Apartment buyers in what will be Australia’s third tallest building, Brisbane’s 92-storey Skytower, are scrambling to find top-up funds after valuations ordered by banks dropped by as much as 25 per cent.
The developers, led by AMP Capital and Billbergia, have hired lawyers Norton Rose Fulbright to pressure the valuers to upgrade the new valuations for the apartments which they say are not fair.
The banks’ willingness to lend for apartments has been crimped by APRA caps on lending and the bank royal commission. They are now cracking down on the valuations of newly built apartments where they were once willing to lend.
Now that the construction of the Brisbane Skytower is nearly complete, property valuation firms have been engaged by banks as part of their lending policies to reassess the apartments now due to settle from their off-the-plan valuation.
The tower, which will rise 270 metres and add another 1128 apartments to the market, included one and two bedroom apartments starting from $425,000 in the low rise through to the “skyrise” part of the tower where apartment prices started from $595,000. If the valuations come in lower, then banks lend less and the buyer has to stump up more equity to make up for the original purchase price.
In a letter obtained by The Australian Financial Review Norton Rose Fulbright partner Christine Small said the firm’s client would have “no choice” but to “take further action” if similar valuations came through.
“We are instructed that the provision of an inaccurate valuation … in respect of an apartment in Skytower has the potential to cause significant financial loss to our client and any purchaser who is unable to obtain finance as a result of inaccurate valuation of the Skytower apartment they have entered into a contract to purchase,” the letter said.
Over four pages, the law firm argues where the valuations are not adequate. It cites how other brand-new apartments such as Sunland’s Abian development or Consolidated Properties’ Spire Residences were not used as comparative sales. It also critiques the valuations on the basis of building age, its views and its “superior” rental income.
The two valuation firms which have been redacted from the letters declined to comment on the grilling they received. However, sources told the Financial Review that the comparisons were legitimate given the quality of the apartments.
An AMP Capital spokesperson said the key concern was the level of accuracy on the valuations.
“It’s in the best interests of the purchasers and our investors that the valuations are fair, equitable and comparable to other sales in the market,” he said.
Some valuations in other parts of the tower have come in at 6 per cent below the original purchase price while others have come in above their original purchase price.
There have been numerous complaints in Brisbane in relation to the variance of valuations across multiple apartment developments. One developer collecting data showed that the average time spent on site for 58 valuations was just over four and a half minutes for each apartment.
Some apartments in other developments in the inner city area of Brisbane have sold this year at losses of as much as 27.6 per cent compared with their original off-the-plan purchase.
Some developers have complained that banks have pressured valuers to be severe on values to help excuse them from lending their original approved amount.
The chief executive of the peak body for valuers in Australia, the Australian Property Institute’s Amelia Hodge, defended the valuers on Wednesday, saying their methodology is professional and should be independent of the developers.
“We are alarmed that some developers may be setting a very dangerous precedent, in a market clearly shifting, by explicitly threatening legal action if they do not value in accordance with the developer’s requirements,” Ms Hodge said.
“It is clear that the property market is undergoing a cyclical correction, impacted further by matters raised during the course of the royal banking commission and the tightening of credit, particularly in off-the-plan contracts executed some time ago across several Australian centre.”
The Skytower is a bellwether for the Brisbane apartment market. In June debt investment manager MaxCap Group purchased major fund manager Invesco’s debt in the Skytower apartment project, which is being constructed by Hutchinson Builders.