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Guardian Highlights Impending Newbuild Collapse

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http://money.guardian.co.uk/weekly/story/0...1669062,00.html

Property

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For sale - at a price that's far too high

Lenders issue warning about valuations on new-build homes

Phillip Inman, Rupert Jones and Lucy Barnard

Saturday December 17, 2005

The Guardian

Are you being ripped off by a dubious valuation on a new-build apartment? Mortgage lenders said this week that they are becoming increasingly concerned at valuations on new-build flats which are inflated to the point where a Manchester home can have a Monaco price tag.

The Council of Mortgage Lenders (CML), which represents the bulk of banks and building societies, says the public is being duped by surveyors who rubber-stamp developers' advertised prices for apartments at far higher levels than the market can sustain.

New-build flats have mushroomed in the capital and city centres across the country, and now account for 50% of all homes being built in Britain. Many are sold "off-plan" before they are built, with developers accustomed to getting the deposit cash in early. Punters make a commitment with only computer-generated images and plans submitted to local authorities as a guide.

Without a real house to walk around, surveyors must judge its valuation based on other things. Too often, the CML argues, the result is a figure that exactly mirrors the advertised price. Not unusual, you might think. Just a reflection of a sophisticated market and professionalism on all sides.

Not according to some lenders. Off-plan developments are commonly sold at a significant discount to the "official value". Some builders will tell potential customers their reward for buying early is a 20% discount. Others will make the "value" of the purchase deal more complicated with an array of inducements such as cars and furniture.

Earlier this month, The Mortgage Works, an arm of the Portman building society that specialises in buy-to-let properties, said it would stop lending on new-build properties targeted at buy-to-let customers. It said valuation in the sector was "more of an art than a science".

One estate agent in Nottingham told property trade magazine Estates Gazette: "Nottingham is flooded with flats. It's difficult to sell them and investors are catching a cold."

Richard Jones, a sole trader agent, added: "A lady asked me to value her flat. She had paid £210,000 for it. I couldn't honestly value it at more than £150,000 on a good day. That was after just seven months. And even at that price it'll be tough to find buyers."

Cheshire surveyor Peter Cunliffe told the magazine: "There's a cosy accommodation between the volume builders, major mortgage lenders and corporate firms of valuers. Not only are the comparable rules ignored regularly to enable sales to proceed, but the message is there all too clearly for the valuers: down-value and you'll get no more instructions. But all this will come out when the housing market inevitably goes into reverse - it always does before the next boom."

A behind-the-scenes row is believed to have taken place between the CML and the Rics, the surveyors' professional body. But on the record, the CML is less aggressive. It says valuations of newly built flats "is something that is on our radar".

A spokeswoman says the organisation is talking to the Rics about the issue and looking at whether there is anything else lenders should do. This official response is understood to disguise frustration at the way the market has developed and lenders' vulnerable position.

The CML believes the increasing concern expressed in some quarters about valuations reflects the fact that a very high proportion of all new-build properties are flats. That prompts questions about whether or not the market is delivering what people want, and whether valuations are "robust" in this environment.

The CML spokeswoman says the use of discounts and inducements has given rise to "a concern about how effectively those valuations are being benchmarked against the wider market".

A spokesman for the Rics denies it is complacent. He says the institute's valuers operate under a "clearly defined regime of standards and rules of conduct". These specifically state that in the case of new-build residential property, "undue reliance should not be placed on the notified sale price." They also require valuers to properly reflect any incentives paid to the buyer.

Many two-bed flats are purchased through property investment clubs. These usually charge a fee to join and further fees for "get-rich-quick" seminars. Valuations by the clubs have come under scrutiny, with many in the industry alleging they artificially inflate prices in order to offer bigger and more tempting discounts.

Rics is keen to stress that not all players in the property investment club world operate under the same level of professional standards and regulation. It says the "improper activities" of some clubs have given rise to serious public concern, culminating in May with several being closed down by the Department of Trade and Industry.

"If there are cases of Rics members falling short of our standards, Rics... will fully investigate any such allegations," says the spokesman.

Estates Gazette says problems persist and are widespread. It learned about a block of 350 flats, all sold off-plan in 2003-4, which local estate agents are advising owners to advertise for rent. A sale would result in a significant shortfall because original off-plan prices were unrealistic.

The developer says it has achieved prices of £250,000 for some of the flats. However, the independent agents argue similar flats in the city centre are selling for £145,000. Why, when there is already a surfeit of these homes in the city centre, would a development half a mile away sell for more?

One unnamed lender told the magazine the "panel valuer" used by the developer stated that the purchase price on instruction was £250,000. This figure failed to take into account a discount which was only disclosed to the buyer. The real price was £212,499.

In a case like this, the lender may offer a 100% mortgage for more than the purchase price, and if the entire valuation was make-believe, then the lender along with the purchaser is immediately plunged into negative equity.

