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Off-the-plan projects at risk

 

Recent changes to lending criteria for survey-strata house and land contracts could kill off many current off-the-plan projects and will have “dire consequences” for developers, according to RE/MAX WA managing director Geoff Baldwin.

“Whereas strata-titled projects are required to be totally completed before the deal is settled, survey-strata developments allow settlement on the land content and then graduated payments until completion, much the same as a conventional house and land package,” Mr Baldwin explained.

“These new changes will now require developers of survey-strata projects to totally complete the project before any funds are paid over by purchasers – resulting in significant extra holding costs to the developer, additional stamp duty to the buyer and inevitably, a higher purchase price.”

Mr Baldwin said the banks had likely implemented the changes to offset the risks associated with incomplete projects.

“The banks are justifying these changes arguing that, should a developer not complete a project the land will be difficult to sell because it may be isolated from the road or without services etc – however this seems like another decision made by bureaucrats who have little understanding of the repercussions or without consideration for alternatives.”

One solution, according to Mr Baldwin, would be for the developer to demonstrate their capacity to complete the project without the benefit of graduated settlements. This would ensure no buyer is at risk and the bank’s funds would be secure, he said. Alternatively, the developer could be required to hold the funds as a security bond for the lenders, he suggested.

Mr Baldwin said the changes as they stand will have far-reaching negative effects on the housing market, and in turn, investors.

“This is another fairly radical decision made without sufficient consultation or warning and one that has the capacity to cause enormous harm to developers, the building industry and a stream of supporting trades.”

Off-the-plan projects at risk
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