The number of buyers backing out of purchases on new developments and losing their deposits in the process is creating a new headache for developers, reports the Spanish daily ‘El Pais’. As much as 15% of sales are unravelling say experts.
Some buyers are forced to back out because the bank will no longer lend them a mortgage, others because they have lost their jobs. But many are also backing out because they would prefer to lose as much as 20,000 Euros of deposit than a potentially much larger amount of equity as property prices plunge.
The problem of buyers backing out after signing a private-sale contract and paying a deposit is illustrated by the latest half-year results published by Acciona, a large listed Spanish developer.
Acciona booked more deposits – 16 million Euros – in the first quarter of the year than it did in the first half of the year, which it closed with deposits of just 13 million Euros. The reason being that many of the sales made in the first quarter of the year subsequently unravelled, with Acciona having to return deposits.
El Pais reports that several investors in a luxury new development in the centre of Bilbao, in the Basque Country (North Spain), have forgone deposits of between 19,000 and 20,000 Euros per flat after backing out of the purchase. As some investors committed to buy 10 flats, that means losses of close to 200,000 Euros.
Why the rush for the exit? “Our clients have heard that prices are going to fall, or are scared of being made redundant, and we don’t know how to convince them that buying now is a good investment,” one developer is quoted as saying.
“At least 15% of sales are falling through, and I think that is a conservative estimate,” another property expert explained.
Some developers are suffering more than others, explains the article. Developers of holiday homes are suffering the most sales falling through, as people can live without holiday homes when the going gets tough. Developers selling cheap housing to first-time buyers and immigrants also have a problem.
Some developers are also now refusing to hand back any of the deposit, as liquidity problems make them cling onto any cash they can get their hands on.
Developers’ associations are placing all the blame on the banks for restricting the flow of cheap, easy credit.