Is Prime London Crashing? - Merged Threads

[pipllman]

What happens if you bought off plan but the project gets stalled or the developed goes tits up?

I expect any monies paid are, ultimately, lost (maybe a couple of p in £ to come back)

On the other side of the same coin, what if they are completed and the buyer can't afford to pay the balance? How much appetite does the developer have to pursue someone in, say, Malaysia? How much due diligence has been done on their ability to pony up the rest of the purchase price I wonder?

[Frizzers]

Repercussions of this are potentially very exciting.

The lid is currently being kept on, but if SW8 really as as screwed as we think it is, then they won't be able to keep it on. If it comes off, then we could move into ... banks foreclosing, repossessions, distressed sales, some companies going bust. Media will be all over it. Then we get the stories about the dodgy loans, the frauds, the accounting scandals. Then the corners that have been cut on the construction come out, as the cracks quite literally show up the poor build quality.

Then the contagion spreads wherever there is new build. East London. Elephant and Castle. There's a flood of stuff being built in W1 and WC1. I think it goes there as well.

I'm getting ahead of myself.

But I note the financial ruin Battersea Power Station has brought to every person that has attempted something there. I remember my parents shaking their head about it when I was a boy and the fun fair went out of business. I thought this development would change that, but perhaps the curse overwhelms all.

Who wants to live next to the US embassy with all that security eying you up suspiciously every day anyway?

[royalvictor]

I need help to understand the term properly leveraged please

What I mean is this: what is the optimal deposit size (or loan size) to achieve the highest rental yield.

Brief comparison: £400k property price (let's assume fair value), £1,300 pcm taking into account EA fees etc, all other outlays (service charge, ground rent, upkeep/repair). Interest-only mortgages, 25y term, 2y fixed taken from Google compare.

Case: £100k deposit, free cash flow £4,730 pa would be 4.73% gross yield

Case: £200k deposit, free cash flow £9,806 pa would be 4.90% gross yield

Case: £300k deposit, free cash flow £11,822 pa would be 3.94% gross yield

Case: 100% cash, free cash flow £13,850 pa would be 3.46% gross yield

Paying the condo fully in cash (no leverage), or even 25% LTV is suboptimal, and so is 75% LTV.

By "properly leveraged" I did not mean to suggest that 10% or 5% deposit would be "best", that would be highly leveraged (and insane for my risk preference).

This is of course highly simplistic, a proper discounted cash flow spreadsheet would have to get worked out with interest rate and property price appreciation (or depreciation) scenarios to incorporate the risk element.

[pipllman]

What I mean is this: what is the optimal deposit size (or loan size) to achieve the highest rental yield.

Brief comparison: £400k property price (let's assume fair value), £1,300 pcm taking into account EA fees etc, all other outlays (service charge, ground rent, upkeep/repair). Interest-only mortgages, 25y term, 2y fixed taken from Google compare.

Case: £100k deposit, free cash flow £4,730 pa would be 4.73% gross yield

Case: £200k deposit, free cash flow £9,806 pa would be 4.90% gross yield

Case: £300k deposit, free cash flow £11,822 pa would be 3.94% gross yield

Case: 100% cash, free cash flow £13,850 pa would be 3.46% gross yield

Paying the condo fully in cash (no leverage), or even 25% LTV is suboptimal, and so is 75% LTV.

By "properly leveraged" I did not mean to suggest that 10% or 5% deposit would be "best", that would be highly leveraged (and insane for my risk preference).

This is of course highly simplistic, a proper discounted cash flow spreadsheet would have to get worked out with interest rate and property price appreciation (or depreciation) scenarios to incorporate the risk element.

but the price is £550k, let's work on that for now, let's not lose £150k of asset value just to make the sums easier

and some way of deciding whether the 'buyer' actually ever wanted to own it and, if so, what to do with the free cash flow to be able to achieve that

and some way of stress testing i) the LTV if the value falls and ii) cashflow if interest rates go up past the 2 year fix

etc. etc.

and, lest we forget the budget proposals, tax

[royalvictor]

ok, I could not find the actual service charges but I guess they are higher than in Canary Wharf, so I took £4k pa, ground rent and repair unchanged at £250 and £500 pa respectively. Rent I took £1,700 for a 1 bed but also assumed that 1 month goes to the agency. Interest only mort. for 25y term.

case: £100k dep., MINUS 8.96% pa gross, the interest only mort. is prohibitively expensive at £1,900 pcm.

case: £200k dep., 3.14%

case: £300k dep., 2.97%

case: £400k dep., 2.74%

case: paid fully in cash: 2.54%

Full cash does not even beat Gilts, haha.

