BUYERS should have to pay a bigger deposit for an off-the-plan apartment and make payments during construction of the large-scale complexes, one of the major banks suggests.

That would reduce the risk for developers and increase the likelihood that projects go ahead, ANZ argues.

Buyers in all states except Queensland currently only require a 10 per cent deposit for an off-the-plan purchase, with the remaining 90 per cent paid on practical completion of the development.

ANZ deputy CEO Graham Hodges said there was a reasonably substantial risk that conditions could change during the approximately four-year period and the value of an apartment purchased off the plan today could be worth 10-20 per cent less.

ANZ says the 10 per cent deposit has proven to be an inadequate pre-estimate of the loss a developer suffers if a buyer does not complete a contract, and banks therefore require high levels of equity from developers to finance apartments given the presale settlement default risk.

Other markets require purchasers to make payments during construction, ANZ’s submission to a federal parliamentary inquiry into home ownership also noted.

‘In Queensland they looked at not requiring but having up to a 20 per cent deposit which derisks the project for the developer to some extent, enables easier finance for the project and therefore contributes to a likelihood that projects would go ahead,’ Mr Hodges told the inquiry on Friday.

He said one of the factors constraining housing supply was that risk on bigger developments was being borne by the developer and not shared as equally as under a normal home build.

‘To ensure the sustainability of the supply chain, and to protect the industry against a downturn in Melbourne or Sydney, consumers should carry more of the risk,’ ANZ’s submission said. ‘This is likely to lead to increased funding availability, reduced funding costs and earlier funding of projects.’

Posted by Megan Neil – AAP on 15th August, 2015