Without a doubt, sky rocketing building costs are putting developers under pricing pressure but with years of low interest rates and a huge pipeline of residential and commercial projects in the pipeline, consumers are set to pick up the bill.
According to Anna Porter, Suburbanite Principal, valuer and market commentator, some projects that have already secured off plan sales are at risk of falling over leaving limited choices for developers and consumers alike.
“On the ground, we’re seeing some developers considering waiting for the sunset clauses to lapse which is awful news for buyers,” shares Porter.
“Sunset clauses are provisions in an off-the-plan contract that provides for the contract to be rescinded if the subject is not created by the sunset date,”
“Other developers are returning to the negotiation table with buyers to ask for more money even though the buyers are locked in to an off-the-plan contract at a certain price – which is a common occurrence,”
“Developers are asking for around 10%-15% increases in purchase prices from existing buyers to be able to start the project without the risk of it falling over financially mid-way,”
“Across the industry, costs are escalating as much as 25%-30% so with these figures developers are sharing the financial load with the buyer and not getting greedy, like we have seen in the past through our experience.”
So what happens if you can’t afford to pay more for an off-the-plan property?
“Unfortunately, if developers don’t get the higher prices they are asking for they risk the project going under,” warns Porter.
“Without an increase to the price consumers pay, developers are likely not able to stay afloat as it’s not viable anymore,”
“What we don’t want is developers having to cut corners on quality to make up the difference because consumers will suffer from this for years to come.”
Developers are going back to buyers who had already locked in a price before the construction costs escalation as it allows them to complete the building to the quality and standards they would have promised the buyer.
Porter warns buyers in off-the-plan contracts that locked in purchase prices 6+ months ago, before the construction costs skyrocketed to be prepared for the developer to restart negotiations.
“It’s important for buyers to remember that their property they are selling (if they are upgrading) will have also seen big value increases in the past months so they shouldn’t be, in most cases, any worse off,” she shares.
“It’s the first home buyers that may be in a tricky spot and not able to renegotiate.”
Porter shares some of her top tips for renegotiating;
“Firstly, always check with your bank or broker before agreeing to a new price to ensure you can get the larger loan,” she shares.
“Make sure you get the property valued by an independent valuer to ensure the new price stacks up in the market,”
Porter suggests also asking your developer what they have based their increase off.
“As a rule of thumb, increases shouldn’t exceed 20% or they are passing on all of the cost escalations to you,” she warns.
“The price rise needs to be shared by the buyer and developer,”
“Also, ensure the developers are seeking price increases across the building and not just your unit or part of the project – you shouldn’t have to carry the whole project cost escalations.”
Anna Porter also encourages asking the developer if they can provide a new sunset date in the contract if you pay more, so they can’t fall out of the contract as easily and getting an estimated start date in writing.