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There’s been plenty of speculation that off-the-plan investors would eventually be hit the hardest by APRA’s lending changes – now evidence has emerged that they already have been.
SMSF investors in Sydney’s mortgage belt are scrambling to come up with larger deposits in the wake of revised lending guidelines – in some cases being forced to negotiate for longer settlement periods or even bargaining for a return of their initial deposit.
Mr Ristevski, who deals with hundreds of SMSF clients, said that around one in three of his clients with off-the-plan purchases that are yet to be settled were considering forfeiting their apartment deposits, due to the financial stress imposed by increased loan to value requirements.
“With the APRA changes and the banks changing their criteria, with an SMSF for example, you get a loan approved at 80 per cent and when it comes time to settle, the bank is now saying ‘Sorry, we only do 70 per cent now’.
“That means the investor has to find the extra 10 per cent – now for an average purchase in Sydney of $600,000 odd, that’s $60,000. It’s very hard to find that, especially with six weeks to settle. There’s a lot of scrambling, them having to try to find the money sometimes through second mortgages and making an un-deducted contribution into the super fund,” he explained to Smart Property Investment.
He’s already witnessed clients’ investment plans become affected by the lending changes, which began trickling in during the middle of the year, with five clients having abandoned their purchase.
“On some of them we’ve had to negotiate for a longer settlement, even though the property’s been built. In one case in particular we were lucky enough to get the deposit refunded back to the client because the property value had gone up, so we've been lucky in that respect. But once the property market starts declining, I don’t think we’re going to be as lucky,” he said.
Mr Ristevski predicts a significant decline in new apartment values as a result of the lending changes, stating that the situation was likely to worsen if the banks decided to apply even stricter limitations on lending.
“I see values coming down as a result of these changes in LVRs. People not being able to settle, units going back on the market, new buyers not being able to leverage as much as they used to, and the banks will virtually dictate how strong our property market is, rather than the market itself.”
Although he expects all housing markets to eventually be affected, the amount of new stock in Sydney’s south west means that it is particularly susceptible to negative change.
“We’re in the mortgage belt of Australia, south-west Sydney, in particular Liverpool with the second airport – there’s quite a large number of apartments getting built in our area. One section of the river will have about 10,000 apartments – that’s a lot of apartments,” he said.
That prediction echoes recent concerns by Charles Tarbey, CEO of Century 21 Real Estate Group, who highlighted the current exposure risk of buyers in markets such as Penrith, with particular regard to off-the-plan developments.
“A property in Penrith that was $300,000 two years ago, is now selling for $700,000. It could just as easily go the other way, particularly if interest rates climb,” he told Smart Property Investment’s sister publication, Real Estate Business.
Listen in to The Smart Property Investment Show discuss this and more in the latest podcast.
A self-managed super fund is a private super fund that provides benefits to its members upon retirement, directly managed by an individual for their benefit and in compliance with super and tax laws.