Standard: Thousands Of Unwanted New Builds To Be Dumped On Market

[CunningPlan]

Yes; that's a new dimension. After 2008-09, you would have thought the developers would have got them in tight, and not able to pull out with 'Buyers-Regret'.

No innocents at these prices. Another development... happy-happy buyers pushing and falling over each other. 'Heard it on radio - we jumped straight in the car to be first in queue'. 'Bought one each for my two daughters'. Talking towards £1m. They made their own decisions, with parents who have had a life of HPI.

2009. We had a thread. I think it had droned on for quite some time by this point.

http://www.theguardian.com/money/2009/aug/08/berkeley-homes-mortgage-deposit

The comments on this article are very interesting. Not a lot of sympathy for property speculators back then either.

[The Knimbies who say No]

£2.3bn of WIP sitting in Note 13, but £430m of cash and cash equivalents and net assets of £1.6bn. That's a pretty solid balance sheet as best I can see.

If that cash didn't turn up they'd be posting losses, but they'd live. They look to be holding £920m of deposits from customers against that WIP.

Even if the buyers all buggered off and Berkeley had to give it all away for nothing they'd still be standing.

I'd imagine that they are sleeping rather better than some of their customers.

I daresay that is no mistake. I wonder what the balance sheets of the companies responsible for the other 93% of units due to be completed in the next 2 years looks like.

[Venger]

The comments on this article are very interesting. Not a lot of sympathy for property speculators back then either.

I will have a look at the comments tomorrow, to remind myself.

However there was enough sympathy elsewhere, believe me.

And on the policy side that followed, but I'm hoping it's just to have got us to this point. Where banks can handle Real Prime HPC, and the greedy can absorb it.

[MississippiJohnHurt]

The completed stock is some 38 units, which gives an idea of the number of units under construction, looks like a factor of over 100 which may be over 4,000 units.

And this is reportedly one fifteenth of what is under construction at present!

The Dude:

Look, nothing is f***ed, here, man.

The Big Lebowski:

Nothing is f***ed? The god damn plane has crashed into the mountain!

[dances with sheeple]

The Dude:

Look, nothing is f***ed, here, man.

The Big Lebowski:

Nothing is f***ed? The god damn plane has crashed into the mountain!

And you pissed on my rug before leaving me with a void.....

[Venger]

£2.3bn of WIP sitting in Note 13, but £430m of cash and cash equivalents and net assets of £1.6bn. That's a pretty solid balance sheet as best I can see.

If that cash didn't turn up they'd be posting losses, but they'd live. They look to be holding £920m of deposits from customers against that WIP.

Even if the buyers all buggered off and Berkeley had to give it all away for nothing they'd still be standing.

I'd imagine that they are sleeping rather better than some of their customers.

Why build 1 when you can build 1 and sell twice. One at hyperinflated price (and seek funds from those who seek to back out), then again at HPC price.

[darwin]

I should add, head of rightmove lettings was on the beeb with what looked to be black/bruised eye. Fitting metaphor,

That is hilarious

[jiltedjen]

Hehe will be fun to watch. All the full recourse mortgages wiping out £100k-£200k of future earnings. Happy to see the greedy get burnt. destined to live out their days in their executive flats deep in negative equity with the local council population playing music through the walls.

[Venger]

The comments on this article are very interesting. Not a lot of sympathy for property speculators back then either.

There's too many posts offering ridiculous excuses, but I'm not going to highlight them. Even 'real-world' replies a bit too quick to start off this way...

'feel sorry' / 'sympathy' / 'property-porn to blame' / 'In a way they should blame the government and regulators for letting the housing bubble happen.'

There are obviously so highly skilled financial experts commenting on these poor guys that are somewhat stuck between a rock and a hard place. Or are you just a bunch of benefit loosers sitting infront of your computers that like seeing peoples lives destroyed.

...In short it´s easy to sit there when your in your late 40´s with loads of equity in your property having benefited from the property boom. People in their late 20´s can´t even buy a studio flat to live in and when we try - we now stand to lose everything. We now have nothing and will have to save up for another 10 years to raise a deposit as we don´t have rich Mummies and Daddies to call on. I have worked hard for every penny I have and for what?

