Changes to lending criteria for survey strata house and land contracts will have "dire consequences" for many developers and are likely to kill many current off-the-plan projects, according to an RE/MAX managing director.
RE/MAX WA chief Geoff Baldwin said the changes will now require developers of survey strata projects to complete the project in its entirety before any funds are paid over by purchasers, resulting in significant extra holding costs to the developer, additional stamp duty to the buyer and inevitably, a higher purchase price.
“Whereas strata titled projects are required to be totally completed before the deal is settled, survey strata developments allow settlement on the land content and then graduated payments until completion, much the same as a conventional house and land package,” he explained.
“The banks are justifying these changes arguing that, should a developer not complete a project the land will be difficult to sell because it may be isolated from the road or without services.”
“However, this seems like another decision made by bureaucrats who have little understanding of the repercussions or without consideration for alternatives,” he added.
Mr Baldwin said one solution would be for the developer to demonstrate their capacity to complete the project without the benefit of graduated settlements, ensuring that no buyer was at risk and that the bank’s funds were secure.
“Another consideration could be for the developer to be required to hold funds as a security bond for the lenders,” he said.
“This is another fairly radical decision made without sufficient consultation or warning and one that has the capacity to cause enormous harm to developers, the building industry and a stream of supporting trades,” he added.