Negative equity might not be a short-term problem. Investment bank Dresdner Kleinwort Wasserstein says new-build flats have fallen in value by 5.6% in the past three months. If the two-bed flat explosion continues, prices have only further to fall.

Edited by Baz63

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Pathetic organisations all starting to blame each other. No accountability, no common sense, more idiots that cannot detect a bubble until it has burst, rigged markets, lies and deception over pricing which flows into the stats. Profligation of panic selling tactics - telling a generation they will be disenfrachised if they don't buy now, crooked brokers and crooked lenders, falsified documentation and more lies for loans. Loose to non existent lending controls and a credit industry that seems to know little to next to nothing about the accumulated debt level to whom they are shovelling ever more credit. The whole property industry has switched from supply of accommodation to one of supplying a speculative frenzy, a total and utter shambles encouraged by incompetent shallow thinkers right through the system from politicians and the BOE to lenders, financial overseerers and the planning system.

The best that the spin-laden pustule of vested interest can some up with when faced with the above home truths is - oh don't listen to the bunch of doom mongers look how wrong they have been.

Looks to me is if we have been right all along, just a matter of time before the market wakes up to the fact.

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Keep building them boys, keep building them.Lets see those prices crashing month on month.Deep joy!

Exactly. Whilst i don't want a flat I am happy no overjoyed if their values plummet because it will knock onto the rest of the market.

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Guest Charlie The Tramp
Cheshire surveyor Peter Cunliffe told the magazine: "There's a cosy accommodation between the volume builders, major mortgage lenders and corporate firms of valuers. Not only are the comparable rules ignored regularly to enable sales to proceed, but the message is there all too clearly for the valuers: down-value and you'll get no more instructions. But all this will come out when the housing market inevitably goes into reverse - it always does before the next boom."

Even our own surveyor said that the lenders use the F word when surveyors tick the prices falling box. Well I`m sure surveyors will not put themselves in the firing line when it all unfolds this time around.

Some lenders are in denial. I was recently asked why I ticked the 'prices falling' box. This was not the first such enquiry, and I was so bored with the question that I sent them 15 pages of reports from BBC, Bloomberg, Reuters, FT etc quoting everyone from Rightmove to the RICS. And guess what? They all said the 'F' word;

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One of the 'Gladiators' from the old ITV show Gladiators has bought 6 off - plan 2 beds on a development in the Olympics area of E London. He has been convinced that the properties are worth much more than he is paying.

He also says he was shown a huge list of renters queing - up for the stock which will be completed next Spring.

This guy tells me his mates have reserved loads and that because they are all "tasty characters you wouldnt want to get on the wrong side of", there is no way anyone would dare rip them off.

His 'possie' are basically boucers, ducker - divers and he says some are millionaires so "they know what they are doing".

I asked had any of these 'businessmen' checked whether there is sufficient rental demand and what the rents will be, to which I was informed 'no'.

Thank f0ck I sold my B2Ls, especially the new build 2 bed

I know this sounds like fiction , but I promise this is true. B)

Edited by dogbox

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Cheshire surveyor Peter Cunliffe told the magazine: "There's a cosy accommodation between the volume builders, major mortgage lenders and corporate firms of valuers.
Oh, and the national press, oh, and the BBC, oh and... well I could go on.

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I have to say that this New Build phenomenon has always been a case of developers making a quick buck based on the UK citizens unhealthy appetite for property. They've been riding the bubble for a few years and have made huge profits as a result.

The collapse of this investment fad has been 'predictable' in the extreme. The negative equity incurred by greedy, stupid investors will feed through massively into the YOY figures over the next year or so.

Cool!

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Are RICS not worried about the activity of crooked surveyors?

I've heard from two people who paid back handers to surveyors to artificially down value houses that they had partially bought so that they could pay a smaller sum to buy the remainder off the local authority.

With rubber stamping of property valuations for builders shouldn't RICS be at least worrying what's going to be down the line in five years time.

I know they are under enormous pressure - but they are likely to be the last ones left standing when the blame is coming around.

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Are RICS not worried about the activity of crooked surveyors?

I've heard from two people who paid back handers to surveyors to artificially down value houses that they had partially bought so that they could pay a smaller sum to buy the remainder off the local authority.

With rubber stamping of property valuations for builders shouldn't RICS be at least worrying what's going to be down the line in five years time.

I know they are under enormous pressure - but they are likely to be the last ones left standing when the blame is coming around.

I agree - RICS have much to answer for. They've acted as a Chartered Institute with no ball$.

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Looks like it won't be long before we've got deja vu quotes from the last crash regarding off-site new builds.

