City Centre Flats

[Rob76]

Hi Guys,

I posted this over in the MSE forum in response to the speculation that Manchester was going to be in the top 10 hotspots for the country on the K&P ramping programme and thought you might find it interesting. I’ve been keeping a bit of an eye on the city centre as every time I go back there another 5000 flats seem to have sprung out of the ground. In my opinion there has been massive overdevelopment of the city centre flat market and combined an endless stream of people who thought it would be a licence to print money, the yields have nosedived. 35 The Ropeworks (M15 4QJ) is a pretty normal development, split between owner occupiers and BTL so it’s good to show the numbers:

Rental Yeild: Flat B48 is up for rent at £825pcm (rightmove), was bought in Dec 2003 for £200,000 (nethouseprices). Income is £9900pa - £800 service charge - £120 ground rent giving a yield of 4.5% assuming no voids, repairs, management charges, etc. If it was bought with cash then that is an appalling return, if bought with a mortgage then it will be losing money every month.

But the Capital Appreciation means that loss every month is not too much to worry about, after all BTLs are in it for the long term… Afraid not. As you can see from the data from the last four resales, oversupply has hit prices pretty hard as well.

Flat B67

£235,000 20-Jan-2006

£295,000 24-Dec-2003

Flat B13

£135,500 11-Jan-2006

£117,500 06-Dec-2002

Flat B72

£215,000 30-Sep-2005

£319,000 24-Dec-2003

Flat B66

£192,500 26-Aug-2005

£234,000 23-Dec-2002

It will be interesting to see where this goes, I guess there is a nasty decision to take. Do you keep on making a loss every month or do you call it a day and capitalise a loss that will run into the tens of thousands? Time will tell…

Flat B72 is has an almost unbelieveable drop of £104,000 in a fraction over 2 years, the data is straight from nethouseprices though and the other sales in the development seem to validate it. Have any of you got any pet developments you are tracking and if so what sort of trends are you seeing?

[ToilAndTrouble]

More examples here (registration required).

This is the Hacienda apartments... much hyped development on the site of the former club. These are the most recent sales... I've not cherry-picked the falls.

T&T

03/02/2006 215 Apartment, 15 The Hacienda Whitworth Street West, Manchester, Greater Manchester, M1 5DE £235,500

04/02/2004 215 Apartment, 15 The Hacienda Whitworth Street West, Manchester, Greater Manchester, M1 5DE £234,000

16/01/2006 219 Apartment, 11 The Hacienda Whitworth Street West, Manchester, Greater Manchester, M1 5DB £210,000

18/11/2003 219 Apartment, 11 The Hacienda Whitworth Street West, Manchester, Greater Manchester, M1 5DB £233,100

15/11/2005 318 Apartment, 11 The Hacienda Whitworth Street West, Manchester, Greater Manchester, M1 5DB £135,000

15/03/2004 318 Apartment, 11 The Hacienda Whitworth Street West, Manchester, Greater Manchester, M1 5DB £150,000

12/08/2005 615 Apartment, 15 The Hacienda Whitworth Street West, Manchester, Greater Manchester, M1 5DE £230,000

30/03/2004 615 Apartment, 15 The Hacienda Whitworth Street West, Manchester, Greater Manchester, M1 5DE £278,500

29/04/2005 1101 Apartment, The Hacienda Whitworth Street West, Manchester, Greater Manchester, M1 5DB £595,000

01/02/2005 1101 Apartment, The Hacienda Whitworth Street West, Manchester, Greater Manchester, M1 5DB £650,000

[devils advocate]

It will be interesting to see where this goes, I guess there is a nasty decision to take. Do you keep on making a loss every month or do you call it a day and capitalise a loss that will run into the tens of thousands? Time will tell…

This is a very interesting scenario. When there is a monthly loss on the income and expenditure, the professionals are more inclined to crystallise capital losses, whilst the amateurs 'can't afford' the capital losses and are prepared to subsidise the monthly costs whilst they can. The pros realise that if they suddenly get a void, they start haemorraging cash each month, , whilst the amateurs sit tight and hope that there's no void. Similarly, the pros will realise that at the next renewal of tenancy, the newness of the flat isn't there anymore, and it won't be able to command that extra premim on the rent, whilst the amateurs factor in rent increases at renewal 'cos its a nice assumption.

