OFF the plan apartment buyers caught up in the collapse of property developer Ralan Group could face an uphill battle to get their deposits back after administrators revealed a $277.38 million shortfall.
Administrators Grant Thornton held the first creditors’ meeting last Friday where approximately 750 people attended.
The administrator’s investigations revealed the company has only around $2.2 million held in the trust accounts of six projects.
National managing partner – financial advisory, Said Jahani said, “It’s still very early in the process, however current investigations suggest a massive shortfall of $277 million in the trust account from the deposits released on Ralan developments.
“We are working closely with key stakeholders to identify and preserve value for creditors, however our advice to creditors is to prepare for a poor outcome,” Jahani said.
The largest shortfalls were associated with the Sapphire, Ruby 3 and Ruby 2 projects, of $70.64 million, $60.06 million and $59.48 million respectively.
Jahani said due to the complexity of this matter, the administrators will be seeking an extension of time to properly conduct its investigation.
“We have received some questions around the legality of the side agreements regarding purchaser’s release of deposits on pre sale contracts. Ralan has been offering these side agreements for a number of years.
“Our investigations will look at the action of the director, William O’Dwyer, and whether he breached any of his duties. At this time we have no additional details we can share,”
“In regards to the one development under construction in Arncliffe, the project was going well, on time and on budget. We have been talking to various parties to fund the completion of the project, and we are confident Arncliffe will be finished – but likely delayed,” Jahani said.
The expected cost to finish the Arncliffe project is between $70-$80 million and there is currently $108,301 held in trust with $44.014 million shortfall in deposits. The builder, Richard Crooks Construction, have been stood down.
The Real Estate Institute of Queensland’s CEO Antonia Mercorella said the collapse is reminder of the risks associated with off-the-plan contracts, which in the Ralan case may result in the loss of the initial deposits for hundreds of purchasers.
“While deposits are often kept in a separate trust account, some purchasers elected to release their deposits through a side agreement, allowing Ralan Group to use the funds as unsecured loans, reducing the likelihood of any refunds.
“It’s been reported that around 1100 people had entered into contracts for off-the-plan homes at Ruby Collection on the Gold Coast.
“It would be heartbreaking for that many people to lose not only the possibility of the home or investment they had purchased, but also lose their deposits,”
Mercorella said it is a reminder for buyers to conduct due diligence.
“When you enter into an off-the-plan contract, you must remember that it is quite different to purchasing an established property and comes with its own set of unique risks.
“Contracts often include flexibility for the developer to make changes to the floors plan and/or other features within the dwelling.”
Mercorella said while contracts included a guide to ongoing fees, these were often subject to change.
“Ultimately, the developer may never proceed with the build for a number of possible reasons, such as if pre-sales aren’t met, or, in extreme situations such as the Ralan case, the developer could fall into administration.
“Of course, there are many advantages to buying off the plan, such as saving on stamp duty costs, and the ability to purchase at the current value, which may increase post-completion.
“Despite the many benefits though, the Ralan Group collapse does highlight the need for additional caution when entering into this type of contract.” Mercorella said.