Stamp duty, legal fees and agent's fees could strip another 10 per cent of the buyer's capital, or a loss of $150,000 on the same apartment. These losses are compounded if the currency exchange works against the overseas buyer and additional foreign taxes are included.

"A large number of buyers are from overseas and China," says Kelly. "They will judge their money in bricks and mortar in Melbourne and a safer haven even if a loss is evident. Like all investors, if the market is below what you paid, then why sell now."

Losses have also been offset by the comparative strength of the Australian dollar.

"There has not been enough stock being resold into the market to be an influence or to catch the eye of the main research houses," Kelly says. "Like the Australian mining industry the real trouble will come if the Chinese stop buying."

Lenders and regulators are introducing procedures to ensure that valuations provide more accurate, timely and thorough assessments.

Final valuation

That means final valuations are conducted only when the valuer can go on to the building site and walk through the building, which because of occupational health and safety rules is typically a few weeks before completion.

"Lenders are tightening up to make sure their risk is being managed well," says Mike Zissler, chief executive of valuers' association the Australian Property Institute.


About 60 per cent of lending applications for all properties (not just off the plan) require a third party valuation. The rest are handled by banks internally using their existing database.

The new rules agreed to by lenders and valuers apply to new apartments, property with three or more dwellings on one title, mixed residential/commercial properties and display homes.

It is considered "best practice" by both valuers and lenders because it provides all parties with the most up-to-date information based upon a range of criteria, ranging from market conditions to quality of finish.

In the past many lenders would make approvals based on the building's plans or desk-top valuations, based on nearby properties or similar structures.

Off-the-plan buyers need a conditional approval at the project's outset based on criteria such as position, fixtures and size.

There is another valuation on completion.

Last inspection

The final inspection involves spotting any differences in the quality of finishes between the show room and the completed apartment, variations in size, whether car spaces are included on the same title as the associated unit, quality of the view and general amenities.


There are also differences in rules between states and territories that can influence the valuation.

For example, in Victoria, balconies, car park and storage cages (which can boost an apartment size by 5 per cent on property titles) are not included in the advertised size.

Problems can arise for borrowers if the completed apartment's value is less than the original price, either because of market movements or inferior construction.

Australian Prudential Regulation Authority is also warning lenders to pay closer attention to the kind of apartments being developed, particularly those that are poorly located, small and lacking amenities.

The volume of new apartments is approaching the average number of apartment sales overall in the past five years, according to analysis by CoreLogic.

This problem is most acute in Perth and Darwin, where apartment prices are falling by more than 6 per cent a year, according to SQM Research.

But a market correction, which might result from rising interest rates caused by a steep increase in wholesale borrowing costs, could weaken confidence and encourage buyers to dump stock.

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