The latest bad news is that non-residents are cancelling in mass their homes on which they had already made the down payment.

This means a lot of expensive flats are to be back on the market again - and it will not be easy to sell them.

Some developers could easily find themselves between a rock and a hard place, especially as bad news arrive not only about non-residents, but also about local clients.

According to Portfolio.hu's information, locals have also started to cancel their purchases and there are projects where only one or two homes are sold a month. And then we have not even mentioned the banks...

According to data by AL Holding and economic think tank GKI, non-residents have rescinded 255 offers to buy homes in Budapest by 2009.

Comparing this figure to the 5,000 flats sold last year, it is not a dramatic number. But Portfolio.hu has learned that several developers do not classify orders as cancelled right until the closing date even if the would-be buyer has unequivocally withdrawn his offer.

Therefore the number of actually scrapped purchases can be considerably higher than indicated above and that would be quite a blow, considering the few thousand homes that may be sold in 2009.

The chief executive of a major home builder said non-residents called off 50-80% of the previously announced purchases. He also noted that a large number of local residents are following suit.

“If we don't go after the client the base case scenario is that he will cancel the deal," the developer stressed. In his view, the phenomenon with non-residents is only a part of the heap of problems that is weighing down on the new home market.

“Fortunately we don't have foreign clients," another developer said. “In our case, the problem is with banks that are not happy to finance the project itself, despite the already signed loan contracts. Under normal financing conditions the new home market can stay afloat with 2,000 sales, but if the banks fail to support purchases, the sector is looking at a slow death."

An agent selling a great number of homes abroad confirmed the mass cancellations. He said the withdrawal of non-residents was so grave that it is already curtain down on almost every office with non-residents-focused profile.

He told Portfolio.hu the damage caused by cancellations varies. As non-residents usually buy expensive homes, the ones that are “thrown back" cannot be sold at their original price to local clients.

At the same time, depending on the size of down payment, the developer may be left with enough money to “pass on" to the new buyer.

Due to higher commissions, non-residents usually pay in a 25-75% or 30-70% term instead of the regular 10-90%.

It depends on how good a contract the developer has how much of the down payment (25-30%) it can hold on to, as this is usually divided into a retainer and an the first instalment.

Upon termination of the contract, the first instalment is redeemable, but not the retainer. Those who required a 10% retainer are in a tougher situation, given that a bulk of that sum is usually marketing costs. Giving back the rest is not easy as before in the current financing environment.

The element of surprise in non-residents' cancellations is not overly large. From the property developers' point of view, the home country of Irish, Spanish and British investors have collapsed.

The situation in the UK is not dramatic, with “only" the pound in huge depths, but the likely recession is casting another shadow on the outlook.

The key question is whether there will be anyone who will take the place of non-residents, as the local buying capacities have also suffered a lot.

What is certain is that the first half of 2009 will be tougher for home developers than 2008 in every aspect.

What is good news for home buyers is that they will be able to cherry pick the really good ones instead of the “leftovers".

Source: Portfolio Online Financial Journal