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What Is Stopping Builders From Slashing And Burning Prices?

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Apologies in advance if I'm missing the bloody obvious but I just don't get it. Take the example of City Lofts at Princes Dock Liverpool where they went into administration having approx. 20 apartments unsold and nationally 230. Now surely with all the corporate 'intel' at their disposal they could see sales slowing and could have off loaded this time last year, wtf stopped them? Repeat this scenario with so many of the builders; Persimmon stating sales are 35% down vis a vis this time last year. Were, for example, City Lofts concerned that irate customers (past) would give them a hard time if they saw the prices plummet below the original selling prices? Just doesn't make sense...at Princes Dock they could have off loaded all the units by reducing by 20% (30K) last year, are they all that thick that they bought into the BS of a winter lull to be followed by a spring bounce? Pick just about any poster on HPC and you can bet (put in charge of sales) you'd have just witnessed the crunch beginning to happen in August and instructed them to sell at whatever price you could get with whatever incentives were available...Not making sense... <_<

http://www.liverpooldailypost.co.uk/busine...64375-21219449/

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What Is Stopping Builders From Slashing And Burning Prices?

Madness probably. A pathological belief in continuous HPI is obviously very difficult to cure, even at board level.

Edited by thecrashingisles

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Madness probably. A pathalogical belief in continuous HPI is obviously very difficult to cure, even at board level.

the guys i know have to go and have very difficult meetings with the bank once a month per development.

this is where they convince the bank that the site is worth what they owe the bank + the interest at the point when they expect to pay capital off...

slash prices 25% and the bank close the company to recover what they can....

[however "A pathalogical belief in continuous HPI is obviously very difficult to cure, even at board level", i do know one of the directors who just spent 2.5million on his tasteless huge folly of a house, inc £1million mortgage... trust me, he needs to keep the business going.. only his dad would give him a job at board level.. that house makes me laugh every time i drive past it....

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They bought the land a couple of years earlier, have paid the builders etc, need money to purchase the next piece of land at 2006/7 prices.

Its all about balancing the books, the last thing a building company with a number of sites around the country half completed wants to do is reduce its prices and set a level for negotiations at the other sites.

2 bed flat 20% off, it does'nt look good as an investment, we are told property only ever goes up in value.

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Because there are debts secured on these properties. If they sell one at -20% they 'realise' the loss of 20% which they have to pay back to the bank. On top of that, their entire portfolio more than likely has to be revalued 20% down because of that one sale. The banks make margilon calls to compensate for the fall in value of the loan collateral, the company can't pay and goes bust.

They're trying to buy time by pretending values haven't fallen that much.

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Madness probably. A pathalogical belief in continuous HPI is obviously very difficult to cure, even at board level.

I began to wonder if, in the case of city lofts, the investments/finances had been that sliced and diced, the whole finanical structure was just such a mess to get out of that administration became the easier of the two options. Had Directors got options on certain flats in lieu of bonuses etc...? Now I can understand the huge leverage needed for City Lofts, but for Barratts, Persimmon etc the answer was simple; flog em all, at auction if need be but just liquidate the stock asap...

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Will sometimes see the last couple of properties on a site being slashed in price, this is mainly due to shutting up the sales office and able to move on , i.e No staff needed, the site has made or exceeded its agree return so by selling under the original asking price it is only eating into unexpected bonus.

You normally see incentives being offered on properties before any discounts are offered, that way the prices remain firm.

£500 towards mortgage each month , part exchange , carpets , curtains etc........Better kitchen , bathroom

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Because there are debts secured on these properties. If they sell one at -20% they 'realise' the loss of 20% which they have to pay back to the bank. On top of that, their entire portfolio more than likely has to be revalued 20% down because of that one sale.

Surely a single forced sale (i.e. second hand) would achieve that anyway?

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British mangement is lousey IMPO.

Anyone can be successful running a business in boom times - anyone. If credit is freely available you do not have to be Henry Ford to get people to come and buy things - they just come. Their pockets are full and the money is burning a hole in their pockets.

You only find out good managers when economies are dire. I think we are about to find out that hundreds of our CEOs, board members, chief financial bods and so on - those people who have been creaming off huge salaries and bonuses during the years of plenty - are simply lousey at their jobs. Then, beneath them, is an army of tens of thousands of pretty average managers.

Being good at something is not what gets you a good job in a corporate. Knowing how to suck up, knowing who to sleep with, knowing who to stab in the back and knowing how to play the game are all important.

Some of these boys have literally become billionaires on the back of easy credit. Others have earned hundreds of millions. Feel for the poor sods who have only made a few tens of millions - weren't on the right gravy train.

I also think people are still in denial phase - even now today after the news headlines being all about recession I doubt that it will hit home to many people. House prices are still ridiculous, car prices the same and so on and so on.

Why don't the house builders have masive sales of their 400k and 500K houses - I am sure flogging them for 200K each would still net them a healthy profit on what they built them for? Nah, can't do that. They can't, IMPO, even imagine that - house prices only go up, the poor brainwashed sheeple!

Car sales - anyone seeing big reductions on cars yet? Nope, they would rather have them all rust in fields than market them at reasonable prices. Hence why several giant car makers are technically bankrupt.

You could go on all day about this.

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Surely a single forced sale (i.e. second hand) would achieve that anyway?

I don't know. They are probably obliged to report on their own sales whilst the lenders could miss forced sales? Or they would just prented a forced sale is diferent?

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Guest sillybear2
House prices are still ridiculous, car prices the same and so on and so on.

