People Walking Away From Deposits; Real Estate Agent Predicts

In 2016, it won't come as a shock if people will be willing to walk away from the deposit they place on pre-selling apartments, Phil McCarroll of Your Investment Property reports.

Douglas Driscoll of Starr Partners real estate agency is predicting that an addition from the present concerns with this year's off the plan sales will be that buyers will begin to find their prospective purchases as overvalued.

"In 2015, we saw a lot of developments granted planning permission but I think heading into 2016 we will see them feel a bit of pain because some purchased their sites on such narrow margins.  As market levels fall away slightly, some developers might struggle to cover costs," Driscoll said.

"Towards the end of 2016 we might start to see some investors potentially walk away from their deposits because they perceive that they paid too much for it in 2015 and see that it's no longer worth the risk," he said.

According to Driscoll, this tendency is a "knee-jerk" action which he doesn't recommend, but Mark Mendel of iBuyNew off the plan consultancy firm would like to disagree with Driscoll's forecast saying that it is a little off target.

"I think we would only see that if prices in Sydney had a rapid fall. If you look at the history of Sydney property cycles we have a period of strong growth for three or four years and then a period of six or seven years where things slowdown a bit," Mendel said.

"I don't think people are at the point where they're ready to lose their deposits, I mean something like $70,000 or $80,000 is a lot of money. I think people will be more likely to take the rental return and wait until capital growth picks up again," he said.

For Mendel, the walking away is a nonissue, but he recognizes the possibility that some projects may never eventuate.

"I think we'll see a drop in the level of activity. A lot of the developers who bought sites on option aren't going to go through with it and they'll hand the land back.

"We'll see construction drop off, but the bigger boys in areas like Green Square will keep going though."

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