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Settlement risk on off-the-plan units at concerning levels

Posted on 7 August 2017

Source:  Kieran Clair

According to a major analyst, half of Brisbane's off-the-plan (OTP) units could be classed a 'settlement risk.'

Speaking at the Australian Property Institute's Brisbane conference today, CoreLogic head of research, Cameron Kusher, said his company tracked the proportion of OTP sales where their independent valuation was lower than their sale price.

"In Brisbane, about 50 per cent of those valuations are coming in below the actual original contract price," Mr Kusher said.

"In Perth and Melbourne, you're looking around 40 per cent. In Sydney, not very many," he said.

Mr Kusher said while the percentage of undervaluations was relatively high for Brisbane, the dollar difference between contract and valuation was more important.

"If it's only $5000 lower, it's not necessarily an issue," Mr Kusher said.

"But if you start finding areas where valuations are coming in $50,000 or $60,000 below the contract price, that's when it gets concerning, because that's when people will walk away," he said.

Mr Kusher said while the degree of difference was able to be monitored by Valex, a CoreLogic owned platform, the information was confidential.

"We are able to measure it, we're not able to tell you because it's not our data it's the banks data. We do feed that information back to the banks though," he said.

Mr Kusher said the problem of settlement risk could be magnified by foreign investors.

"What I've been told by developers as well is, if this starts happening and your overseas buyers walk away from their contracts, there's absolutely no way to find those buyers," he said.

"The Chinese government is not going to help you find someone who's not meant to be taking $50,000 a year out of the country to go and settle a property in Australia. The Singaporean government is going to be absolutely no help as well," he said.

"For my mind, that's where it gets a little bit concerning about the unit market."

Mr Kusher said proportionally more Brisbane units are reselling at a loss compared to other capitals too.

"In Sydney, units are performing pretty much better on resale than houses. In Melbourne you're looking at about 11 per cent of units reselling for less than what they were purchased for, but here in Brisbane it's about 25 per cent," he said.



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