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Why Flats Look Dodgy For 2006

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http://www.everyinvestor.co.uk/timArticles....asp?no_pop_t=1

Why flats look dodgy for 2006

Thursday, December 22, 2005

By Chris Gilchrist

The house price boom is over. Expect minimal price changes next year - except for flats, where the market already looks dodgy and has just been hammered by Gordon Brown.

The Nationwide says UK house prices did not change in November, Halifax says they went up 1.2%. Nationwide expects prices to rise by a maximum of 3% in 2006. Even Rightmove, a group of estate agents - if they weren't optimistic, you'd need to shoot yourself - only expects 4%. The rate of price increase actually peaked in the first quarter of 2003 and - with the odd blip - has been on a declining trend ever since. The annualised rate of increase has dropped to around 3% in the past three months, with London going into reverse and the North still rising at about 5%.

Some perspective: over the past ten years the average UK house has gone from £77,000 to £228,000. On average, UK prices have risen by 166%, while those in England are up 185%, according to the most reliable index, the ODPM. Over that period retail prices are up just 29%. We all know the result: in terms of ratios, house prices are at their highest ever level as a multiple of earnings. We all also know that because interest rates are low, we can actually afford to borrow more, so in terms of real affordability the picture is not quite as bad. But because average income data is upwards-biased by high earners, it is also true that first-time buyers have been priced out of the market.

Supply is rising

Now for supply. In 1990-1, 129,000 houses/flats were started and 160,000 finished - the tail-end of the last boom. In 1995-6, 133,000 were started and 155,000 completed. In 1995-6, 149,000 were started and only 141,000 completed. In 2004-5, 175,000 were started and 155,000 completed.

In any other market, nobody would spend more than ten minutes reaching the obvious conclusion: rising supply has already started to affect prices and will clearly go on doing so given that another rise in completions is due this year. The only reason we even think it's possible house prices can keep on rising is that we want to believe it. All the facts suggest otherwise. And remember that all this takes no account of the supply-side measures Mr. Prescott has been beavering away at, including 'affordable housing', land release and planning system change, all designed to increase the number of dwellings being built. The least anyone expects out of this is an additional 10,000 units a year by 2007.

Flats could get flattened

Dwellings- here's the rub. In 1991-2, 92% of all completions were houses and only 8% were flats; in 2004-5, flats represented 21% of completions. They will represent an even bigger percentage of 2006 completions. Yet surveys consistently show that families would much rather live in houses than flats.

Flats account for the great majority of buy-to-let investments. Buying new flats off-plan and selling at completion for a tidy profit has been a great game over the past few years, but it is over. Gordon Brown put the final nail in the coffin in his Pre-Budget Report when he announced that pension funds would not be allowed to buy residential property from next spring.

Most major developers of flats had already lined up agreements with agents, property clubs, syndicates and pension funds to sell a large proportion of their next year's completions. Many of these sales won't happen. After all, if you had lined up to buy a £200,000 flat expecting that the net cost to you would be £120,000, would you now go ahead and pay £200,000? Only if you believe that everyone else will. It's a game of chicken. Those who cut and run early will survive, the rest will be Kentucky fried.

I expect developers to cut asking prices significantly. Flat prices are already on a declining trend- down about 7% this year- and in terms of asking price I expect that to accelerate in 2006. It would not surprise me to see some distress selling by developers later in the year. Banks are happy to finance housebuilding in a rising market, but once they cease to believe in 'stable prices' they will start to ask developers for their money back. They may well also ask for some of their money back from highly-geared private landlords. This can quickly fuel a downward spiral, as we saw in the last slump in 1990-92.

Too much for sale

But the impact on the overall housing market of a price decline in flats, mainly showing up in a sharp cut in asking prices for new-build, will probably be very patchy. London, with a huge swathe of glitzy waterside flats being built, looks vulnerable, and after the current round of City bonuses has fed through to top-end prices, could be hard hit. Cities with fewer mega-flat developments are likely to suffer less.

I suggest you pay no attention to the chorus of estate agents and popular newspapers who will try to talk up the market next year. For the next few years, it's unlikely the UK housing market is going anywhere- the best you can hope for is sideways. For those who own houses that they live in, this doesn't actually matter much. It doesn't bother me in the least. And for first-time buyers it offers a ray of hope. It's only investors and speculators who may suffer, and they can take their money off the table if they want to.

