Finally, the original story from cache. The link below may no longer work.
theaustralian.news.com.au
THE AUSTRALIAN -- 23 December 2003
Tycoon's unit default alert
By Robert Gottliebsen, Geoff Elliott and Elizabeth Colman
Sydney and Melbourne are about to experience their biggest residential property crisis in a decade with thousands of people forced to walk away from settling on off-the-plan unit purchases - and lose their deposits - because they can't raise the money.
Australia's largest unit developer, Meriton's Harry Triguboff, estimates that on the basis of current experience about 30 per cent of the Sydney units purchased off the plan and coming up for settlement in the next six months will be handed back to developers. If Mr Triguboff is right about Sydney, then in Melbourne the default percentage will be much higher than 30 per cent.
Mr Triguboff said it was a "bank-created problem which could become very serious".
Default rates that high would cause big losses for both the buyers and developers, leading to much wider ramifications including a further fall in the overall real estate market, particularly in resort areas.
The comments mark a sharp turnaround for Mr Triguboff, who told The Australian six months ago he would tell Treasurer Peter Costello, who had warned of a property market correction: "There is no oversupply - it's all bullshit."
Developers such as Mr Triguboff say it was the banks' easy credit that played a big role in the large number of units that have been constructed and it is the banks who have pulled out the rug - exactly what happened in 1990.
Some banks will lose heavily as a result of their dramatic switch.
Warnings of the downturn in the housing market have been a feature of investment advice for at least 12 months, but they intensified late last month when the self-styled property guru Henry Kaye called in the receivers to some of his companies.
But Mr Kaye's demise also came amid warnings last month from the banks about the pain in the property market and their own strategies to insulate themselves from the bubble bursting, namely by tightening up their finance to investors buying second and third investment apartments.
Gail Kelly, the chief executive of one of Australia's biggest home lenders, St George, had warned the Reserve Bank about the damaging effect of further rises in interest rates.
Ms Kelly said there had been a "a significant shock impact to the first rise" in rates. Since her comments there has been another rise of 0.25 percentage points to take the cash rates to 5.25 per cent. Standard variable mortgages have now ticked above 7 per cent, up from 6.5 per cent three months ago.
Brisbane, Adelaide, Hobart and Perth markets are much stronger, but they won't escape the fallout.
Mr Triguboff said that when people paid their 10 per cent deposits to secure their units they received clear indications from the banks that the units would be financed on settlement.
But now the banks are not prepared to lend the same amount as they were when the contracts were taken out.
So where firm lending contracts are not in place, buyers discover that they now need additional finance to complete their contract.
Those who can't raise the money face a grim prospect of losing their deposit. Their unit will then be sold and the price might be ugly if all the non-settled units are sold together.
Those with existing homes may settle their purchase contracts by taking out a higher home mortgage. Others could lose their homes. |
