How to Reduce Your Settlement Risk

Amid conjecture of an apartment market glut in Australia’s major cities, settlement risk minimisation strategies have been a hot topic for developers over the past 18 months.

In that time, the residential development market has undergone some major changes, with APRA’s lending interventions and restrictions on foreign investments triggering a wave of defaults.

The flow on effect has created uncertainty, undermining positive sentiment in the apartment market.

So, what can be done to mitigate potential settlement risk in a market that doesn’t respond well to a “one-size-fits-all” approach?

Improve Your ROI

Due to excess supply in some pockets of the market, renters have a lot of options to choose from and investors, having budgeted on compressed yields early in the pre-sales process, may be caught out.

“In a stagnant rental market, we find that the inclusion of a furniture package can make the difference [for purchasers to settle]. Developers providing these incentives can ease the purchasers' concerns by achieving an increase in net rental yield up to 20 per cent,” Conias said.

The Pre Sales Process

In a restrictive lending market, the ability to raise finance will generally tip potential buyers over the line.

For the most part, buyers want to settle just as much as developers do. A buyer’s settlement risk is increased by borrowing limits, restrictive lending policies and changes in their financial circumstances.

“Settlement is a key goal of a property developer and PPS specialises in accelerating the presales process in high-density residential developments throughout Australia,” PPS managing director Marc Conias said.

Conias says that “well-dressed” properties don’t tend to suffer from sluggish demand.

Be Prepared to Wait

While there has been a drop in foreign buyers across the nation’s major housing markets, it’s not all doom and gloom – buyers are just taking longer to settle.

Financial advisory firm Ferrier Hodgson said that while buyers are taking longer to settle – time frames doubled from two to four months in the Brisbane market – buyers are still settling their contracts and sourcing finance where required.

In fact, Queensland-based developer Sunland group reported a 314 per cent uplift in profit in the first half of the year, achieving 238 settlements compared to the 204 in the previous corresponding period.

Communication

Maintaining a conversation about settlement from the earliest stage is vital, providing regular updates to buyers through newsletters on how construction is progressing, or other handy information that will maintain your relationship with buyers.

Off-the-plan buyers often place a deposit two years prior to the completion of a project.

Contacting buyers early on to help guide them through the settlement process is important – with evidence that the rescission rate for developers who maintain communication with buyers about finance and funding is substantially lower.

Pre-settlement surveys can also yield some great insights as to what your buyers value most and allow for minor design changes that may not have been initially conceived, but will make a huge difference to the occupants of the building.

Know Your Buyer

Owner-occupiers and first home buyers are the growing demographic of buyers to watch – taking up close 40 per cent of the market.

Understanding the mix of occupants in the development will allow for appropriate allocation of marketing, and even allow for the creation of user profiles.

When it comes to buying off-the-plan, these buyers want well-designed, well-furnished apartments. The interior design should be crafted in a way that allows a buyer to immerse themselves, prompting an emotional connection with the apartment.

“Allowing a prospective buyer to engage with the offering – regardless of the price point – by fitting out a property with contemporary and aspirational interior design is key,” Conias said.

“It allows the buyer to envision how the property can be lived in, used and enjoyed.”

The Urban Developer is proud to partner with PPS Furniture to deliver this article to you. In doing so, we can continue to publish our free daily news, information, insights and opinion to you, our valued readers.

For more on PPS Furniture visit their website.