The catch is, if for one reason or another (hehe) the property value is < £550k, I wonder what banks would do when after 2 years the owner would have to remortgage. I presume to realise the negative MTM as loss, could become a forced seller, forced into realising the loss before he can "sit it out" after say 5 or 7 years until the property is back at £550k.

[suntory]

OMG. I just looked at SW8 in some more detail and came across two charts that will blow you all away. The first one is this:

The chart shows prices for 1 bedrooms flats in the Battersea Power Station, BPS from hereon, as listed on Foxtons. Thankfully Foxtons kept this listing for all this time and property bee displays the rise and fall in prices very neatly. What you can see above is the perfect bubble inflating and deflating in near symmetry. Think Tokyo or Amsterdam more recently. Clearly the BPS bubble peaked in September 2014 at £700k for a 1 bedroom. Why September? I would say due to mansion tax rumours and the Milliband effect but other factors surely came into play as well. This is perhaps for another discussion.

Then I came across this chart which is for the property I mentioned earlier:

The first thing that took me by surprise is the near identical time frame for the price decline here. The first listing peaked in September 2014, and the second listing peaked in November 2014. The second thing is that the price decline of both listings is very similar: starting from £700k/£775k going down to £585k/£550k. Looking at these numbers the owners of the second property clearly overshot the top of the bubble, and on the way down they are reducing the price more aggressively. Whoever owns this flat must be pissed off.

But the most amazing thing, once you compare these two charts, is that according to the reduction of the second property down to £550k, we are back at March 2014 prices. I think that £500k is psychologically a very important figure (already broken for studio flats, not 1 bedrooms, in BPS). If prices go below £500k I think the floodgates will open in SW8. Finally, there have been 132 new listings in SW8 in the past 7 days. If they continue to unload at that pace we could be looking at around 450 perhaps even 500 new listings in September. Taking in considerations some properties taken off the market, we could quite feasible look at 2400 marketed properties for September 2015. That would be an increase of another 20% from the previous month. The shit storm coming ahead is beyond ******ed up.

[Frick]

They're unloading at their usual pace for the past few months. I'm thinking in range of 2200 next month.

[suntory]

They're unloading at their usual pace for the past few months. I'm thinking in range of 2200 next month.

Yes, you are probably right with this. I incorrectly calculated reductions as new listings. But 2200 wouldn't be so bad either.

[suntory]

UPDATE: Just in the last few minutes Foxtons reduced the price of the first listing I mentioned above:

[sammersmith]

Must be a mistake surely?

http://www.rightmove.co.uk/new-homes-for-sale/property-51568474.html

£170,000 for a 2 bed in Olympia, though more Hammersmith than Kensington if the advert was being honest.

I know this block and it is just a standard, boring, 'built for laundering' modern block, but clearly a mistake by the EA missing a few 0's.

Do these EA pricing mistakes make it into the Rightmove initial asking price price stats?

[suntory]

One bedrooms at the BPS went on sale for £423k in early January 2013 at the launch of the first phase. Now they are struggling to sell them for £550k. How much longer until the first folks capitulate and sell at a loss?

[Saving For a Space Ship]

"Rail View"

OMG, you are totally right. I missed that. Maybe they should call it "architectural feature" or "civil engineering design".

It's not just a rail view... you'll be fortunate enough to observe one of the busiest railway lines in this country while seated on your luxurious balcony with executive ear plugs in.

Newsflash...EA's say trainspotters are buying the Battersea flats like crazy after Chinese buyers went t1ts!

[thejaksie]

I am loving those charts guys, well done. Did people actually pay upwards of 550 for these or are they just asking prices no-one paid? If so I would love to have a chat with those owners!