What equity? Was older that you when you went and bought at such a price. 40+ now, no equity, prices 20% above height of 2007.

I'm a 40 something with a bit of equity who lived in London for 20 years. Even now, after almost 20 years on the ladder, I could barely afford to live in some of the "better areas" of London listed in this report. I certainly couldn't fork out 450k (even with someone else stumping up 90% of it). No sirree, zone 3 (poor SE London bit, not Wimbledon) was where I expected to be. That's certainly not "envy" or anything, just reality!

You must surely see the flaw in your logic. Young people can't afford a studio?According to this article, they felt entitled to 450k new-build in one of the best parts of one of the world's most expensive property markets.

A 30-year-old IT consultant, he was married last September. In the run-up to the wedding, he and his soon-to-be-wife were looking to trade up from his one-bedroom flat, and in February 2008 they signed up for a £450,000 three-bedroom flat at Caspian Wharf.

They put down a £45,000 deposit – "my life savings", he says – and before signing up, he was prudent enough to make sure he had a mortgage for the remaining 90%, which was valid until March this year. But things started to unravel when, in December, he obtained a valuation that indicated the flat had plunged in value to £340,000.

Whilst it's sad to see people in trouble, they were relatively well-off to begin with if they could even contemplate buying a flat for the best part of half a million quid. Bankrupt or not, they'll be all right in the end.

How about some articles about the other 99% of people for whom living in a glass box by the river in London will never be an option?

Nothing sad about it whatsoever. The sad part was the excuse giving, mortgage-rescues, 0.5%, QE, new BTL party, and keeping renter-savers held under for many many more years, to reflate market to new peaks in prime.

[Venger]

Two of the 2009 HPC threads on this. Only just located them. Going to read them myself later today.

Main one http://www.housepricecrash.co.uk/forum/index.php?/topic/122212-berkeley-homes-buyers-trapped-in-mortgage-nightmare/

http://www.housepricecrash.co.uk/forum/index.php?/topic/127657-berkeley-homes-sues-off-plan-defaulters/

[nickincash]

All of this reminds me of

http://www.irishcentral.com/news/how-my-irish-dream-home-became-a-nightmare-105512083-237723421.html

[lostinessex]

Source article

Pure madness, haven't they heard from the Poverty11Later guys about all the immigration and the stampede of 'big boys' looking to hoover up property? Why not keep it, let it and put the rent up and up till you're minting it. Somebody should write a letter to the Evening Standard right this minute!

Edit: h/t to TPFX on the twitters, following @standardnews so we don't have to!

This to me is the real reason behind Osborne's 40% London HTB scheme - nothing to do with helping FTB into properties but instead a tax-payer funded scheme to make a surfeit of over-priced and frankly unwanted appartments more appealing / affordable to the public and therefore try and prevent a disaster for the London property developers.

What with the crack-down on BTL, the possibility of interest rises getting tantilisingly close, and a huge over-suppy of appartments in the pipeline - things are starting to get interesting...

[Motor_Blade]

This to me is the real reason behind Osborne's 40% London HTB scheme - nothing to do with helping FTB into properties but instead a tax-payer funded scheme to make a surfeit of over-priced and frankly unwanted appartments more appealing / affordable to the public and therefore try and prevent a disaster for the London property developers.

What with the crack-down on BTL, the possibility of interest rises getting tantilisingly close, and a huge over-suppy of appartments in the pipeline - things are starting to get interesting...

Good point, can't get the debt you need off the bank? Don't worry, Her Majesty's government will give it to you instead so you can complete the purchase of your jerry built slave box which is now only worth two thirds of what you agreed to pay for it.......result......

[Simon Taylor]

Good point, can't get the debt you need off the bank? Don't worry, Her Majesty's government will give it to you instead so you can complete the purchase of your jerry built slave box which is now only worth two thirds of what you agreed to pay for it.......result......

I'm not so sure. None of these developers are too big to fail and won't the London HTB leave the government on the hook for much, much less if prices of the houses it was used to buy were 30% lower?

Anyway, will there be much demand, even for the HTB bung, once media reports of plunging prices, buyers pulling out, lawsuits etc become engraved on the wider consciousness?

As for the developers, we can be sure that some will already be having conversations with their banks and covenant covers being examined very closely. Which will be the first domino?

