Apartment Pre-Sales Risks Expose Big Players
A recent assessment by UBS has painted a grim picture for Mirvac, suggesting they are facing the greatest risk of escalating apartment settlement defaults brought about by the tightening credit conditions and falling prices.
UBS estimate that nearly a third of Mirvac's revenues over the next 3 years will come from apartment settlements in Sydney and Melbourne, nominating Sydney Olympic Park and Marrickville as already out of the money following recent price falls.
UBS also nominated Lend Lease and Stockland as other groups to face similar issues. Stockland is more heavily weighted to land sales which hasn't seen the same impact on investor lending, whilst Lend Lease's projects are less recent and therefore less impacted by recent falls.
The evidence of pre-sale defaults is mounting and whilst Mrivac, Lend Lease and other major players have noted minimal impacts so far, there are many developers facing more significant issues.
This week an agent an Sydney commenced marketing on behalf of a Receiver the in one-line sale of 64 apartments which formed 50% of a recently completed development suggesting that close to 50% of buyers defaulted on their sales contracts. The project was heavily marketed to foreign buyers who have had the added challenge of exporting capital from the home country in addition to tightening credit conditions for local finance.
We expect many more receivers and managers to be appointed to similar projects over the next 6-12 months as the credit conditions and drop in values start to bite.
Stockland closed the week at $3.76 per share, down from a 52 week high of $4.36 per share (-13%).