I can see some merit in property speculation in Hungary, Croatia and Bulgaria, but other than as an owner-occupier, I can't see any reason to engage in highly-geared investment in the UK housing market.

Bottom line is as an investment dont even think about housing in the UK - especially flats!!!

Surely the effect of the (even more significant than last years 7% drop) fall in prices of new flats will ripple through the housing market in general?

Edited by Pete95

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Bottom line is as an investment dont even think about housing in the UK - especially flats!!!

Not untill there is a substantial correction in the hyper inflated, artificial prices ;)

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I can see some merit in property speculation in Hungary, Croatia and Bulgaria, but other than as an owner-occupier, I can't see any reason to engage in highly-geared investment in the UK housing market.

Shame that an otherwise decent article should corrupt itself with the above sentence. ie: Now you can't screw up the UK economy and push up house prices here, go ahead and ruin Eastern European economies instead.

VP

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I can see some merit in property speculation in Hungary, Croatia and Bulgaria, but other than as an owner-occupier, I can't see any reason to engage in highly-geared investment in the UK housing market.

Shame that an otherwise decent article should corrupt itself with the above sentence. ie: Now you can't screw up the UK economy and push up house prices here, go ahead and ruin Eastern European economies instead.

VP

Indeed, you can just imagine all the owner occupiers in those countries ... 'Great the Brits are coming here to double our house prices overnight!' Politicians too - great people will borrow against the value of their houses and we will all be rich!

It is a global phenomenon - i.e. utter stupidity. Where do they think their kids are going to live?

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Umm. I could be wrong but the Eastern Europeans have a strong tradition of buying plots of land and then getting the extended family to help build a house.

Their planning laws also allow the locals a certain degree of flexibility, particularly if they are related to the councillor in question.

So offloading overpriced 60's concrete build or delapidated hovels to foreigners and then building new houses for their families may seem an attractive proposition to some.

Also foreigners can be farmed, particularly in Bulgaria into handing over "maintenance fees" to locals to prevent lightning strikes or petrol through the window. Great.

Wouldn't touch it with someone elses bargepole..

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Some perspective: over the past ten years the average UK house has gone from £77,000 to £228,000. On average, UK prices have risen by 166%

he means 'asking prices' have risen from 77k - 228k

ask yourself

how much more is your salary now compared to 1997 ?

Edited by right_freds_dead

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how much more is your salary now compared to 1997 ?

Wrong question fred's.

Should be: How much has the avg salary changed since 1997? On the basis that we've got late 30s peeps scraping their peak earnings together to become bottom rung FTBers.

Got your farm yet? :P

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no, but i have my cash and my freedom.

Don't be afraid of your freedom.

Cue The Soup Dragons "I'm Free"

I'm Free

To do what I want

Any old time....

I say

"Love Me"

"Hold Me"

"Love Me"

"Hold Me"

coz I'm FREE!!!!!

Another HPC Anthem? ;)

Edited by megaflop

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Flats are dodgy.

Another generalistaion.

It should read "over inflated on an already over inflated price city center newbuild shoeboxes in blocks of 100 where every other flat has been bought by an investor look dodgy in 2006, 2007, 2008, 20009, 2010, 2011, 2012, 2013, 2014................."

Flats did make up approximately 8% of transactions in the period quoted but what you seem to over look is that flats are normally half the price of the cheapest house.

Although many FTB whinge and moan that they can't get their 5 bed 2 garage detached pad in Didsbury for under £100,000, many FTB are happy to have a place to call their own and that's where flats come in.

Even now you can find thousands of flats in good areas and in good condition surrounding most UK cities for sometimes well under £100,000.

Cheap, well maintained flats always sell.

Sorry guys

:rolleyes:

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but what you seem to over look is that flats are normally half the price of the cheapest house.

Splutter... Cough... Excuse me chaps -- just spat my coffee over the screen. Sorry. :blink:

Although many FTB whinge and moan that they can't get their 5 bed 2 garage detached pad in Didsbury for under £100,000

:blink:Cough... Arrgggghh... Now I'm choking on the remainder.

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Flats are dodgy.

what you seem to over look is that flats are normally half the price of the cheapest house.