So broadly speaking with amateurs losses will take a lot longer to crystallise, but when they do happen they are far greater than they should have been.

One of the hardest lessons in investment is the first rule of investment, "the first loss is the cheapest"

[Time to raise the rents.]

This is a very interesting scenario. When there is a monthly loss on the income and expenditure, the professionals are more inclined to crystallise capital losses, whilst the amateurs 'can't afford' the capital losses and are prepared to subsidise the monthly costs whilst they can. The pros realise that if they suddenly get a void, they start haemorraging cash each month, , whilst the amateurs sit tight and hope that there's no void. Similarly, the pros will realise that at the next renewal of tenancy, the newness of the flat isn't there anymore, and it won't be able to command that extra premim on the rent, whilst the amateurs factor in rent increases at renewal 'cos its a nice assumption.

So broadly speaking with amateurs losses will take a lot longer to crystallise, but when they do happen they are far greater than they should have been.

One of the hardest lessons in investment is the first rule of investment, "the first loss is the cheapest"

Actually, I'd say the pros aren't the buyers of these places, they're the developers. Anyone who buys these new-builds is an amateur IMO.

Anyone who thinks pros buy them is an amateur too.

Edited April 26, 2006 by Time to raise the rents.

[Seamaster]

The new trend in my city is for new build multiple use developments — eg ground floor retail units, first/second/third floor office accomodations, fourth/fifth/sixth/seventh/etc floor apartments. Wider appeal across multiple property investment sectors?

[Phaedrus]

The new trend in my city is for new build multiple use developments — eg ground floor retail units, first/second/third floor office accomodations, fourth/fifth/sixth/seventh/etc floor apartments. Wider appeal across multiple property investment sectors?

Your city being Newcastle upon tyne. I think I know the developments you are thinking of. All I see when I look at them is not just empty flats but also empty retail units and office space.

[737]

Hi Guys,

I posted this over in the MSE forum in response to the speculation that Manchester was going to be in the top 10 hotspots for the country on the K&P ramping programme and thought you might find it interesting. I’ve been keeping a bit of an eye on the city centre as every time I go back there another 5000 flats seem to have sprung out of the ground. In my opinion there has been massive overdevelopment of the city centre flat market and combined an endless stream of people who thought it would be a licence to print money, the yields have nosedived. 35 The Ropeworks (M15 4QJ) is a pretty normal development, split between owner occupiers and BTL so it’s good to show the numbers:

Rental Yeild: Flat B48 is up for rent at £825pcm (rightmove), was bought in Dec 2003 for £200,000 (nethouseprices). Income is £9900pa - £800 service charge - £120 ground rent giving a yield of 4.5% assuming no voids, repairs, management charges, etc. If it was bought with cash then that is an appalling return, if bought with a mortgage then it will be losing money every month.

But the Capital Appreciation means that loss every month is not too much to worry about, after all BTLs are in it for the long term… Afraid not. As you can see from the data from the last four resales, oversupply has hit prices pretty hard as well.

Flat B67

£235,000 20-Jan-2006

£295,000 24-Dec-2003

Flat B13

£135,500 11-Jan-2006

£117,500 06-Dec-2002

Flat B72

£215,000 30-Sep-2005

£319,000 24-Dec-2003

Flat B66

£192,500 26-Aug-2005

£234,000 23-Dec-2002

It will be interesting to see where this goes, I guess there is a nasty decision to take. Do you keep on making a loss every month or do you call it a day and capitalise a loss that will run into the tens of thousands? Time will tell…

Flat B72 is has an almost unbelieveable drop of £104,000 in a fraction over 2 years, the data is straight from nethouseprices though and the other sales in the development seem to validate it. Have any of you got any pet developments you are tracking and if so what sort of trends are you seeing?

