Off-the-plan apartment buyers on Gold Coast losing deposits because of lowball valuations

Real estate insiders have revealed the real reason why off-the-plan apartment buyers are losing their deposits in the wake of the Royal Commission into banking.

Finding the money to settle an apartment purchase can be difficult when a valuation comes up short.

APARTMENT buyers are having to find up to $60,000 to settle purchases because “highly-conservative” valuers are lowballing apartment prices in the wake of the Royal Commission into banking, says a real estate veteran.

Knight Frank’s head of project marketing Chris Litfin said homeowners were scrambling to make up the difference between the contract price and the conservative valuations.

It can be years between a buyer signing a contract for an off-the-plan apartment and settlement being called, by which time the market can soften. Banks will generally lend 90 per cent of the loan-to-value ratio (LVR), however buyers have to make up the difference if there is a shortfall between the valuation and purchase price.

Finding the money to settle an apartment purchase can be difficult when a valuation comes up short.

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In one case a buyer for a unit in a Mermaid Beach building signed a contract for $590,000 and the valuation came back $70,000 lower at $520,000.

The buyer could not get finance before the settlement deadline, had his contract cancelled and lost the deposit.

Mr Litfin said some valuers were being highly conservative in the wake of the Royal Commission on banking.

“I believe there is a disconnect between valuers and buyers,” he said.

“In our experience we are seeing buyers actively out there in the marketplace and their assessment of value is higher than what the valuers are reporting.

Valuations at the first Ruby tower reportedly came up short on contract prices.

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“We’re seeing valuations up to $60,000 lower than purchase prices in some cases.

“But mostly the buyers have been able to come up with the difference.”

However, Gold Coast valuers and mortgage brokers say this is an extreme example and most valuations have come back either above or close to the purchase price.

Herron Todd White director and valuer Tod Gillespie said valuations coming $60,000 below the purchase price were rare.

“I don’t remember the last time I saw a valuation that was $60,000 below purchase price,” he said.

“We’re seeing things that are $20,000 under but it is market dependent.”

Off-the-plan apartment sales make up an important part of the Gold Coast property market. Pictured is Inspire, a project slated for Labrador by Richard Cavill.

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He said the market had changed in the past two years, so buyers signing contracts in 2017 were experiencing a different environment now. The unit market peaked two years ago but is declining now.

However, Mr Gillespie rejected accusations valuers were acting conservatively due to factors such as the Royal Commission.

“We’re interpreting sales happening now. There is no external influence on how we do a valuation. We look at the market evidence.”

Mortgage broker James Hasselle, who runs Mortgage Choice offices in Miami and Burleigh Heads, said valuations had been strong for his customers buying off-the-plan in southern projects.

“We had five in Palm Beach settle at the beginning of the year, all valued up,” he said.

“The worst I had was an apartment contract for $576,000 where the valuation came back at $555,000.

“It is nothing like we had during the GFC with projects like the Hilton in Surfers Paradise where valuations were $100,000 below the purchase price.”

Mr Hasselle said there was always a risk when buying off the plan.

“People buying off-the-plan have to make sure they have something extra put away in case the development does not support the price they are paying.”

Mr Hasselle said it was important to take into account ratings lenders place on certain suburbs seen to be more of a risk such as Surfers Paradise and Broadbeach.

“A lot of lenders will not lend 95 per cent of the loan-to-value ratio,” he said.

“For example, CBA in Mermaid Beach will only lend up to 90 per cent of LVR inclusive of mortgage insurance.”