:rolleyes:

What area are you talking about????????

In my area you can buy a house much cheaper than a flat - flats are certainly not half the price of a house.

I will never know why a young couple would pay £250k for a two bed flat when they could buy a nice three bed semi for £180K

Oh wait a minute - yes I do know - it is because the only way they can afford to buy is to buy a newbuild from a developer with all the incentives/dodgy valuations/cashbacks/legal fees paid etc.

They can not afford to buy on the open market.

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I've posted before on the Manchester Flat position. City centre flats (deansgate etc) will always be in demand. However, with over 10000 flats coming onto a saturatated market in the next 12 months its bloody obvious prices cannot be maintained. Basic supply and demand.

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I've posted before on the Manchester Flat position. City centre flats (deansgate etc) will always be in demand. However, with over 10000 flats coming onto a saturatated market in the next 12 months its bloody obvious prices cannot be maintained. Basic supply and demand.

Ten thousand in twelve months? WTF??? :blink:

Coz you're in the industry and might know, Brian, is there any way an average joe can find figures for how many are being built / planned?

I know how to find prices of property sold. :)

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This just gets better and better.

You lot really haven't got a clue have you?

You talk about the (correct) current ill informed rush into property but what about the current, totally misinformed and blinkered anti property posts on these boards :lol::lol::lol::lol::lol:

OPEN YOURSELF UP PEOPLE - YOU SEEM TO BE BASING YOUR POOR ASSUMPTIONS ON INCORRECT INFORMATION AND I AM HAVING A BALL LAUGHING AT YOU :lol:

A few points to ponder:

1) There are other parts of the UK that are outside London

2) There are other parts of the UK the are north of the M25

3) There are othet properties apart from 2 bed city center newbuilds

4) There are properties and areas that do not conform to the "£xxx,xxx is the average house price"

You really are proving very poor opposition.

Assumption, assumption, assumption.

Very poor guys, very poor.

PS - And no, I'm not a troll. I can hopefully engage in any worth debate regarding the UK housing market. I am not her only to incite, although it just SUCH good fun, I'm here to point out that many assumptions are very wrong.

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I use one fact:

Average house price = 7x average salary.

I don't think there is a region anywhere in the UK

where it is still the long term average of 3.5x, even less

that there anywhere where it is lower than 3.5x.

No asumptions required

ABB

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This just gets better and better.

You lot really haven't got a clue have you?

You talk about the (correct) current ill informed rush into property but what about the current, totally misinformed and blinkered anti property posts on these boards :lol::lol::lol::lol::lol:

OPEN YOURSELF UP PEOPLE - YOU SEEM TO BE BASING YOUR POOR ASSUMPTIONS ON INCORRECT INFORMATION AND I AM HAVING A BALL LAUGHING AT YOU :lol:

Only seems fair really. :lol:

A few points to ponder:

1) There are other parts of the UK that are outside London

Where does anybody say anything about London on this thread?

2) There are other parts of the UK the are north of the M25

No sh1t, sherlock. Infact, several posters mention such domains in previous posts on this thread.

3) There are othet properties apart from 2 bed city center newbuilds

Although, that happens to be the topic of conversation and the thread starter.

4) There are properties and areas that do not conform to the "£xxx,xxx is the average house price"

Of course there are. There are cheaper and more expensive properties. That's what makes an average. You are clever, aren't you?

You really are proving very poor opposition.

Assumption, assumption, assumption.

Very poor guys, very poor.

pot, kettle

PS - And no, I'm not a troll. I can hopefully engage in any worth debate regarding the UK housing market. I am not her only to incite, although it just SUCH good fun, I'm here to point out that many assumptions are very wrong.

Of course, the biggest problem is that you assumed that the thread was on a completely different topic.

PS If you are not a troll, why do you refer to everyone else on the site as opposition?

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This just gets better and better.

You lot really haven't got a clue have you?

You talk about the (correct) current ill informed rush into property but what about the current, totally misinformed and blinkered anti property posts on these boards :lol::lol::lol::lol::lol:

OPEN YOURSELF UP PEOPLE - YOU SEEM TO BE BASING YOUR POOR ASSUMPTIONS ON INCORRECT INFORMATION AND I AM HAVING A BALL LAUGHING AT YOU :lol:

A few points to ponder:

1) There are other parts of the UK that are outside London

2) There are other parts of the UK the are north of the M25

3) There are othet properties apart from 2 bed city center newbuilds

4) There are properties and areas that do not conform to the "£xxx,xxx is the average house price"

You really are proving very poor opposition.

