More debate about risks of buying off the plan

By |
The head of a major mortgage aggregator is the latest person to raise concerns about buying off the plan following policy changes by many of Australia’s lenders.

In an interview with Your Investment Property Magazine’s sister publication Australian Broker, Glenn Lees, chief executive of Connective, said off the plan buyers were at risk of becoming an unintended casualty of Australian Prudential Regulatory Authority’s (APRA) push to cool investor lending.

“A consumer may have signed up to buy a property 12 months ago. Since they signed up for that property the lending landscape has changed dramatically. The LVRs available have decreased and borrowing capacity has decreased as a result of various lenders choosing to respond in different ways to the APRA requirements,” Lees told Australian Broker.

“This means that person who signed up for that property may not be able to settle it when the time comes because the lending rules have changed,” he said.

Lees said it was becoming increasingly common to see buyers get caught out in that manner, a phenomenon Sydney based buyer’s agent Todd Hunter predicted months ago.

“But right now, especially in Sydney and Melbourne, I definitely wouldn’t be going near anything off the plan, I think we’re going to see a glut of people in the near future for who it will come time to settle and they’re going to get caught out,” Hunter said in August.

“With what the banks are doing with changing LVRs from around 90% to 80% somebody who put down a 10% deposit on a $1 million unit is going to have to come up with another $100,000 when it comes to settlement time.”

While Lees and Hunter may hold off the plan concerns, there are others who believe it’s still a perfectly good buying strategy.

Mark Mendel, chief executive officer of property consultancy firm iBuyNew, is one of those people, and he said there are some simple steps people can take to ensure they are making a sound investment.

“The biggest thing you can do is make sure you’re buying in the right project and from the right developers,” Mendel said.

“A lot of what APRA is doing is affecting the finances of developers as well as consumers, so you want to make sure you’re dealing with reputable developers who are going to be able to bring the project to completion.”

Off the plan buyers can also be caught out if a valuation by their lender puts the value of the project below the sale price, but Mendel said there are ways to minimise that possibility.

“There’s no specific rule about where you should and shouldn’t buy, but I’d probably recommend you avoid regional areas.

“The middle and outer rings of markets like Sydney, Melbourne or Brisbane would be areas I’d think about.”

Can you afford to buy in this suburb? Find out how much you can borrow

Top Suburbs : padbury , nightcliff , willliamstown , harris park , thebarton

go back

Get help financing your investment

Do you need help finding the right loan for your investment?

When investing in property, it is important to make sure that you not only have the lowest available rate that you can get, but also have the correct loan features for your needs.

Just fill in a few details below and we'll then arrange for a local expert Aussie Mortgage Broker to contact you and work out what features or types of loans are right for your needs. We'll even help with the paperwork. Plus, our mortgage broking service is at no cost to you.

How soon would you like a mortgage?
What is your Annual Household Income i $
Do you currently own any Investment Properties?
Do you own your own residence?
How much equity do you have in all your current properties?
First Name
Last Name
Where do you live?
What number can we reach you on?
E-mail address
We value your privacy and treat all your information seriously - you can check out our privacy policy here