Friday, Feb 22, 2008
The price of new build flats are heading for a "full scale crash"
Telegraph: Price of new build flats 'set to crash'
The price of new build flats are heading for a "full scale crash", causing misery for tens of thousands of buy-to-let landlords who gambled on an ongoing property boom, writes Paul Farrow. According to Dresdner Kleinwort Wasserstein "reckless lending and over-building of flats threatens recession because a bubble had been stoked "by highly speculative (and potentially highly suspect) development, lending and valuation practices which have led to over-supply of flats in cities across the country, most notably Leeds". Flats rose from 21 per cent of all housing starts to 49 per cent in Q3 2007. Tellingly, said Dresdner, it fell off in Q4, supporting suggestions from, among others Housepricecrash.co.uk, that a number of higher density city centre sites could be 'mothballed'.
20 Comments
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1. japanese uncle said...
By the way what has become of Sayara, the Buy-to-letter, by now? I recall she was considerably in distress even before it reached this stage.
2. drewster said...
"Most notably Leeds" - I'd say Liverpool looks in worse condition, there are thousands of new flats and no real local economy to support them. Liverpool's recent growth is mainly in public sector jobs, call-centres, and of course the construction industry. By contrast, Leeds has some existing strength in financial services - it is less reliant overall on public sector or construction.
That said, new-build flats are pretty much a guaranteed loss, no matter where they are.
(I have no personal connection with either city - sorry if I've caused offence to locals)
3. drewster said...
Nice quote in the article from a bone-headed VI:
Jonathan Cornell of Hamptons International suggests that investors struggling to find tenants should reduce the rent and top it up themselves - if they can. "Selling is the most painful option. If you can afford £100 month yourself, it might help you get a tenant. It will also buy you time - in 18 months it will be a more relaxed environment to sell in.''
He's actually telling landlords to sit tight because things will be a lot better in 18 months' time. Has he completely lost touch with reality?! This also contrasts with the earlier MSN Money article that predicted rising rents - landlords really are struggling to find tenants.
4. hpwatcher said...
I was in Leeds about 8 months ago, and the flat building that was at it's height. I have never seen so many in all my life, and effectively built ''nowhere''. I mean, no supporting shops or anything.
Leeds was a little bit of a IT boom town 4 years ago, but very few jobs have been created there recently.
5. Sold My Soul To The Never Never Never said...
Jonathan Cornells suggestion at the bottom of the article made me laugh - reminds me of the time when our endowment was doing badly and there was a suggestion from the endowment company that we should make extra payments into it - basically throwing good money after bad. My suggestion would be to GET OUT WHILE YOU CAN!
6. japanese uncle said...
I reckon professional surveyor ought to have involved in pricing in each case. What are their responsibilities?
7. jack c said...
I would tend to go along with Drewster's observation on this one and think that Liverpool will be hit harder than Leeds - it will require a bit more than City of Culture hype going forward.
8. voiceofreason said...
Exactly one year ago a mate of mine (a police constable by trade) was telling me how I should jump into BTL. After all he said he had his house + another 3 bed + another flat + an off-plan BTL in Leeds for £199,000. He could not understand why I was not putting all my disposable income into BTL..... and that was precisely 12 months ago.
JU @ 5. The surveyors he used just looked at the flat / house a few doors away and added 5% or 10% and called it a value. I guess that is what limited the rate of price increases to about 10% per annum. After all the money supply was effectively infinite after invention of the NR (mortgage securitisation) business model.
9. Orwell said...
If you can get a copy of Jackson & Powell on Professional Neglience it may be worth a look....
10. harold said...
"Exactly one year ago a mate of mine (a police constable by trade) was telling me how I should jump into BTL"
Jeez, I sold up two years ago. Mind you, with all the property porn on TV it's no wonder that so many have been duped. Sad.
11. Yoss said...
Jonathan Cornell of Hamptons International suggests that investors struggling to find tenants should reduce the rent and top it up themselves - if they can. "Selling is the most painful option. If you can afford £100 month yourself, it might help you get a tenant. It will also buy you time - in 18 months it will be a more relaxed environment to sell in.''
Sweet quote, don't sell now everyone else is selling just sub your tenant £100 a month for the next 12 months... Then £200 for the next 12, Then £300 for the next 12... It will pick up in the end...Yeah like in 2016
12. doomwatch said...
This could be quite a clever VI trap; are they just trying to isolate the crash to those silly people who bought new
build mafia flats ?
13. planning4acrash said...
So, will council's use legislation to buy these? Will they be the council estates of the future?! The middle classes won't like chav's taking over the town centres, like they do in places like Bristol on a Friday and Saturday night, more to the point, neither will I!! Now, this isn't a classist thing, I'm just as much against middle and upper class ghetto's as I am against working class ghetto's. Unfortunately, the government has been making planners approve rubbish developments with few family sized units and minimal outside amenity space, so ghetto's are very likely in some places. On the other hand, if they do get filled, maybe family houses, previously sub-divided into flats, will be bought back to family use. Now that would be a step forward.
14. paul said...
JU, I remember Sayara Begum.
"Why do they wanna harm me and my baby innit?"
http://news.bbc.co.uk/1/hi/business/6357331.stm
(err, they don't - they just want their money back ... )
15. inbreda said...
"Over the next few years, it is a racing certainty that more and more consumers like Sayara are going to have to explain to their lenders why they can not make their debt repayments."
"Not forgetting that her credit rating has been shot to pieces."
"The chief lesson is that debt means a loss of independence."
Her investment in the restaurant I don't have a problem with. But BTL is greed - inflating house prices to prevent FTBs from buying. The good thing is that there is a chance that a lot of BTLers will be in trouble. House prices will plummet, and even if the BTLers think it is a good time to buy (even if it IS a good time to buy), they won't be able to because their credit rating is bad. This will punish the greedy and allow FTBs that have been prudent back into the market. It is the hope of everyone here. Unfortunately I still don't think Sayara gets it.
16. paul said...
I think this particular entry:
Debt diary: Repossession threat
http://news.bbc.co.uk/1/hi/business/5241290.stm rankled with many here, principally because it was not her house that was going to be repossessed, but one of her buy-to-let properties!
Another fine example of impartial reporting from the BBC.
17. japanese uncle said...
Paul:
Thanks for the info. Interesting reading.
18. Orwell said...
Jonathan Cornell of Hamptons International suggests that investors struggling to find tenants should reduce the rent and top it up themselves - if they can. "Selling is the most painful option. If you can afford £100 month yourself, it might help you get a tenant. It will also buy you time - in 18 months it will be a more relaxed environment to sell in.''
Well this comment should be given the contempt it deserves! The man really is a moron.
19. Orwell said...
"We believe there will be a serious fall in sales and starts in the months ahead in new build apartments," said Alistair Stewart at Dresdner: "The urban flats market appears most in line for a full scale crash – a view we have held consistently since late 1995, when we observed the rise of 'investor clubs' and what struck us as sharp practice through much of the wider property market."
They are all turning into bears suddenly. Well they did always tell us the property market was overpriced and heading for a crash didn't they?
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