[Si1]

This to me is the real reason behind Osborne's 40% London HTB scheme - nothing to do with helping FTB into properties but instead a tax-payer funded scheme to make a surfeit of over-priced and frankly unwanted appartments more appealing / affordable to the public and therefore try and prevent a disaster for the London property developers.

What with the crack-down on BTL, the possibility of interest rises getting tantilisingly close, and a huge over-suppy of appartments in the pipeline - things are starting to get interesting...

I broadly agree. I'd say more to protect against the general economic shock. But I'm in a similar ballpark to you.

[CunningPlan]

A quick skim of the threads from 2009 suggest that it wasn't necessarily that the forward buyers didn't want to complete - it was that they could no longer secure the funding. In essence they were still deluded enough to believe that the flats were worth what they had bid for them and were running around trying to find a bank / valuer that would agree rather than accepting reality.

The BTL 118 crowd are always telling us that they are the driving force behind developers with their off plan purchasing. If they committed to these on the basis that a mortgage at 75% with 125% cover was easy to come by, do we think the majority of these off plan purchases are actually from the BTL sector and if so, will the changes to finance affordability / availability cause a degree of difficulty when they come to complete? I can see Berkeley being much happier to take BTL to the cleaners than OOs.

[Venger]

All of this reminds me of

http://www.irishcentral.com/news/how-my-irish-dream-home-became-a-nightmare-105512083-237723421.html

At least she completed on transaction. Developer got the money. Only the bank on the hook for her mortgage and less escaping that so easily. Charged right in, one of the last to push and fall into it. Mad price, no problem. (I guess reflation has seen price lift right back up).

Now that was more like it. None of this cuddles and claiming the renter-savers were to blame, for those who had bid 2, 3 or 4 times what they would be willing to pay for such a property.

And her grudge towards renter-savers in the crunch - amusing. Cheap(er) rents + pick of much better value housing.

Some of the pics... not sure if they're still embedded. One of the best ones is still there. There was also a great streetview pic iirc.

http://www.housepricecrash.co.uk/forum/index.php?/topic/153314-how-my-irish-dream-home-became-a-nightmare/page-2

And yes crunch changed finance, but no way did any of the offplanners really want to complete. Many offplanners obviously claimed it was only because the mortgages they'd assumed would be available . And valuation plunge. They were just taking the 'reasonable' approach in hope it would best get them out of having to find/pay/be bankrupted for the money, imo.

Edited December 15, 2015 by Venger

[long time lurking]

This to me is the real reason behind Osborne's 40% London HTB scheme - nothing to do with helping FTB into properties but instead a tax-payer funded scheme to make a surfeit of over-priced and frankly unwanted appartments more appealing / affordable to the public and therefore try and prevent a disaster for the London property developers.

What with the crack-down on BTL, the possibility of interest rises getting tantilisingly close, and a huge over-suppy of appartments in the pipeline - things are starting to get interesting...

Spot on a backdoor bailout attempt ,will it be enough to keep the forever HPI centerment going ? as once that centerment is gone demand will go of the cliff edge (if it has not already)

[Patient London FTB]

Pidgely and Perrins are no one's fools.

Cannier players than me might want to look at my nine reasons why shorting Berkeley in a bit might not be complete madness (I've never shorted a stock so I'm not rushing to do this!)

Financial

• today’s share price of £37.10 is now 92 per cent above 2007 peak (£19.35) and 485 per cent above 2009 trough (£6.34)

Sales:

• weakening forward sales growth despite higher value flats being on sale this year. Forward sales Apr 2014 £2.27bn > Oct 2014 £2.69bn > Apr 2015 £3.0bn > Oct 2015 £3.1bn
• Berkeley itself says that it has been making 50% of sales to investors and 40% to overseas buyers (cf. Berkeley’s own 31 Oct 2015 interim results presentation and its 30 Apr 2015 preliminary results presentation). NB it is not clear whether those groups are separate or intermixed. Nevertheless they’re the most vulnerable to taxes.
• it is still in the construction and sales phase of type of flats observers have started to say are vulnerable to falls in value. For example, it put a big bet on London SE1 (though to be fair to it, having bought land cheaply at 2007 to 2009 values) and has at least four-five developments in progress for completion in 2016 and 2017: One Tower Bridge, One Blackfriars, and three on the Albert Embankment (The Corniche and Merano Residences plus due to come on sale next year, The Dumont). 64 of the 100 most expensive SE1 properties listed on Rightmove as for sale or sold subject to contract come from those four developments and are all worth £3m+ (not HTB territory)