Assuming a 20% deposit of £40,000 , HPI to average 3% and rental yeilds to increase by 3% (both p.a.) over 25 years then to break even on this investment one needs interest rates to average 4.25% - this is with no voids, no insurance and no maintainance costs!

If one assumes voids reduce the rent to £745 with annual insurance/maintaiance costs of £500 then the net present (non)value of the investment is - (Minus) £113,388.87 - or, to break even, interest rates would have to average 2.3%

Financial Times BTL Calculator

Edited April 27, 2006 by 737

[TJS]

Hope noone minds me bringing this thread up again. I'm moving to Nottingham and have been looking around apartments to rent and noticed that almost all the brand new flats in the city centre (that were very nice) had been reduced over the last few months or so according to the EAs. This seems to confirm that the BTL crowd are getting their fingers burnt (a flat that I looked at was advertised for £395pcm that would have cost around £135k).

But what does anyone think will happen to these flats in the long term? When would be a good time if ever to buy one of them?

[Dames]

But what does anyone think will happen to these flats in the long term? When would be a good time if ever to buy one of them?

When you dont have kids , dont need a garden , garage , veg plot , dont want to be surrounded by others on all sides , dont want a shared entrance , car parking space you have to pay ground rent on , dont want annual shared maintainence costs , and dont want something thats going to look like it needs pulling down in 10 years time.

Feel free to add some more .

D

[TJS]

When you dont have kids , dont need a garden , garage , veg plot , dont want to be surrounded by others on all sides , dont want a shared entrance , car parking space you have to pay ground rent on , dont want annual shared maintainence costs , and dont want something thats going to look like it needs pulling down in 10 years time.

Feel free to add some more .

D

Ha ha well they're not everyone's cup of tea I suppose, but location is the most important thing to me and the old Lace Factory mill flats look nice to me at least. But I really think that they are building/restoring more flats in city centres than people actually want to live in so maybe they'll lose more value than traditional houses.

[Dames]

Ha ha well they're not everyone's cup of tea I suppose, but location is the most important thing to me and the old Lace Factory mill flats look nice to me at least. But I really think that they are building/restoring more flats in city centres than people actually want to live in so maybe they'll lose more value than traditional houses.

They're already doing that.

Dames

[MarkG]

And don't forget that half of them will probably end up rented out as 'social housing'. Must be fun paying 250k for a crappy flat and then having dole-funded chavs move in next-door.

[newaccount99]

Here's my local area investment disasters:

84 Alencon Link,

RG21 7TY

26-Sep-2003 £190,995

28-Jun-2005 £165,000

139 Alencon Link,

RG21 7TW

28-Nov-2003 £213,995

29-Jun-2005 £183,000

27 Alencon Link,

RG21 7TN

20-Apr-2004 £199,995

22-Dec-2005 £160,000

123 Alencon Link,

RG21 7TW

31-Oct-2003 £211,995

22-Feb-2006 £168,000

[BillyShears]

It will be interesting to see where this goes, I guess there is a nasty decision to take. Do you keep on making a loss every month or do you call it a day and capitalise a loss that will run into the tens of thousands? Time will tell…

Some people will stick it out, and others will head for the exits. The market prices will be set by those that sell, not those that hold.

It's an interesting bit of game theory. If every homeowner holds their property then prices can't drop. But it only takes one to break ranks (or go bust) and the values of all houses drop.

Billy Shears

[StrapInThisIsGoingToHurt]

This is seriously good news for FTB people like me who are renting and sitting on the deposit for a nice little appartment in a couple of years' time or so. Glad I waited! Thanks HPC!

[BandWagon]

Here's my local area investment disasters:

Excellent, some hard evidence of real 20% falls in price, in just over a year.

Yet all we see in the papers is how property is "booming" again.

It's a funny old world ....

[apom]

Actually, I'd say the pros aren't the buyers of these places, they're the developers. Anyone who buys these new-builds is an amateur IMO.

Anyone who thinks pros buy them is an amateur too.

They are horrible, but..

TTRTR's does renting them out to housing association's make good revenue..

Only a new development near me seems have a large amount of fat women wearing tracksuits and smoking rothmans whilst sitting around watching their grubby children play...