Recurring nightmare memories like ' If only I hadn't gone into that showroom that day' from the guys 185K tower bridge area flat that was sold later for 95k in the 90's tv doc :blink:

Edited by Saving For a Space Ship

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Pathetic organisations all starting to blame each other. No accountability, no common sense, more idiots that cannot detect a bubble until it has burst, rigged markets, lies and deception over pricing which flows into the stats. Profligation of panic selling tactics - telling a generation they will be disenfrachised if they don't buy now, crooked brokers and crooked lenders, falsified documentation and more lies for loans. Loose to non existent lending controls and a credit industry that seems to know little to next to nothing about the accumulated debt level to whom they are shovelling ever more credit. The whole property industry has switched from supply of accommodation to one of supplying a speculative frenzy, a total and utter shambles encouraged by incompetent shallow thinkers right through the system from politicians and the BOE to lenders, financial overseerers and the planning system.

The best that the spin-laden pustule of vested interest can some up with when faced with the above home truths is - oh don't listen to the bunch of doom mongers look how wrong they have been.

Looks to me is if we have been right all along, just a matter of time before the market wakes up to the fact.

What a superb post. :)

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So will this affect the market as a whole or will it be an isolated crash?

Well, I can't really answer that question, but I can say that in the oil market when a really poor quality heavy sour crude (the oil equivalent of a 2br newbuild) falls heavily, it usually eventually has an affect on better quality crudes. Now I'm not saying the housing market should definitely work in the same way as the oil market, but it's an interesting one to think about...

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how crass.

95% of people under 30 priced out of all towns, while groups of parasitic investors attemd 'clubs' to claim on mass any available property to use a commodity to trade about with to gain money for nothing of working people.

and then we give away to europe billions so the poles can build a new tram system for warsaw.

i really dont get what we are doing today in our country..

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(I posted this a few months ago):

"THIRD OWNER MAKES MONEY

HAVE WE now reached the point where some of the second buyers are going to realise

that they have been stuffed too?

Where is this from please? :rolleyes:

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Buy a new build box at your peril!

Unless you really want to live there, and can get at least a 50% reduction, as they are grossly over priced and you'll find you will have difficulty selling on due to over supply.

Don't forget the often high maintenance charges, that can escalate, and you have little control over, and a lease hold is a lease hold is a lease hold.

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Great stuff. I loved this article.

Friend rents a newbuilt studio flat, the price of the remaining unsold properties has dropped 15-20% in a year while they were building.

For the money, it might look space-age on the outside, but inside the finish is woefully bad, the deafing is low-standard and the door doesn't fit. All things that the buyer should have kicked-off about before parting with his cash, but guess he's got other worries now he's losing cash.

hee he!

Might get one of the one-bedders when they come down to below the price the studios were in the first place, can't be long now.

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undeserving,

THAT post was my own from the 2BR Disaster thread.

I will seek a link.

Sad-Pig version: http://www.singingpig.co.uk/discussion/forum/?f=41&m=60176

- - -

Thank you :lol:,

I am sorry you regard me as undeserving.

Is this not one of the infamous HPC cliches, to change a ridiculous name into an even more ridiculous name?

You better reply, DR Snubb :lol:

"

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Buy a new build box at your peril!

Unless you really want to live there, and can get at least a 50% reduction, as they are grossly over priced and you'll find you will have difficulty selling on due to over supply.

Don't forget the often high maintenance charges, that can escalate, and you have little control over, and a lease hold is a lease hold is a lease hold.

Agree with most of this. If you bought now do you think you could then sell it on for the same price you paid? I doubt it, so in essence its a loss maker. I could buy a flat for 160k or something, but I think If I had to sell it, id be lucky to get 120k! 40k loss. Simply they're overvalued probably by around 30-40%. However; the landlord Redrow has decided to sell his share in the leashold to make it freehold for the owner. Bought for £125k, they want another £6,250.

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The implied cosy relationship between surveyors and developers is so reminisent of the Enron scandal.

So called independant market anaylists who actually were in the employ of the big merchant banks, who in turn derived vast commisions by way of handeling Enron business. Instructed the "independent anaylists" to issue "buy notes" on Enron Stock, those who failed to do so were told to seek new employment. Because Enron advised the Banks unless "buy notes" were forth coming the banks would not get Enrons business.

Anybody who has an interest in the financial markets will tell you that is were the biggest crooks reside. I subscribe to the free economic and market news email services. And nearly not a week passes without a Bank, Broker, Fund, Company or individual is fined millions/billions by the Securities and Exchange Commision for fraudulent practice. Where the rewards are greatest there you will find the worlds finest crooks.

And yes OnlyMe an excellent post indeed.

Edited by Catch22

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~delurk~

Good reading. These fools know the price of everything and the value of nothing. Keep 'em coming.

~lurk~

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I had a look around Cardiff Bay today - vast numbers of flats for sale and/or to rent... and they are still building them. They are buiding them anywhjere - even right next to VERY NOISY dual carriageways. There seemed to be a big difference in prices with some at about 150K and others at 350K or even more. Mnay of them are, IMPO, simply too close to very busy noisy roads that you would not be able to open a window and, perhaps, you would hear the noise with all the windows closed.

Some of them are very stylish, others, again IMPO, look like something from the 1960s and I can't help thinking that they will end up as social housing and not yuppie housing.

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  • 301 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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