Friday, Jul 10, 2009
New build pwnage
Telegraph: New-build prices have falen 50%, not 9%
We were told that house prices started to fall officially in late 2007, but the reality for people who bought new builds is altogether different. Their house price crash began as long ago as early 2006.
Flat 7 Henry Laver Court, Colchester, was bought for a princely sum of £246,995 in the Spring of 2006 only to be sold for £120,000 less three years later. It is not the only flat in the three-year old development that has fallen in value by 50%.
Housebuilders, along with everyone else, jumped on the property bandwagon and actively encouraged a wave of budding buy-to-let tycoons with juicy incentives such as paying their rent for two years. Such incentives were still dangled after it emerged that the values of flats, mainly in city centres, had started to plummet.
11 Comments
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1. little professor said...
fallen, not falen
2. mrflibble said...
Property dream turned nightmare... By the time we are through with this there are going to be a lot of people down a lot of money... Still that's what happens when a basic essential becomes an 'investment.'
3. charlie brooker said...
You can almost hear the evil cackles from the bars around Canary Wharf:
"Hey! But look on the bright side! One man's bankruptcy is another man's bonus!"
4. titaniccaptain said...
That's because the majority of them are cr@p.
5. 51ck-6-51x said...
Hehe Charlie
- But most of the C.W. bankers probably don't revel in bankruptcy. They would, no doubt, prefer a steady income stream instead of a scramble for diminishing recoveries - an easy life - just maintain the barriers to setting up competitors to keep up those margins and sit back whilst the money flows in!
It's when the competition becomes too much that they move towards higher profit areas, like investment banking
...OH, so retail banking must be a utility. Shocker.
The bars around St James' & Mayfair are far more likely venues for your suggested cackles
- Vulture Funds, Distressed Debt Funds & Private Equity Funds ( the later so long as they can still get credit that is! )
Have a good weekend all!
6. tenyearstogetmymoneyback said...
A couple of years ago there was a program on TV about China.
They visited a new housing estate (modelled on an English Village !)
but could only find one house that was occupied. It's owner explained
that people were not prepared to pay full price for a second hand house
and that was deterring his neighbours from devaluing their investment by moving in.
Everyone accepts that a car looses a significant percentage of its value as soon as you drive
it a few miles. The question is why should homes be different, especially when the builder lets
you choose your kitchen etc etc then arranges a favourable mortgage for you.
:- Duncan
7. cyril said...
@tenyears...the price per square foot of a new one is probably more than a second hand one - especially if you include 'wasted' space like the garden, loft space etc.
8. peter_2008 said...
It's not realistic valuation that is dragging down the property market. It's developers' unrealistic valuation that is suffocating the market.
In europe, average building cost of what they call a "affordable house" is around £20-£30K. Here in the UK, it's £60K minimum.
Why? Because the developers take a big chunk. Ok, they will tell you they take a small chunk, only make 10% margin and blah,blah, blah. So how come they make a 200% gross profit and only a 10% net profit? Well, because that 190% goes to builder's big fat salary. And technically that is not a profit, but something our hard working developers are "entitled" to.
9. britishblue said...
@ten years.
New houses used to sell at approximately a 10% premium over exisiting stock. Its only in these times of mad house price gains that a new house could be fipped for more.
What a lot of people don't realise it that in value for money terms new houses are often crap. If a developer can squeeze 10 houses on a plot of land rather than nine he will do it. If he can make double rooms, smaller he will do it. On many new build apartments it is now almost impossible to get a 3 seater settee in the lift and through the doors becuase they are so cramped.
10. Ketha said...
the new build market was largely a sophisticated marketing scheme... to some degree you're buying a lifestyle. They were overpriced, and to be fair even in a good buoyant market you'd expect to take a 10% hit on a new build straight away. It's the same as with new cars. the scandal was the role of valuers who were acting for the lenders, and the lenders who put their head in the sand... then again you can see the moral hazard here... HBOS lent builders billions of pounds, then lent the punters billions of pounds to buy the properties... HBOS ends up with defaulting builders and punters and has to eat the debt.. except, as we all know... we ate the debt. oddly (given billions in bail out money) the industry bounces back and starts clawing back the rest of the money from borrowers and savers and the government fails to regulate the industry or even admit anything was wrong... anyone think this might happen all again?
11. uncle tom said...
A house is a consumer durable. It should have its greatest value when new, and then slowly depreciate until it is economic to demolish and redevelop.
That is what you expect to be normal - the default scenario. Up until about 1982, new houses sold for noticeably more than old ones, so much so that insurers had to remind people who owned older houses to insure for rebuilding cost, and not market value.
We have moved away from that scenario over the last quarter century, but that does not mean that what we see today is a settled, normal market - there is a strong argument that this is an abnormal situation, especially with regard to property built in the 20th century.
A lot of property built between the World Wars is tired, unstylish, and not very well insulated; much of that built between 1945 and 1985 is utilitarian rubbish.
This is property that should be changing hands for much less than similar new builds; property that we should be seeing gradually redeveloped. At the moment that is not happening, but that doesn't mean it won't happen in the future..