Assumption, assumption, assumption.

Very poor guys, very poor.

PS - And no, I'm not a troll. I can hopefully engage in any worth debate regarding the UK housing market. I am not her only to incite, although it just SUCH good fun, I'm here to point out that many assumptions are very wrong.

I think there are 3 of these for sale around the same price of £104,950 they have been on the market all year

http://www.vebra.com/home/search/vdetails....15&pid=10170854

2000 -2002 prices are around 55K

http://www.nethouseprices.com/index.php?co...it=20&curPage=2

The tewkesbury area is nothing special has nothing to offer like london or any city, the average wage of a normal worker around here (its mainly all factory work, there is nothing else around) 15K- 18K.

YOU need to realise that your part of the world (which i presume is what you are basing your speel on) is not the ONLY place, its not just london and the cities that are affected, towns and hamlets are suffering the same fate.

I think its you that assume to much.

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Gone West,

Do keep up boy. I know you probably find it hard to read through your HPC tears, but at least try.

London was in fact mentioned in the first quote that started the thread.

The title of the thread is "Why flats look dodgy for 2006" not "Why 2 bed newbuild flats look dodgy for 2006" hence my discussion regarding flats in general. City center 2 new new builds died a death in 2003. And you really do not need to be Sherlock to know this.

Pointed out that properties and areas can be below the average just in case there are any HPC people still moaning about not being able to afford to buy.

And it's true, some of you are proving very poor opposition. Seem very set in your ways and unable to expand your thinking. Must be terrible to be so bitter :lol:

You see, I didn't assume that this thread was on a different topic. I unlike you, read the threads fully. See my points above :lol:

And finally. A troll as I understand it is somebody that comes along posting poor arguments and cut and pasted articles in the hope of stirring up a hornets nest.

I on the other hand am merely responding in a logical and balanced manner to what I see as ill informed posts.

Also, I am property biased, you lot are not. Differing sides of the fence so opposition but in the nicest possible way :D

The Chuz

I too can show you a range of properties in a range of areas that have been on the market for ever.

I could have also done this back in 2000 - 2002. I'ts nothing new and really means nothing.

Another assumption i believe.

Keep up the good work guys

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Gone West,

Do keep up boy. I know you probably find it hard to read through your HPC tears, but at least try.

London was in fact mentioned in the first quote that started the thread.

The title of the thread is "Why flats look dodgy for 2006" not "Why 2 bed newbuild flats look dodgy for 2006" hence my discussion regarding flats in general. City center 2 new new builds died a death in 2003. And you really do not need to be Sherlock to know this.

Pointed out that properties and areas can be below the average just in case there are any HPC people still moaning about not being able to afford to buy.

And it's true, some of you are proving very poor opposition. Seem very set in your ways and unable to expand your thinking. Must be terrible to be so bitter :lol:

You see, I didn't assume that this thread was on a different topic. I unlike you, read the threads fully. See my points above :lol:

And finally. A troll as I understand it is somebody that comes along posting poor arguments and cut and pasted articles in the hope of stirring up a hornets nest.

I on the other hand am merely responding in a logical and balanced manner to what I see as ill informed posts.

Also, I am property biased, you lot are not. Differing sides of the fence so opposition but in the nicest possible way :D

The Chuz

I too can show you a range of properties in a range of areas that have been on the market for ever.

I could have also done this back in 2000 - 2002. I'ts nothing new and really means nothing.

Another assumption i believe.

Keep up the good work guys

Evidence please.

The following thread contains many examples of overpriced flats and what you can buy for the same money nearby.

http://www.housepricecrash.co.uk/forum/ind...topic=20379&hl=

Can you post an example of a flat that represents good value for money compared with nearby houses?

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Guys, latk is a greedy wind-up merchant who already owns five properties and is quietly shitting himself. So much bravado, so little substance. W*nker.

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". City center 2 new new builds died a death in 2003. And you really do not need to be Sherlock to know this."

What surprises me is how builders have gone on building these things.

I think the reason is that there is a long lead time in new builds coming onto the market.

