Wednesday, February 22, 2012

Perth Apartment Fire Sale Starts

Why would anyone buy a Perth Residential Apartment in today's market when you have these market conditions like this.  

"Receivers Appointed to Equus Apartments Complex
 ( page 51 of The West Australian  (21-12-11) 

Prime Apartment complex right in the centre of Perth CBD. Opposite the Perth Town Hall with views across the Town Hall & Supreme Court Gardens to the Swan River that can never be built out. So the location just does not get any better than this.

Luxury Apartment with quality fittings, ample sizes & many with 2 car bays included.  In 2008 these apartments were flogged off the plans to overseas "Investors" {Speculators} when the AU dollar was low. If you were a "Overseas Speculator" & you bought one of these Apts in Jan 2009 for $1million AU you would only have to actually pay $600K in US Dollars & a $60K US deposit. 

Fast Forward 3 years & its time to settle & make final payment. Guess what the Au dollar has gone through the roof & that US$600K apart you were going to buy in the heart of Perth is now going to cost you US$1,050,000 or 75% more. 

In 2008 these speculators might have thought it was pretty good value at US$600K but @ US$1.05 mil in 2011 when the time had come to settle on completion of the project it was quite simply not worth it. Besides many may have had $600K US to invest or the ability to borrow that much, but most could not get access to the $1 million plus they would need to go through with the deal even if they wanted to.

Now these overseas speculators paying with US Dollars have only put a US$60,000 deposit, so thats all they really have at stake, so they have simply walked away & forfeited their deposits rather than pay 75% more for a apartment that since also fallen in value from when they first signed up in 2008. Not really a hard choice for them to make pay US$1 mil for a Apartment in 2011, that will be worth US$500K or less in 2012 or forfeit your $60K deposit & walk away. It is a no brainer!

But all is not lost for some overseas speculators. Had they paid cash up front say US$600K in 2008  for their AU$1 million Dollar Apartments & these apartments have now dropped to say AU$650K they can still sell at this price & with the higher rate of exchange still walk away with US$600K. But the  "MUM & DAD" Aussie property speculator buying & selling in AU Dollars don't get this "Get Out Of Jail" one off escape.

(Remember that this applies also to the tens of thousands of overseas investors who bought property right around Australia in the last few years if AU property implodes they can sell at 40% or 50% discounts & still make money but Aussie cannot they are trapped with the losses)

Anyway back to EQUUS Apartments

Now 2 months have passed since the receivers were called in & they have now started advertising these apartments in a "Low Key" manner with no reference to it being a disposal or fire sale. 

A friend of mine spotted this advert in today's West Australian & rang their number to find out a bit more info on prices. He was given the usual spiel that there was huge interest with many sales & offers streaming through the door so better hurry or miss out etc etc etc ...{Yeah right} 

See examples below of some of the before & after prices provided to him on the phone. Discounts on offer typically 30% -50% off original off the plan prices that people had signed up to just 3 years earlier. 

Apartments that were $715K (US$429K) now $599K 
( Overseas owners can Still dump at this price & make a profit but the Aussie buyer is trapped )

Levels 18 – 25 2 bedroom + study, 2 bathroom 106m2 living, 72m2 balcony, 11m2 storage and 2 car bays
Panoramic views to the North and over the Perth Skyline
Were $1.6 million (US$960K) now from $950K  ( OS owners can sell & Still dump & break even)

 Apartment on floors #20 & #25 that were $2,200,000 now slashed to $1,175,000 (That's a $1m discount)

Apartments on other floors that were sold or selling for $1.2 million to $2.0 mill are now being offered at prices from $750K to $1.3 mil.

Now remember the receivers are "Duty Bound" to try & get the best price they can for the banks etc that have been left holding this steaming pile of debt, so they are going to market with these prices to test the water & may find no buyer or little interest, they would then adjust prices down further to meet the market.

Perth is awash with failed "Luxury" apartments that have not sold (Oceanique 40% discounts, One Brighton 35% discounts, Mirvac Leighton Beach 30% discounts, Multiplex Living Leighton 40%, North Bank 45% , etc etc etc)

But if you have middle level or priced apartments in the Perth CBD either completed recently or about to be completed shortly I would not be feeling too Smug, these EQUUS Apartments that were priced at the luxury end of the price scale have now dropped in price to the middle level scale causing apartments at this level to look overpriced.

My banking contacts have reported 30 apartments in the middle price range (Under $500K) in the Perth CBD that have come up for settlement  in January that have failed to meet Bank Valuations by 25% !!! In other words an apartment which sold in 2010 off the plans for $500K that may have been approved for finance up to $400K is now lucky to get bank approval for $300K in 2012 when the construction has been completed & settlement needs to go through.

A big gap to be made up by potential buyers & that's just the finance, the property's overall value has actually  dropped by 25% or $100,000 so many are simply throwing their hands up in the air & looking for clauses or excuses to walk away from their obligations. Few will get away with the "Bank Won't Give Finance" excuse because they were not astute enough to put a "Subject to Bank Valuation at Settlement" clause in the contract  they signed up to a few years earlier, why would they? "Property Only ever Goes Up" so the need for this was deemed unnecessary!!

If your about to sign up for a "Off the plan" contract in today's property market test your developers (or better still their Bankers) confidence in the value & stability of their project & insist on this safety clause being a part of your new contract.  "Subject to Bank Valuation at Settlement"

But I ask this question again. What is happening in Perth we are supposed to be in a "Mining Boom" & these apartments were all being built on "SPEC" that hordes of "Rich" "Cashed Up" miners would descend in droves snapping up all these apartments at any price?

Just think if this is happening in the so called "Boom State" what hope for the rest of Australia.


  1. Great news! Looking forward for this to spread to the other states.

  2. Hi Not Fooled...Forrest Gump Here. Thanks for the article. It may be interesting to note that many of these apartments have a caveat attached that prevents the new owner from advertising the unit to be for sale on the site, until such a time (as deemed by the developer) that all the unsold apartments are sold. In other words, as you have suggested the over seas speculators seeking to dump their properties will not be able to advertise and place for sale signs up at the complex until the developer himself has sold all the apartments. Im not sure if this is the case here, but most new home development sites have this caveat placed on buyers at the initial sale.

  3. Its very informative and interesting article.all the points are very useful. Simple but very effective writing. Thanks for sharing such a nice post.
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  4. Yes good article, Perth does have many overpriced apartments and no doubt many more are coming onto the market, further lowering the prices.

    Not Fooled By Property Spruikers Hype ... you really should consider going onto a radio programme, something like 'Howard Sattlers' show ..... just to stir some common sense into people and the real estate market. Guarantee you will be a big hit!

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