[royalvictor]

Has anyone of you guys been following City Island by Ballymore in Canning Town?

http://www.londoncityisland.com/

It's next to the tube/DLR station. I pass daily by but start to think they might be stalling development. But I may well be wrong! The layout is a funny one and I cannot see too much from the DLR when passing by. I start to think it takes an aweful long time to do a bit of digging, nothing new gets erected. Might give these guys a call as naive prospective buyer to dind out ...

[Si1]

Even the 2012 stamp duty jump change on properties over £2m (and then most recent increase at higher end), only seems to have led to more HPI. Oh well, some people can't bring themselves to blame buyers who just want a home, as they lobby for renter savers to lose all their savings, rubbing their own hands at idea of keeping their own home and then getting into BTL later.

Sale Date: 23 Apr 2015.

Price Paid: £2,525,000

http://www.rightmove.co.uk/house-prices/detailMatching.html?prop=33747447&sale=1428553&country=england

Oh

Born 1972. They climbed the property ladder by being born at the right time. Not by being doer uppers.

Edited September 12, 2015 by Si1

[Si1]

Londons housing market is a bubble unlike any other bubble because its being driven by international capital, whereas previously London property bubbles were driven by mortgage lending, said Peter Rees, a professor at University College London and former City of London planning officer. I have no idea how this bubble is going to end.

​Go and check your history books for clues

Whoah

But have we had a super bubble pumped up by international money and international low interest rates on the past?

I suppose the dot com bubble is one such option, and that's about it? NASDAQ fell an inflation adjusted 70%+ from its highs to is trough. And I surmise that was nowhere near as leveraged or with as much dodgy money as the London property market.

[mmt]

So these are the LR exclusions:

All commercial transactions, sales that have not been lodged with Land Registry or sales that were not for full market value are excluded.

I've seen for myself when purchasing a property recently (not London) it had a sale after 2007 that was a price fall but is not shown in the LR public data set as it was a company purchase.

Does that included the LR index as well?

So back to SW8 - if people have been buying these using (offshore) companies and making losses, these losses would be hidden from view unless the media picks this up.

Is this something that an FOI request can uncover?

[rollover]

The trophy property you need to know about this autumn

Crossrail has triggered a construction boom across the capital, bringing househunting Londoners more choice in up-and-coming areas. This autumn heralds the launch of many new developments, offering househunting Londoners more choice.

Richmond Hill Prices from £1.2 million.

Highgate and St John's Wood Prices from £3,295,000.

The Fitzbourne Prices start at £2,995,000

And many more choice and a chance to park your money. And yes, get in quick!

Edited September 12, 2015 by rollover

[royalvictor]

Apparently, the news of price reductions at BPS have not reached China just yet. Knight Frank as up-beat as ever. Article dated Sep '15 not Sep '14, a touch behind the curve so it seems:

http://www.scmp.com/news/china/money-wealth/article/1855880/london-property-developers-eye-chinese-buyers-disillusioned

"Its first phase went on sale in 2013, but only a few units were bought by Chinese investors – a state of affairs the developer hopes to change.
It plans to tour Beijing, Shanghai and Hangzhou from mid-September to search for more Chinese investors.
'Now we are in phase three, and are really starting to explore and trying to service the need of the people in mainland China,' said Rob Tincknell, chief executive officer of the Battersea Power Station Development Company.
'Other than Shanghai and Beijing, we are now looking at second-tier cities including Guangzhou, Hangzhou, Shenzhen and Chengdu,' he said."

[the_duke_of_hazzard]

So these are the LR exclusions:

All commercial transactions, sales that have not been lodged with Land Registry or sales that were not for full market value are excluded.

I've seen for myself when purchasing a property recently (not London) it had a sale after 2007 that was a price fall but is not shown in the LR public data set as it was a company purchase.

Does that included the LR index as well?

So back to SW8 - if people have been buying these using (offshore) companies and making losses, these losses would be hidden from view unless the media picks this up.

Is this something that an FOI request can uncover?

Annual UK Property Transaction Statistics - Gov.uk

Google ^^^ that for 2015 and you'll see that non-residential property transactions are dwarfed by residential. Tho I'm not sure whether non-residental = commercial.

[FreeTrader]

So these are the LR exclusions:

All commercial transactions, sales that have not been lodged with Land Registry or sales that were not for full market value are excluded.

