This morning the paper read, “

Thousands of off-the-plan apartment buyers could face losses as a glut forces many Melbourne projects into limbo.”

There are two major property industry players trying to warn buyers about an oversupply of poorly located apartments in the development pipeline aimed at property investors.

Firstly, the general manager of developer Australand in Victoria predicted that 30 to 40 per cent of apartment projects currently advertised for Melbourne would not go ahead.
All the purchasers’ deposits are locked in and can’t pull their money out until the sunset clause in the contract expires in three, four and sometimes five years’ time.

About a fortnight ago, Max Beck, who founded Becton Property Group, had also put in an article in The Australian Financial Review of a potential slump in apartment values if the banks funded all the ”mega-projects” proposed.

Proposals for 33,451 new apartments in 293 Melbourne buildings are now being advertised to buyers. The figure has leapt from 18,585 apartments in June 2008. However, just 13 per cent of projects launched in the past two years have started construction, according to research by property agency Oliver Hume as stated in the newspapers.

Competition between projects for buyers, combined with stricter laws for foreign property investors, a slow-down in migration levels and the strength of the Australian dollar have resulted in disappointing off-the-plan sales for many of the developments.

The banks would control the market by confining lending for construction work to less risky developments in prime locations.

Major Banks were worried about a potential oversupply in Melbourne and looking to reduce their exposures by taking a hard line on lending to start construction. The Banks were shying away from projects where developers had little equity to put in or where off-the-plan sales had been largely to overseas buyers. Most banks were now refusing to lend to individual buyers for inner-city apartments. Buyers who had paid deposits could do nothing but wait their contracts out.

Although Melbourne’s been through the strongest migration ever seen, we expect a slowdown in overseas migration and negative growth in interstate migration, so that will impact the underlying demand for apartments in the inner city.”

Lower international student enrolments were forecast to dampen the rental market, another factor making banks nervous to lend.

This set us thinking, so how did Melbourne housing problems because oversupply overnight?

We could predict that the current Melbourne property market is largely a manipulated market. Mainly by the banks, the large land developers and smaller developers. And the bigger these players get, the bigger the manipulation. The government also has a big role in this as it “formulates” policy in immigration, rebates, first home-owner grants etc.

What this article does is lay out the difference between a shortage of housing in proximity to the City and Units built for speculative gain. Any investor that ‘buys off the plan’ falls victim to the overpriced, overhyped asset that has not had its value determined by the market value, Rents are usually exaggerated as these are hard to get tenants in. I believe that we had to read between the lines regarding these articles from the media.