Off the plan purchasers in Melbourne lose out

Resales of apartments bought off the plan in Melbourne are producing significant losses for their owners. offplan

AFR Weekend has found numerous examples of apartments in Melbourne’s Docklands, CBD and Southbank are being resold up to 24 per cent below their previous off-the-plan purchase price, catching out vendors many of who had negative equity – when they sell the proceeds don’t cover their mortgage.

Many of these were small studio or one-bedroom apartments bought from investment companies or spruikers.

Apartment asking prices are down 24 per cent in some instances
Source: AFR Weekend

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Last year  WBP valuers conducted a study of 1794 off-the-plan sales in Melbourne between December 2009 and August 2015, found that half of all off-the-plan properties were valued at a minimum of $1,000 less than the purchase price with the average loss being $40,000 or 9.4% .

In Central Melbourne, the fall was greater at 11.5 per cent.

More pain to come:

And it’s likely the situation will worsen…  

Between them, our capital cities of Brisbane, Melbourne and Sydney stand to add tens of thousands of apartments to their city skylines over the next few years.

This heightened level of construction activity is leading many property analysts and experts to warn of an impending unit oversupply.

At the same time the world of finance has changed and this recently caused Michael Yardney to warn that there is a ticking time bomb waiting for off the plan purchasers.

Not only will some under capitalised investors lose their deposits, but it will put some property developers under severe financial strain.

Especially since many banks are restricting lending to off the plan apartments to local investors at a time when the number of overseas investors is waning as they’re also having difficulty getting finance.

Want more of this type of information?

Kate Forbes


Kate Forbes is a National Director Property Strategy at Metropole. She has 15 years of investment experience in financial markets in two continents, is qualified in multiple disciplines and is also a chartered financial analyst (CFA).

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