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

Two major property players have broken industry ranks to warn buyers about an oversupply of poorly located apartments in the development pipeline aimed at property investors.

Rob Pradolin, general manager of developer Australand, which has $400 million in projects under way in Victoria, predicted that 30 to 40 per cent of apartment projects currently advertised for Melbourne would not go ahead.

”All those people who have paid 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,” he said.

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

His comments come less than a fortnight after Melbourne property stalwart Max Beck, who founded Becton Property Group, warned 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, according to research by property agency Oliver Hume.

The surge is a boon for the more than 500 real estate agents spruiking apartment developments to local, interstate and international property investors. However, just 13 per cent of projects launched in the past two years have started construction, a report by Oliver Hume showed.

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.

Freehills property partner David Sinn said 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.

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.

”The sheer volume of projects trying to get up at the moment is amazing and there is only a certain pool of money available,” he said. ”The pool is insufficient to service all those projects.”

Mr Sinn said 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.

The head of property research at Macquarie Bank, Rod Cornish, said steep price rises for Melbourne apartments in the past year had enticed developers to launch more projects.

The trend was reflected in a record spike in building approvals, but did not mean all the projects would commence. ”Melbourne’s been through the strongest migration ever seen,” he said. ”But 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.”

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

Mr Pradolin said that after a rush of apartment proposals to meet the housing shortage, there may now not be enough renters for one and two-bedroom apartments. He said apartment projects targeting owner-occupiers would fare better.

”Good apartment projects in good locations will always be in demand, but it’s the projects in secondary locations that have increased in number and that is where buyers need to be more much more cautious.”

Oliver Hume’s report showed that 90 per cent of all apartment sales in the inner city in the first half of this year were to property investors, many from overseas.

A proposed $85 million Southbank tower, the Verge Development, is believed to have been delayed by six months because not enough people have registered interest to begin construction.

The owner, DEC Australia, is also believed to be trying to sell another site, the City Wedge site on City Road, for which former planning minister Justin Madden approved a $600 million development up to 39 storeys high. A nine-storey development, 3181 Prahran on Commercial Road, has been deferred indefinitely and its building contracts cancelled.

Buyers of apartments in Baracon’s Wrap tower at Southbank, which had reportedly been up to 90 per cent sold out for more than a year, were in limbo while the developer tried unsuccessfully to on-sell the site mid-year. It is now believed to be reconfiguring the mix of apartments.

Story by Marika Dobbin www.domain.com.au

Tags: apartments, marketing, property, real estate, units

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