An Auckland agent says a flood of under-pressure developers coming forward to sell discounted developments in one go are likely to make big losses.
For every development being sold as a bulk buy, however, there are cashed-up buyers ready to step in and make a profit, Ray White agent Banson Chong told OneRoof.
He said the Government’s plan to soften the bright-line test from 10 years to two was a game-changer for wealthy buyers, making it feasible for them to take advantage of developers who had bought at the peak of the market with finance sometimes from second and third-tier lenders and who were now struggling to keep paying the super-high interest rates being charged.
OneRoof reported late last month Chong had listed 106 Triangle Road, in Massey, a development of 18 terrace houses that were being marketed as a “cash cow” and “the bulk buy of the century”.
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Chong said this week that not only was the Triangle Road property under contract with back-up offers, but there had been a rush of developers coming forward wanting to opt out of their developments.
There had been seven offers for Triangle Road since the story, with feedback from one potential buyer saying buying this project would be cheaper than building a similar project themselves.
Chong said in the first week after the story his team signed more than $60 million worth of new bulk listings, including:
- 22 terrace houses at 148-162 McLeod Road, Te Atatu South,
- 29 terrace houses at 250-252 Great North Road, Henderson,
- Seven terrace houses at 14 Roland Hill, Glen Eden, and
- Seven terrace houses at 13 Crosby Road, West Harbour
“Developers just want to clear all the stocks. They are willing to provide big discounts and ready to move on to their next projects.”
Chong said he had cashed-up VIP buyers actively searching for projects to buy. Some had accumulated “huge equity” and were “very open” to completing the projects.
An 18-house development at 106 Triangle Road, in Massey, Auckland, is under contract. Photo / Supplied
One of the major factors enticing them to shop was the bright-line test changes which would mean they did not have to wait 10 years before they sold to avoid being taxed on the sale.
This meant they could buy and finish a project now, rent the individual units out for two or three years then resell the individual units for good profits.
“It makes the reselling very possible from the developer’s point of view.”
No one would be likely to take on a bulk project if they had to hold it for 10 years, he said.
Chong said the development at 148-162 McLeod Road in Te Atatu South was a “huge” development of 60 terrace houses and while the developer had sold most of them, 22 remained and he wanted to get rid of the lot.
“He’s happy to provide a huge discount to the buyer who is going to buy in bulk.”
Chong said it was “very unusual” to sign over $60m worth of property in one week but he said suddenly people wanted to cash up and were considering certainty over price.
Developers who bought at the peak of the market are struggling with high interest rates. Photo / Getty Images
They had seen that high interest rates were not looking at abating any time soon and they had seen stories that the number of new listings on the market was increasing.
“Everyone’s expecting the sale of individual house will be taking much longer to sell but at the same time they are struggling to pay off the mortgage interest and that’s a cruel reality.
“I think more and more developers are going to face liquidity issues,” said Chong.
He said the lucky ones would have obtained finance through a mainstream bank, but added that most had not gone down that route and that meant paying a higher interest rate through second and third-tier finance companies.
On top of interest rates of perhaps 13% or more, there were application fees to be paid back as well.
Some developers were selling in bulk to avoid being forced to a mortgagee sale, even though they were facing millions of dollars of loss.
Many had bought at the peak but the market had dropped 30%, he said.
“I have been dealing with mostly developers who entered the market at the peak and those are the groups that urgently need help.”
He had been getting inquiries coming from Singapore, Australia, America and locally, and he said there were “heaps” of people interested in bulk buying.
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