Flats for sale today were probably started as far back as 2003, it would be interesting to know how many new projects are being started nowadays.

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Ten thousand in twelve months? WTF??? :blink:

Coz you're in the industry and might know, Brian, is there any way an average joe can find figures for how many are being built / planned?

I know how to find prices of property sold. :)

megaflop,

I did see an article on another site stating over 12000 new builds and the breakdown of where they are. Unfortunately, I cannot remember where I read it. However, just look at the various developers sites to guage what is being built and where and you can do your own maths.

Try:

Bellway

Dandara

Persimmon

Urban Splash

Wimpey

Barrat

Fairclough

Peel Holdings

Gleeson Homes

etc, etc

I alone as a stand alone freelance professional have worked on at least 1000 (tender or live) in the last 12 months.

Anecdotally, I know that huge numbers are still in the pipeline through industry tender knowledge - dont get me wrong, If they want them, I will build them - but the market is nearing saturation IMO.

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...is there any way an average joe can find figures for how many are being built / planned? [megaflop]

'Flat on its face':

http://portal.telegraph.co.uk/property/mai...17/pempty17.xml

The souring of the inner-city dream has left a glut of empty, new-build apartments, affordable to few and situated in communities bereft of families. What now for the super-cool, urban living space that stands empty?

[...snip...]

Now that buy-to-let has slowed, interest rates are higher and transactions are at their lowest figure since 1974, developers are left with huge projects on their hands. Following Gordon Brown's cancellation of Sipps benefits on residential property last week, the expected flow of eager investors has effectively been plugged.

[...snip...]

Southampton

"There are 760 finished, unsold, two-bedroom flats in Southampton at the moment, and a lot more coming up on the inside track," says an analyst.

"What we are going to see is that developers will just not go ahead with their schemes. They have got to be viable from the builders' point of view." Bloggers on the internet in Southampton talk of developers "reducing asking prices across the city" and of being "glutted with luxury, two-bedroom apartments".

At Ocean Village, planned as 400 apartments, the property consortium went bust, leaving flats for disposal and a section unbuilt.

[...snip...]

Leeds

According to Knight Frank, 3,655 new homes have been completed in the past decade, 2,408 are being built and a further 4,808 are stacked on the runway.

[...snip...]

Nottingham

The market in some areas is "peaking", according to a study just published by Nottingham Trent University. This is particularly true of the Lace Market, "where there is an oversupply of rented housing". "Basically, the new flat has hit a price ceiling," says research director Richard Donnell.

[...snip...]

In 1998, the average value of a new flat in Nottingham was £169,055, and 160 were sold at a premium of 207 per cent over old property.

Since then the sparkle has steadily faded - last year the average value of new flats was £137,246 on 948 sales, with a premium of just 4 per cent.

Bristol

There are 1,900 homes being built, 4,200 more in the pipeline (with planning permission), and 2,000 on the drawing board. Hundreds of flats are for sale off-plan or being built now.

[...snip...]

Manchester

"Northern cities have been transformed by the building of flats," says Liam Bailey, of Knight Frank.

"But the fact that there are a lot on the market not selling, and a lot in the pipeline, is unfortunate. The market will eventually mature. If you are reinventing cities, you will gets ups and downs."

Here 5,949 units have been finished in the past decade; 13,427 are being built and a further 4,100 are in the pipeline with planning permission. But the city council is trying to attract families and has given Taylor Woodrow permission for townhouses and a crèche at Macintosh Village.

[...snip...]

Liverpool

Nowhere has grown faster. A decade ago just 2,500 people lived in the city centre. Knight Frank says this has grown by 400 per cent to around 11,000. There have been 3,523 new homes coming on stream, 3,049 are now being built and 1,548 more have planning permission.

For sales negotiators, it can be like being a rabbit in the headlights. Kevin Whittaker, who has been marketing123 flats in The Albany, still had 65 left to sell last February.

By November, the figures had whittled only to 58, even though he is offering a trial rental period of six months, guaranteed two-year rental for investors, and available cash-back deals. Prices are £168,000 for one bedroom and £218,000 for two.

"We are trying to come up with new ideas. Buyers have an awful lot to choose from in Liverpool. It can only get worse, as there are many more flats coming to the market by 2008," he says.

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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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