per cent.
Developers have had nearly 1800 lots returned to them this year as buyers have aborted plans to build homes in the city’s housing estates, according to the National Land Survey Program.
While buyers who walk away from sales are losing their deposits, developers are left trying to re-sell the land as demand wanes.
The cancellation rate on land deals hit more than 30 per cent in the September quarter, up from an average of 5 per cent before the 2009-2010 property boom ended. It had been averaging about 23 per cent over the past year.
Driving the problem were sales policies that allowed buyers to put down only a $500 or $1000 “holding deposit” on a block, industry operators say.
“It’s the developers who were taking these holding deposits that are really experiencing the problem,” said Rory Costelloe of Villawood Properties.
“It also doesn’t help that the prices being charged for the land rose way too high, too fast when these blocks were being sold 12 or 18 months ago.”
Others buyers have had to walk away from settlements – and much larger deposits worth up to 5 per cent of the purchase price – after failing to get financing on blocks of land that have lost 10 to 20 per cent of their value since they signed the contract.
The problem has worsened despite some developers reportedly offering big cash hand-outs in a bid to help buyers make up the difference between what they initially agreed to pay and the land’s current value when qualifying for a loan.
“The developers are basically trying to buy their settlement. It’s easier to pay them the difference than to try to sell the block again,” said a valuer, who asked to remain anonymous.
Mr Keane said builders were also having to return land to developers when buyers backed out, and it became clear they couldn’t settle on the house and land packages they were selling.
“The dramatic increase in lots being returned to developers highlights the pressure the Melbourne new home building industry is currently under,” he said.
Housing estates in the city’s west and north are experiencing the highest cancellation rate, the research shows.
Melbourne’s new-home market has been weathering a downturn since late 2010, which has seen construction activity and land sales fall well below historic averages.
The value of residential building is expected to fall by 20 per cent this financial year, shedding $4 billion worth of construction spending, according to the Australian Construction Industry Forum.
Developers have been frantically trying to prime the pump with hefty buyer incentives that include cash rebates, cars, and furniture and landscaping packages.
Industry lobby groups have also been calling for a boost to the First Home Owners Grant for new homes, which was slashed from $20,000 to $7000 in July.Comment at BusinessDay
This story Administrator ready to work first appeared on Nanjing Night Net.