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Price Of New Builds Has Declined 50%

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http://www.telegraph.co.uk/finance/persona...pc-not-9pc.html

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.

A property based in East Anglia, which was valued at £246,995 in April 2006 would be worth around £225,000 today, a fall of 9pc, according to the Nationwide House Price Index calculator on its website. But the house price index does not differentiate between a new-build property or one that is, say, 150 years old. In reality that property could be worth just £120,000.

Househunters wanting new property thwarted by banks, claim builders I say reality because that is the case with flat number 7 Henry Laver Court, Colchester, which was bought for a princely sum of £246,995 in the Spring of 2006 only to be sold for £120,000 less than that three years later. It is not the only flat in the three-year old development that has fallen in value by as good as 50pc.

The Sunday Telegraph Money section first revealed the plight of new builds two years ago. We told the story of a Barratt development in Britain's oldest recorded town, Colchester, and how many properties had been repossessed and were under the hammer at knock-down prices. The flats at Henry Laver Court which sold, with incentives, for between £224,995 and £249,995, had reserve prices at the auction of around £140,000.

One of the issues with new-build properties is valuation, and there have been concerns in the past that they were overcooked. Such concerns were first raised three years ago by the Council of Mortgage Lenders (CML). It argued that incentives used to attract buyers were muddying the water on valuations.

The stigma of new-build valuations saw lenders tightening their lending criteria on new builds with some refusing to lend full stop, irrespective of how much money buyers could afford to put down as a deposit.

Even the Royal Institution of Chartered Surveyors (RICS) conceded that the valuation of new builds could "pose difficulties for valuers, especially when there is limited comparable evidence available or when buyers have been offered incentives''. It rewrote its Red Book, which gives valuers guidance, to warn surveyors that "developers may offer incentives on new properties, and occasionally on non new-build property, in order to achieve quicker sales and give the appearance of high sale prices''.

The valuation debate has reared its head this week with housebuilders warning that mortgage valuations are a major stumbling block in sales. Barratt said it had been forced to turn away sales after valuations came in too low amid extreme bank caution over lending.

Meanwhile, Redrow said the "widespread practice of downvaluation by surveyors representing mortgage lenders" posed a "major obstacle to the recovery of the housing market". Having agreed on a price with the prospective buyer, Redrow said deals are being undermined when surveyors representing lenders value the homes at less than the asking price.

It is easy to see why a conservative valuation can wreak havoc with a potential sale. If a price of £120,000 has been agreed for a flat, a buyer seeking an 80pc mortgage should be able to borrow £96,000, but if a surveyor values the property at £100,000, the buyer will only be able to borrow £80,000. The buyer will then need a deposit of £40,000 instead of £24,000.

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. In October 2007, for instance, new builds were being promoted heavily under the tag-line "Why England's second city should be your first choice for investment'' – despite reports that the property market in Birmingham was being hit.

Lenders have suffered bigger losses with new builds than traditional properties and understandably now take a developer's own, seemingly generous valuations, with a pinch of salt. But housebuilders only have themselves to blame – they created a rod for their own back.

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90% coming soon.

So you reckon the £246,995 in April 2006 properties will be selling for £25k?! Millionaires would buy whole towns' worth long before prices got there. It's just not going to happen.

Houses were selling at 6x wages, and are likely to fall to 3x wages. 2.5x perhaps at a push. But to 0.6x wages? Don't see it. Time will tell of course, but I can't see any economic rationale for it.

Edited by scottbeard

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So you reckon the £246,995 in April 2006 properties will be selling for £25k?! Millionaires would buy whole towns' worth long before prices got there. It's just not going to happen.

Houses were selling at 6x wages, and are likely to fall to 3x wages. 2.5x perhaps at a push. But to 0.6x wages? Don't see it. Time will tell of course, but I can't see any economic rationale for it.

I don't see 0.6x either. However, looking at it logically, 6-7x income arose because of artificially low real rates, high (apparent) spare income and not considering how the capital will be repaid. 0.6x would arise if the typical buyer finds that almost all their income is swallowed up by taxes, heating, food etc., high real rates and wishing to repay all the capital within 20-25years (like in the old days).

Unlikely, but not impossible.

The Millionaire thing kinda runs into logical problems in that a lot of the wealth of the richest is property, so a collapse would diminish their wealth, most of the rest of it is not liquid, and most property is not for sale.

Some multi-millionaires and billionaires would take the chance to increase their portfolio but owner-occupiers would still be No.1.

I think a few newbuilds going through auctions at 50% off is great personally. Hopefully its putting a whole generation off the notion of property as an investment.

Edited by xux42

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The pricing of new builds is worryingly reminiscent of the "50% off! (previous price was charged for at least a week in at least one store)" stickers various clothing shops put on their nasty shirts back in the 90s. I received an email detailing a newbuild house at £145K "down from £175k!!!!!!" recently. It's a poxy titchy house with laughably small rooms that no modern westerner who's grown up on a normal western diet could actually live in - it was never "worth" (whatever that means) £175k in the first place. If it was half its supposed original price and I was a foot shorter than I actually am then I might have been interested. As it is there aren't enough hobbits in the UK to buy these dwellings and I suspect many of them will be demolished and replaced with sensible-sized buildings (albeit with fewer than 4 toilets) in the next couple of decades.

(No racism intended here: I believe there is an established correlation between diet and adult tallness. I have non-white friends and dislike the BNP.)

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