One-in-three off-the-plan investors are facing financial stress completing purchase of their properties because of tough new lending rules, creating fears about a ‘flood’ of properties coming back onto the market, a veteran mortgage and financial adviser is warning.

Many property investors are considering forfeiting deposits rather than having to take out additional loans or find more funds to bridge gaps up to 20 per cent of the property value, warns Peter Ristevski, a partner with Chan & Naylor, a national advisory group.

“I fear a flood of investment properties coming back onto the market will drive down prices and force a correction,” said Mr Ristevski, who is also an accountant and councillor with Liverpool City Council.

He is repeating warnings recently made by national real estate group Century 21 Australia chairman Charles Tarbey about pressure on investors finalising off-the-plan property purchases.

Banks’ recent decision to require bigger deposits, typically a rise from about 10 per cent to 20 per cent has caught many investors that agreed to purchase on the earlier terms.

It is a particular problem for self managed super fund investors that have to find up to 30 per cent and are also ineligible for mortgage insurance because the loans are limited recourse, which means the lender has limited claims on the loan if the borrower defaults.

Mortgage brokers estimate there are 90,000 apartments being constructed around the country that have been sold off-the-plan but are not yet settled.

The buyers of about 20 per cent of these, or 18,000, have paid a deposit of just 10 per cent of the full purchase price, according to analysis of statistics from RP Data Core Logic.

Problems can arise when prospective buyers seek additional funding for the balance of the deposit in the lead-up to the project’s completion.

Mr Ristevski claims one-in-three of his clients that have invested in off-the-plan have problems.

He said his experience is replicated by his colleagues in Sydney and across the company’s national network of advisers.

“Many do not have an extra 10 per cent in cash to complete the deal,” he said.

Their options are to borrow additional money, possibly by taking out a second mortgage at a higher interest rate.

It is more pressing for DIY super investors who face caps on the amount of annual contributions into their schemes.

The federal government recently rejected recommendations from the financial system inquiry and retained limited recourse borrowing arrangements for the schemes.

This story was first published in the Australian Financial Review.