Apartment project pressure mounts

APARTMENT developers in the Perth CBD are preparing for the first wave of settlements on new projects, at a time when softening market conditions have left some projects unsold and others facing defaults on contracts.

About 500 apartments along Adelaide and St Georges terraces are due to settle before the end of the year, which some in the property industry believe is unrealistic in the current market.

Hegney Property Group head of research Simon Moore said there was a general consensus that defaults on deposits would occur, with a large amount of stock likely to be resold.

"I've certainly been hearing that there have been a significant number of defaults, but a lot will depend on how the developers handle it," he said.

Mr Moore said developers had different contract structures, some of which allowed them to increase prices if construction costs rose, with buyers retaining the option of walking away if that happened.

However, WA Business News understands that Saville Australia abandoned this approach with its Saffron project, after about 50 buyers elected to exit their contracts rather than pay higher prices.

Saffron will be one of the first apartment towers completed in the city, with settlement due in about eight weeks and pre-settlement inspections currently taking place.

Of the 154 apartments for sale, 20 remain unsold.

Saville director of sales and marketing Peter Gianoli said some buyers had wanted to get out before settlement, although he said most were now expected to settle because property values had gone up considerably in the three years since the bulk of the apartments sold.

Mr Gianoli said some speculators in the Perth apartment market had found people to buy-out their contracts before settlement - a trend that was likely to continue.

"I think there won't be as big a default rate as people are expecting, because as the market heated up, deposits became far more substantial. Some people will stand to lose up to $120,000 if they default, so I think a lot will try to settle," he said.

Saville is still trying to lock down a builder for its Altus apartment tower, at 141 Adelaide Terrace, having sold all but 30 of the 275 apartments available.

Settlement is not due for another two and a half years.

Other projects scheduled to come online include Diploma Group's Sky apartments at 148 Adelaide Terrace, which are two months away from settlement and due for completion in June next year. Only one of the 118 apartments remains unsold.

Diploma has also sold 63 of the 73 apartments in its Rise project across the road, due for completion in October next year.

Condor Developments' Condor Tower, at 22 St Georges Terrace, is expected to settle before Christmas, with more than one third of the 172 apartments in the development yet to sell.

The company's director, Lindsay Albonico, said there was an expectation that some people would not be able to settle their contracts, although there had been no indication of this to date.

Mandurah has been one of the worst affected areas since the property downturn began in WA, and several apartment developments have struggled to find buyers.

Primewest Management Ltd's Ormsby Terrace project, which is yet to start construction, has been on hold for months, after a marketing campaign introduced in January failed to sell the 12 apartments off the plan.

The company is understood to have put the site up for sale.

Mirvac has managed to sell the bulk of 100 apartments at The Point in Mandurah, but about 30 properties in the development are up for resale.

Professionals principal Kim Turner said along Mandurah Ocean Marina's Vivaldi Drive, two out of three properties - units and apartments - were for sale, bought by speculators at the height of the market.

High-end properties were also failing to sell, Mr Turner said.

"One owner was selling his penthouse for $2 million, and we've since dropped it to $1.1 million, and it's still not selling," he said. "It's a radical thing to say some properties have come off by nearly $1 million, but that's the way it is at the moment."