Dwindling Chinese appetite for new apartments and tighter restrictions on lending to foreign developers and buyers threaten to collapse a market already facing a flood of 250,000 new units within two years.
Analysts are warning of the rising risk that foreign and domestic investor buyers, who comprise about 70 per cent of the residential unit market, will be unable to settle purchases under the banks’ tightened lending restrictions.
Melbourne property developers said off-the-plan apartment sales had weakened dramatically, while in Sydney Chinese developers were starting to sell apartment sites they bought only in the past few years because banks would not finance construction.
“Chinese buyer activity has reduced for the existing players,” said Andrew Antonas, director of Sydney-based Matrix Property.
“Chinese demand is falling off because it’s getting harder to bring money out of China and there’s more stringent financing here, so they are going for loans here through local banks, and local banks are not lending as much to these people.”
Mr Antonas said bank valuations of new apartments were typically 5 to 10 per cent below what the buyers had paid.
“We are getting a lot of inquiry from Chinese and local developers who have bought sites and who are now finding it difficult to get finance to build the apartment blocks,’’ he said.
Overseas apartment developers, faced with bank demands for business track records and solid pre-sales of apartments as conditions of lending for construction, are opting to sell their sites.
The Brisbane market for apartment sites faces a major readjustment, a senior property executive told The Australian, and many mooted apartment towers would now not happen.
“If you have a real project in a good location and you have an appropriate style product you will sell it, but if you have a cookie-cutter approach, in an average location with average product, it might be extremely difficult to get out of it,” said the executive, speaking on condition of anonymity.
Developers in Melbourne freely admitted yesterday that off-the-plan apartment sales were softening dramatically, though in Sydney entire newly completed apartment blocks are still selling out, particularly in wealthier areas such as the north shore.
“Local demand for off-the-plan apartments in Melbourne has softened as we see a tightening of lending requirements from the banks,” said Jonathan Hallinan, chief executive of BPM, which is developing 300 apartments in separate blocks from the Melbourne CBD through to Richmond.
Mr Hallinan, who has developed apartments for 21 years, said he had not lost any sales but even owner-occupiers could no longer borrow as freely from banks.
“The Melbourne market has softened because of the tightening lending requirements from the banks,’’ he said.
“Equity is becoming tight. Our sales are not down but we are working harder than ever before.”
Sales of new Brisbane apartments, particularly in popular locations, remain strong, but the market for established apartments is in trouble, with sales dropping 17 per cent in the year to April.
“No one is buying established apartments in Brisbane because of the heavy marketing of new units and the established stuff has trouble getting any airtime,” a heavy-hitting property executive, who asked not to be named, said yesterday.
Latest figures from property market analyst CoreLogic show sales for established Sydney apartments dropped even further — 18 per cent — in the year to April, while Melbourne’s sales were up 1 per cent.
CoreLogic head of research Cameron Kusher said both apartment sales and value growth were slowing.
“Affordability has become stretched over the past few years,’’ he said.
“We have seen tightened lending criteria from investors, while units are more than twice as likely to be owned by investors. That is probably contributing to the cooling.
“There is less activity from investors in the housing market than there was 12 months ago because the banks have made it more difficult to borrow, they need larger deposits and (investors) are paying a higher interest rate than owner occupiers.”
Mr Kusher said the problem was exacerbated by many units coming up for settlement in the same locations, competing with existing housing stock.
“With so much stock coming on line at once there is an increasing concern as to whether settlement valuations will actually meet the contract price of these units,’’ he said.
However, Ralan Group founder William O’Dwyer said he had just sold almost 100 off-the-plan apartments in Sydney’s north shore suburbs of Lindfield and Roseville within 21 days of registering the strata plan.
“The buyers were 70 per cent investors and 30 per cent owner-occupiers paying an average of more than $700,000 for each apartment,” Mr O’Dwyer said.
“It’s obvious the demand is there and it’s obvious Australians are still having a love affair with property in Sydney and other major capitals.”