OFF-THE-PLAN NIGHTMARES

Property buyers holding contracts for off-the-plan apartments that are now worth less than they agreed to pay for them are in the worst position of all, says Suburbanite’s Anna Porter. “You can’t even renovate to get an up-tick in value.” And often the terms of the contract mean you can’t even pre-sell it before completion.

“If your negative equity is going to be greater than the 10% deposit you paid and the five- to 10-year outlook is not good for the area, you’re best to walk away now,” says Porter.

Metropole’s Michael Yardney agrees. “Seek legal advice. If you can get out of it, even losing your 10% deposit, do it and chalk it down to experience. Don’t be too proud,” he says. “Many of these properties in oversupplied areas such as Fortitude Valley in Brisbane, Parramatta in Sydney and Docklands in Melbourne are unlikely to show any capital or rental growth for five to 10 years.”

It’s a particular problem if the completion value is considerably less than the contract price because purchasers can’t usually borrow more than 65%-70% of the value, says Yardney. How do they finance the shortfall? “Theoretically, you just can’t walk away.

The developer can on-sell and sue you for any loss.”

A client of his bought off the plan in Parramatta for $1.5 million but on completion the valuation was $400,000 less. He had to sell another investment property to settle and also walk away from a more lucrative opportunity Metropole had found for him.