There has been recent publicity around a would-be buyer of a property exchanging contracts for an apartment. The Bank, prior to settlement, declined to finance the property because it was 47 square metres. The result? A very angry buyer who may potentially lose his deposit.
Both vendors of smaller sized apartments and potential buyers of those properties need to be aware that selling these types of properties is not always a straightforward process, particularly where finance is required to secure the purchase. We have seen cases where clients have been interested in buying a property that exceeds 50 square metres (which is often a benchmark criteria to lend for the bigger banks) but the internal living space is less than 50 square metres and they have been refused finance due to the small living size. Inner city studios and one bedroom apartments are obviously the most at risk, however as it often comes down to the re-sale value of the property should the mortgagee default, it is difficult to surmise where a lender will draw the line.
Size does matter, or it can matter when buying a property which hovers around (or below) the 50 square metre mark. All parties involved in a property transaction where a property is on the smaller side need to be particularly aware of the following:
- issues may arise when seeking to borrow money;
- the size of the property needs to be expressly advised to lenders and brokers, including a breakdown as follows:
- the overall property (or lot) size;
- internal living space size;
- balcony size; and
- where applicable, parking lot and/or storage space size.
One way of ensuring the above information is conveyed to a Bank or a broker is for the Contract for Sale to be provided or a copy of the Strata Plan prior to exchange.
Care should always be taken before proceeding to exchange contracts as at that time the parties are bound. Potential buyers of smaller sized properties must ensure that the proposed lender is aware of the size of a property and that all lending criteria is able to be satisfied.