I've seen for myself when purchasing a property recently (not London) it had a sale after 2007 that was a price fall but is not shown in the LR public data set as it was a company purchase.

Does that included the LR index as well?

Unfortunately there's a considerable gap in our knowledge regarding residential housing transactions.

Each month somewhere between 15% and 23% of transactions in England and Wales are excluded from the Land Registry's price-paid dataset (and hence from the LR house price index too). In numbers this is roughly 16,000 sales per month.

In late 2008 and early 2009, when house prices were tumbling in the aftermath of the Lehman collapse, this percentage rose to around 25%-30% for several months. Just consider that for a moment - during one of the worst financial crashes in history, at least a quarter of residential property sales in E&W were being excluded from the Land Registry index.

We can deduce from a recent FOI request that most of these missing sales are cash transactions, and as a consequence they won't be included in the Nationwide, Halifax or ONS indices as well as LR and LSL-Acad. Effectively they're off the grid - and we can only speculate as to what the major house price indices would show if these sales were included (I have an open mind - they may make little material difference).

I'm hoping that the new ONS index that is due to be launched next year will include these currently unaccounted for sales, because without them there will always be the suspicion that certain 'inconvenient' transactions are being consciously excluded from published price data.

[suntory]

Unfortunately there's a considerable gap in our knowledge regarding residential housing transactions.

Each month somewhere between 15% and 23% of transactions in England and Wales are excluded from the Land Registry's price-paid dataset (and hence from the LR house price index too). In numbers this is roughly 16,000 sales per month.

In late 2008 and early 2009, when house prices were tumbling in the aftermath of the Lehman collapse, this percentage rose to around 25%-30% for several months. Just consider that for a moment - during one of the worst financial crashes in history, at least a quarter of residential property sales in E&W were being excluded from the Land Registry index.

We can deduce from a recent FOI request that most of these missing sales are cash transactions, and as a consequence they won't be included in the Nationwide, Halifax or ONS indices as well as LR and LSL-Acad. Effectively they're off the grid - and we can only speculate as to what the major house price indices would show if these sales were included (I have an open mind - they may make little material difference).

I'm hoping that the new ONS index that is due to be launched next year will include these currently unaccounted for sales, because without them there will always be the suspicion that certain 'inconvenient' transactions are being consciously excluded from published price data.

Wow, this is incredible. Sounds like a major cover up to me and I one doesnt have to stretch the imagination too far to conclude that something similar is happening at the moment. That would explain that, on one hand we have around 8% YoY for Greater London according to LR, and on the other hand, in the real world so to speak, we have things like this: http://imgur.com/OnLrByw

I smell corruption. Is the LR a private entity, a government entity or something else? Do you know?

[FreeTrader]

Is the LR a private entity, a government entity or something else? Do you know?

It's a government agency.

[suntory]

It's a government agency.

The plot thickens.

[mmt]

Unfortunately there's a considerable gap in our knowledge regarding residential housing transactions.

Each month somewhere between 15% and 23% of transactions in England and Wales are excluded from the Land Registry's price-paid dataset (and hence from the LR house price index too). In numbers this is roughly 16,000 sales per month.

In late 2008 and early 2009, when house prices were tumbling in the aftermath of the Lehman collapse, this percentage rose to around 25%-30% for several months. Just consider that for a moment - during one of the worst financial crashes in history, at least a quarter of residential property sales in E&W were being excluded from the Land Registry index.

We can deduce from a recent FOI request that most of these missing sales are cash transactions, and as a consequence they won't be included in the Nationwide, Halifax or ONS indices as well as LR and LSL-Acad. Effectively they're off the grid - and we can only speculate as to what the major house price indices would show if these sales were included (I have an open mind - they may make little material difference).

I'm hoping that the new ONS index that is due to be launched next year will include these currently unaccounted for sales, because without them there will always be the suspicion that certain 'inconvenient' transactions are being consciously excluded from published price data.

Thanks FT. The FOI I have in mind would just be a yearly aggregate of these off radar transactions (average price and number of transactions), specifically for SW8, going back a few years. No company info in there. Surely there is no basis in denying it. LR want this data hidden for their own reasons but that is surely what FOI requests are for.