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Bank decision could ‘cause enormous harm to developers’

by Staff Reporter10 minute read
The Adviser

Changes to lending criteria for survey-strata house and land contracts could stop many current off-the-plan projects, a real estate group has warned.

RE/MAX’s managing director for Western Australia, Geoff Baldwin, also warned there could be “dire consequences” for developers.

“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,” he said.

“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.”

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

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 added.

Mr Baldwin said the current changes would 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.”

[Related: RE/MAX-Vow joint venture recruits first brokers]

 

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