I am guessing that its not a huge leap of deductive reasoning here.. to work out who is paying their rent..

Me and you..

http://news.bbc.co.uk/1/shared/spl/hi/in_d...html/houses.stm

Edited May 7, 2006 by apom

[SarahBell]

Hysterically I caught sight of a news story about the Manchester Beetham Tower Whistling - and keeping neighbours a few streets away awake at night ... (Only after 2am and the traffic noise drops I assume)

http://www.nw-enquirer.co.uk/news/general_...0060504204.html

[libitina]

http://news.bbc.co.uk/1/shared/spl/hi/in_d...html/houses.stm

http://news.bbc.co.uk/1/shared/spl/hi/in_d...s/html/39ub.stm

Slightly different picture in my neck of the woods

[Michael]

Actually, I'd say the pros aren't the buyers of these places, they're the developers. Anyone who buys these new-builds is an amateur IMO.

Anyone who thinks pros buy them is an amateur too.

new-build hotel-style flats are about 70% overvalued .....Conventional homes about 25% overvalued.........

Barring an economic disaster the market for the latter could correct itself by wages and rents rising by this amount over the next 6 or 7 years with NO NOMINAL FALLS!......meanwhile the new build rubbish will drop by 40% in nominal terms or 70% in real terms

[BillyShears]

Only a new development near me seems have a large amount of fat women wearing tracksuits and smoking rothmans whilst sitting around watching their grubby children play...

I am guessing that its not a huge leap of deductive reasoning here.. to work out who is paying their rent..

Perhaps this is targeted policy by the government. People assume that the government wants "mixed developments" of social and private housing so that the "social" proportion can learn from the young professionals and improve themselves. Perhaps the true plan is something a bit more basic. By mixing in the unemployed solo mothers in with the young professionals, perhaps the government hopes that the women will start, well, shagging the male young professional "flash geezers, but 'is wife's an utter cow" in the developments. After the resulting children, the DSS can then come knocking on the door of the young professional. Result: the welfare payments are, to at least a large part, covered.

Billy Shears

Edited May 8, 2006 by BillyShears

[Rachman]

Perhaps this is targeted policy by the government. People assume that the government wants "mixed developments" of social and private housing so that the "social" proportion can learn from the young professionals and improve themselves. Perhaps the true plan is something a bit more basic. By mixing in the unemployed solo mothers in with the young professionals, perhaps the government hopes that the women will start, well, shagging the male young professional "flash geezers, but 'is wife's an utter cow" in the developments. After the resulting children, the DSS can then come knocking on the door of the young professional. Result: the welfare payments are, to at least a large part, covered.

Billy Shears

What it tells you is that rents are too low if they can be met by the DSS. It also tells you benefits are too high (or a mix of the two).

I would NEVER buy in a mixed social/private development because I want a greater guarantee that Chavmells and Wayne Kerr won't be next door - I know money does not buy you good behaviour but it does tend to keep the scrotes away. I can't believe these people that are happy to lay out a packet when they know the tenant next door is paying nothing or a lot less compared to them to live the same way - I pity the people in ,ized developments with pools and stuff - they will find out what's wrong with society this summer as all the chavs descend in their uninsured Ford Orions.....

[howler]

I live in Manchester city cente and have watched as the market seems to have slowed right down - putting it mildly.

Given the figures from the Land Registry (i.e. massive drops in recent sale prices when compared to just a few years ago) how can anyone look at Manchester City Centre and talk of anything other than a crash?

[MarkG]

What it tells you is that rents are too low if they can be met by the DSS.

LOL.

As has been pointed out before, DSS renting is a backdoor method for the government to set local rents. If the DSS paid less, rents would drop, not increase.

[Rachman]

LOL.

As has been pointed out before, DSS renting is a backdoor method for the government to set local rents. If the DSS paid less, rents would drop, not increase.

Er yes, that's partly the point - if rents for exec apartments can be afforded by benefits, that tells you either rents are too low or benefits are too high - surely - probably both. As I have said elsewhere, if this happens largescale, these developments are going to rack and social and economic ruin very quickly....