PHOTO: FILE
A Wellington real estate agent who lost approximately $200,000 on a newly built townhouse says similar situations are unfolding across New Zealand. Mike Robbers, of Lowe & Co Realty, revealed that in 2020 he and his partner, Socheata, signed a contract for a three-bedroom investment property in Wellington that had yet to be built. At the time, ASB offered a 1.9% interest rate for new builds, and the anticipated rent would cover their repayments.
“The market was booming, our incomes were stable, and we expected that by the time it was completed, the townhouse would be worth significantly more than what we paid for it.”
However, by the time the property was finished and ready for settlement, the financial landscape had shifted dramatically.
“Interest rates didn’t just double; they quadrupled. Rents dropped by more than 30%, which was unprecedented. The townhouse was no longer a viable investment and had become unaffordable. Property values had declined to the point where it was worth less than the balance needed to settle.”
With a decline in their incomes, Robbers found himself unable to secure bank financing for the settlement.
“While this sounds like a disastrous financial situation, it’s one that many people find themselves in, caught off-guard by an extraordinary shift in circumstances. We ended up using a second-tier lender to settle, then did some renovations and managed to sell the townhouse within four weeks, but at a $200,000 loss.”
He added that the outcome left them with a larger mortgage.
“This is a common story right now, but it’s not often talked about, nor is the real impact explored. If 5,000 Kiwis have gone through similar experiences – which may be a conservative estimate – that’s a billion dollars in equity wiped out over the last two years. And if those properties were sold at a loss, none of that money is recoverable.”
Robbers believes the effects of these losses will be felt for decades, with retirement and investment plans dramatically altered.
“The silver lining is that people may start making more prudent financial decisions in the future.”
He noted that it’s not uncommon for buyers to struggle to settle on off-the-plan properties purchased at the market’s peak, especially as many of those homes are only now nearing completion.
“The landscape has changed so much for investors over the past three or four years.”
He added that it’s not just townhouses or apartments that are affected.
“People don’t typically broadcast their losses, and developers have no interest in publicizing that some of their units haven’t settled. The true numbers might never be known, but any real estate agent or mortgage broker in this sector will admit that it’s been a significant issue.”
Robbers also pointed out that banks have little flexibility in these situations, which is understandable.
“Banks operate in a very black-and-white way. If the property you bought off the plans has lost too much value and no longer meets their equity requirements as the settlement date approaches, they won’t lend you the money. They’re highly regulated and risk-averse. Some, like myself, have turned to second-tier lenders, which come with higher fees and interest rates, but at least allow you to settle and avoid legal issues.”
SOURCE: NZHERALD