Insiders:

• chairman Tony Pidgely sold 750,000 shares at £25 per share in April 2015 for £18.8m leaving him with 6.3 million shares; MD Rob Perrins sold 250,000 shares at £25 per share for £6.3m leaving him with 1.5 million shares in April 2015; Pidgley’s wife sold 337,029 shares at £34.10 per share for £1.1m in September
• the changes to dividends proposed in October have the effect of bringing forward jam to the next three years. a cynic might say this gives shareholders the chance to get money out of the company more quickly. however to be fair to them, the overall effect is to produce higher dividends over the next six years
• sudden departure of finance director last year - it turns out he is now suing them over something (undisclosed what)

If there is a crash:

• Berkeley faces potential difficulty in collecting cash from overseas buyers (h/t The Knimbies Who Say No) who now have to stump up more due to stronger pound
• it faces potential difficulty in collecting cash from BTL buyers who now have more difficulty getting mortgages

However:

• no-one bets against Tony Pidgeley
• I believe if someone shorted the stock today they would have to pay the 100p dividend in January?
• Berkeley is ungeared and has access to £575m of banking facilities which mature in March 2020
• it has lot of lower selling price developments in the South East presumably less likely to suffer in a crash

[The Knimbies who say No]

Proceed with caution, and I expect there are other listed players in the sector that are potentially much more vulnerable. But, the divi plan is central to Berkeley's current valuation and even if it is not loss making, if the expected dividends do not appear as suggested then that will clearly be viewed as a negative. Even if any litigation in foreign lands is successful, if significant numbers of BTLers cannot pay, well, that's that then.

At the end of the day they may be well run and have significant strength/contingency/flexibility in their balance sheet but lest we forget their core business arena is the site of the biggest property bubble in recent history, which shows every signs of running out of steam soon. All said and done that should also be considered a negative!

Edited December 15, 2015 by The Knimbies who say No

[Sawitcoming]

This to me is the real reason behind Osborne's 40% London HTB scheme - nothing to do with helping FTB into properties but instead a tax-payer funded scheme to make a surfeit of over-priced and frankly unwanted appartments more appealing / affordable to the public and therefore try and prevent a disaster for the London property developers.

What with the crack-down on BTL, the possibility of interest rises getting tantilisingly close, and a huge over-suppy of appartments in the pipeline - things are starting to get interesting...

+1 couldn't help feeling like the coming glut of new build luxury flats had something to do with this. However there's a lot of credibility in the arguments about it being a good way to demonstrate support for HPI when really the take up may be low and so more a political gesture. I wonder if there was a HPC that the gov would let people off HTB debts and so help to socialise the losses.

[Si1]

+1 couldn't help feeling like the coming glut of new build luxury flats had something to do with this. However there's a lot of credibility in the arguments about it being a good way to demonstrate support for HPI when really the take up may be low and so more a political gesture. I wonder if there was a HPC that the gov would let people off HTB debts and so help to socialise the losses.

It's built into the htb scheme that your htb debt goes up or down in proportion to the house price, so yes this bit is already socialised

[CunningPlan]

Is it any surprise to anyone that Mr Perrins has frequent high level meetings with various ministers?

[MississippiJohnHurt]

<p>

[*]no-one bets against Tony Pidgeley

]

I think this is the best reason....Pidgley is very canny. From memory he was all cash by the time of the last fall, and will have seen other cycles. My instinct is that he would be ok in most scenarios. Given his past record I wondered if he was the well known property magnate referred to in Chris Blackhurst's recent bearish article on London property.

But there will be plenty of other candidates for the first shoe to drop award. And once it starts...

[Oh Well :(]

Berkley Homes are quite happy to take the 20% deposits they have have taken against new build flats bought off plans. If the (gambler) investor drops out they are cushioned for this. Also even if there is a fall in prices it is unlikely to fall back to the level 3 or 4 years ago when the deposits were taken.