Banks wary of size may hurt apartment market. Property investors are being warned banks might refuse financing for increasingly popular 'micro apartments' being built around capital cities, particularly Melbourne and Sydney.
It comes as property professionals' row between themselves about how to accurately measure property and call on state and federal governments to provide national standards.
Richard Wakelin, chief executive of Wakelin Property Advisory, a property consultancy, said 'cookie-cutter' apartments less than 50 square metres are not cutting it with lenders.
Mr Wakelin said: “Banks' rules about apartment sizes are arbitrary but they are excluding micro-student apartments. They are also knocking-out some perfectly good smaller older-styled apartments.”
Apartments of between 40 and 50 square metres are being popularly marketed as accommodation for overseas students and investments for self-managed super funds.
Margaret Lomas, founder of Destiny Financial Solutions, a property investment advisory group, said the “tastes and life style needs” of the post-baby boomer generations are changing and that there is demand from small apartments. .
Ms Lomas said: “But the legacy opinion of the banks is that anything under 50 square metres is a risk because it might not have good resale prospects if there was a mortgagee sale. Some banks are considering under 50 square metres but under 40 is still very difficult.”
She advised investors or home buyers to have lending available when purchasing.
Advisers, property brokers and accountants are being offered commission payments from developers of up to 8 per cent of the sale price to recommend the property, more than three-times recommended payments.
The problem is biggest in Victoria where there is disagreement between developers and surveyors about whether apartments are measured from the inside, outside or mid-point of the perimeter wall.
That means a buyer could purchase the property at an advertised size larger than a surveyor's measurement used by the bank for assessing the loan.
Developers and estate agents usually measure from outside, resulting in a larger size than that considered by surveyors and banks, which typically measure from the inside.
Major developers claim they are happy to agree with industry-wide standards if introduced at the same time for all companies to avoid providing a marketing advantage to a competitor.
Banks have also called on the government to back national standards.
Buyers that have their loan application to the bank refused run the risk of delays while they find another lender, higher interest rates or losing their deposit, according to industry specialists.
Developers are concerned about a wave of breached contracts as buyers use it as an excuse not to complete on apartments that are worth less than their sale price, they claim.
Lawyers claim they are unaware of litigation but claim the huge increase in small investment apartments, some smaller than 35 square metres, could cause problems.
Mr Wakelin also warned banks are becoming “very uncomfortable” about apartment sales where any car parking spaces are not on the same title as the unit.
“Check with your lawyer that it is or that there is a clause specifying that dealing with the unit is restricted,” he added.
Source : http://www.theage.com.au/victoria/banks-wary-of-size-may-hurt-apartment-market-20140525-38wjw.html