Scores of apartments in a multimillion-dollar Sydney complex will be sold in one line by receivers after the project’s developer fell victim to Australia’s property slump.
In a further sign of cracks in the apartment market, receivers and managers Newpoint Advisory are selling 61 units in the just-completed, multi-storey Elysee project in Epping in Sydney’s north-west.
The apartment fire sale follows Sydney and Melbourne being branded the worst performing housing markets in the country, dragging down national dwelling values by 4.8 per cent, CoreLogic’s December data shows.
Sydney’s home values have fallen to the same levels they were in August 2016 and Melbourne’s are where they were in February 2017.
The slowdown has seen apartment prices fall 7 per cent in Sydney and 2 per cent in Melbourne.
It has also prompted a gloomy forecast from analysts that the country’s largest real estate developers – Mirvac, Lendlease and Stockland – face a higher risk of settlements falling over, and a hit to their profits, because of their exposure to projects sold to buyers at the 2017 peak of the property cycle.
The property developer behind the 130-unit project in Epping is a little-known outfit called Gondon with links to a Chinese developer.
Gondon sold 69 apartments in the project, marketed as setting a “new standard in contemporary living,” before the receivers Newpoint were called in. They are understood to have been appointed by an offshore bank based in China.
A group of lucky Epping home owners scored more than $26 million in 2016’s frothy property market when Gondon set about aggregating multiple suburban homes along Carlingford and Cliff Roads to put together a “super-lot” development site.
The group’s only prior project in Australia was an apartment block called Macquarie in North Ryde.
Sale agents Colliers International and Newpoint declined to comment.
Median unit prices in Epping have fallen 2.26 per cent over the year to an average of $820,000, according to CoreLogic.
A one bedroom apartment in Elysee was selling for up to $788,000 and two bedroom units were going for $1.08 million before the project fell over.
Lending by Australian banks is down 22 per cent from its peak as the big four tighten the screws on investors, raising standard variable interest rates and ramping up scrutiny of borrower’s applications.
The country’s largest property players face an escalating risk of buyers failing to pay at settlement time because of falling apartment and land prices, analysts say.
“We see Mirvac as most at risk followed by Lendlease and Stockland,” UBS analysts Grant McCasker and James Druce said.
Apartment sales make up a significant chunk of earnings for Mirvac, in particular, over the next three financial years. In 2020, nearly one third of the group’s earnings will come from settlements in Sydney and Melbourne.
The most at risk projects are in Sydney’s Marrickville and Olympic Park which “appear already out of the money” because Sydney’s apartment price index has fallen 5 per cent since launch, the analysts said.
St Leonards could also become an issue were prices to fall a further 5 to 10 per cent.
“We are less concerned about Lendlease’s settlement risk given the price growth since the 2015-16 launch dates,” Mr McCasker and Mr Druce said.
Another major developer, Stockland, has minimal exposure to the apartment market but is banking on substantial earnings from land sales for new homes.
The number of buyers cancelling contracts on land purchases is presently low, but UBS warns that tightening credit, price falls, incentives and lower deposits will increase the number of struggling buyers.
There has been a documented rise in speculative land buyers trying to offload their purchase contracts on Gumtree and other sites, which adds to the risks.
“We expect Stockland’s second half settlements to disappoint as cancellation rates increase and settlement times extend,” UBS said.
Property experts believe there is more pain to come for the sector.
SQM Research’s property analyst Louis Christopher said, despite recent falls, Sydney and Melbourne’s property market are still overvalued.
“This downturn still has some legs to run yet,” he said Tuesday.
“Sydney and Melbourne remain heavily overvalued despite the price falls that have happened, there is an election just a few months away where negative gearing is at play, and the banks are still being very draconian on providing loans to the market.”
“We think there will be more price declines,” he said.
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