Lenders should be required to provide off-the-plan apartment purchasers with a funding pre-approval that will last them until settlement according to iBuyNew CEO Mark Mendel. He explains that if banks are prepared to fund a development for construction, then they should take the same stance on providing finance when it comes to the buyers of those apartments. Hear Mark’s thoughts on that and the other challenges facing the off the plan market right now.
Kevin: I mentioned before the break I wanted to talk about off-the-plan sales, but there is another aspect to this that I want to talk about, as well, too. Lenders should be required to provide off-the-plan apartment purchases with a funding pre-approval that will last them until settlement. That’s according to a leading online property agency, which is called iBuyNew. Their CEO Mark Mendel joins me.
Mark, this of course is a major problem looming for developers, isn’t it? And that is, the funding of off-the-plan sales and whether or not purchasers will be able to settle.
Mark: Yes, it is Kevin. Hi. How are you?
Kevin: Good, mate. Thank you. And thanks for joining us.
Tell me what your proposal is and what sort of traction you’re getting for it.
Mark: It’s been brought to light, I guess, as the lending policies have changed over the last six months and they’ve become very tough very quickly for a lot of buyers. When a buyer is purchasing an off-the-plan apartment or a townhouse, it can be a lead time of anywhere from six months to 2½ years potentially when settlement will take place. The buyer might be in a position today under the current policies to be able to settle on that property, but in 18 months’ time, policy changes may be different.
Kevin: The banks have really tightened up, too, haven’t they? We’ve seen these moves by state governments – more recently, Queensland but in particular New South Wales and Victoria – making it tough on foreign buyers, too.
Mark: Yes. I think they’ve gone too far. I think foreign buyers should be paying some form of additional stamp duty.
Kevin: Why do you think that, Mark?
Mark: If they’re putting their money into Australia and they’re buying ahead of an Australian who’s missing out potentially, that additional stamp duty can be used to help the communities where they’re buying property. So additional parklands, upgrades to roads, etc. Why not give the local community the benefit of that while the foreigners might reside overseas? They’ve had the benefit of moving their money out of the country that they’re living in, investing in a stable political economy such as Australia, getting the returns that they’re after. Why not give something back to the community at the same time, as well?
Kevin: Yes, fair enough. But do you think 3%, which is what they’re proposing in Queensland, is too far?
Mark: I think today it is, because the Queensland economy has really taken a hit over the last six months. But they could have done it at 1.5% to start off with and then raised it over time. You have to remember in Queensland you’re still paying another 4.5 odd percent stamp duty as a local buyer where if you look at Victoria, when you’re buying off the plan you pay next to nothing in stamp duty. So they can raise that additional stamp duty to 7% because there’s really no other stamp duty to pay.
Kevin: There is another thing that I wanted to very quickly talk to you about, too, Mark, and get your impression on this and that is off-the-plan sales. They seem to have been tarnished a lot because of the number of spruikers who tend to lean in that direction – in other words, this is the sort of stock that they sell – which to me seems very unfair because there are some very, very, good developers around Australia. Pellicano is one that I’ve mentioned this morning. They have a great reputation and you know if you’re buying through them, these guys don’t sell through spruikers; they have their own sales people.
Mark: Unfortunately in the real estate game there is a lot of money to be made by spruikers, which is why they’re there in the first place. Our company, iBuyNew, when we sit down and we talk to a developer, it doesn’t matter whether they’re ASX-listed or a one-man band, we do our due diligence on them and we make sure that they’re going to deliver the product they say they’re going to deliver and that our clients will end up with the right product.
I think the message to buyers who are looking off the plan is it’s not a problem as long as you’re buying through the right company. Unfortunately a lot of people are not educated enough about it and they go to a spruiker who ends up selling them something that’s overvalued.
If I look at our last 700 transactions at iBuyNew, I think less than 1% have come in under value, which is a pretty strong record in the industry.
Kevin: A very strong record, yes. Good mate. You’ve made some very good points. iBuyNew.com.au is the website. Mark Mendel is the man.
Mark, thanks for your time this morning.
Mark: No problem. Thanks, Kevin.