Err... cars are cheap, why do you think there's so many of them about? Clearly they're cheap to buy, with new cars being cheaper in real than the early 90's recession, and still too cheap to run, despite the oil prices.

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I think we are about to find out that hundreds of our CEOs, board members, chief financial bods and so on - those people who have been creaming off huge salaries and bonuses during the years of plenty - are simply lousey at their jobs.

Thats not possible- the reason that these people are paid so much is because they possess rare qualities of leadership and insight not possessed by normal men- people such as these are jewels of such scarcity that only the highest salaries and bonus incentives are sufficiant to retain their services. And I know this is true because they told me it was, and they are all unanimous on this, and their judgement is, of course, beyond question.

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Apologies in advance if I'm missing the bloody obvious but I just don't get it. Take the example of City Lofts at Princes Dock Liverpool where they went into administration having approx. 20 apartments unsold and nationally 230. Now surely with all the corporate 'intel' at their disposal they could see sales slowing and could have off loaded this time last year, wtf stopped them? Repeat this scenario with so many of the builders; Persimmon stating sales are 35% down vis a vis this time last year. Were, for example, City Lofts concerned that irate customers (past) would give them a hard time if they saw the prices plummet below the original selling prices? Just doesn't make sense...at Princes Dock they could have off loaded all the units by reducing by 20% (30K) last year, are they all that thick that they bought into the BS of a winter lull to be followed by a spring bounce? Pick just about any poster on HPC and you can bet (put in charge of sales) you'd have just witnessed the crunch beginning to happen in August and instructed them to sell at whatever price you could get with whatever incentives were available...Not making sense... <_<

http://www.liverpooldailypost.co.uk/busine...64375-21219449/

We still have companies building new stuff up here in Nottingham and I can only assume that their doing it cus they simply didn't expect the party to end.

It's only very recently on MSE that I've begun to see threads appearing with folk who have realised the worm has turned and are trying to get out of their contract to buy. In some cases they signed that pledge years before the development was finished.

And seeing as these were people who actually had the nounce to get online and try and find out what to do (finding MSE along the way) I bet there's thousands more who also thought the party would never end and are still signing up for these new builds.

A friend of mine who has spent the last few years leveraging to increase his BTL portfolio has finally said he'd wished he'd listened to me a year ago and stopped buying.

Maybe it really does take until the word 'recession'appears on the front of the papers before all types of folks - builders and buyers realise what's going on?

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Nils Prately in today's Guardian explains...

Remember the phrase "land creditors" - the housebuilders may be about to use it a lot. Land creditors are landowners who have agreed to sell land. They are creditors because their payments are deferred. On the face of it, the arrangement is quite normal: housebuilders, who always grumble about planning delays, have sought to pay for their land closer to the moment they start construction.

What's new, however, is the scale of this activity. Analysts at Royal Bank of Scotland have totted up the totals in the quoted housebuilders' accounts and reckon the sector had an unpaid bill of £2.3bn at the end of 2007. "The sector has entered the current downturn with a larger cashflow burden that in previous cycles," they comment drily.

It is one reason why the finances of the housebuilders are causing major headaches in the boardrooms of British banks. Top of the pile is Taylor Wimpey since it tried, and failed, to raise £500m from shareholders last week. Taylor Wimpey's accounts show that it had £823m of land creditors at the end of last year. The worrying part, though, is that £454m is due to be paid this year. That's one hell of a sum to find at a time when house sales are running at half last year's levels. Taylor Wimpey, even last year, had a cash outflow from operations once it had paid interest and tax.

Surely, you might think, the banks will roll over and agree new facilities? That was last week's big hope at Taylor Wimpey - and still is. But one senior City banker, a veteran of several big corporate restructurings, thinks the potential for the negotiations to become ugly is great.

One of Taylor Wimpey's main difficulties, he says, is that the company has funded itself roughly equally between bank borrowings and bonds. The bondholders are likely to protest if the banks, as a condition of agreeing new facilities, try to secure their loans against the company's assets and so push themselves up the queue of creditors.

Taylor Wimpey's bonds, suspects our banker, are already being bought by vulture funds - folk who will want to force the banks to pay them off. Their mood, you feel, will not be improved when they remember that Taylor Wimpey spent £250m buying back its own shares last year and has paid dividends of £117m on its 2007 earnings. An astonishing squandering of liquidity, thinks our banker.

"Situation critical" was the title of the RBS' report on the entire housebuilding sector. Taylor Wimpey's shareholders will share the sentiment more than most. Their shares lost another 14% of their value yesterday.

nils.pratley@guardian.co.uk

Nasty. Very Nasty.

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They bought the land a couple of years earlier, have paid the builders etc, need money to purchase the next piece of land at 2006/7 prices.

Its all about balancing the books, the last thing a building company with a number of sites around the country half completed wants to do is reduce its prices and set a level for negotiations at the other sites.

so the only way to get building going again is for the housebuilders to go bust and have their landbanks auctioned off at a price where it is economic for new companies to build houses in the new half price home economy...

i don't think we'll have long to wait.

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so the only way to get building going again is for the housebuilders to go bust and have their landbanks auctioned off at a price where it is economic for new companies to build houses in the new half price home economy...

i don't think we'll have long to wait.

And those half price new houses will drag existing housing stock even lower to more affordable levels - in the long run it can only get better.

:lol:

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British mangement is lousey IMPO.

Anyone can be successful running a business in boom times - anyone. If credit is freely available you do not have to be Henry Ford to get people to come and buy things - they just come. Their pockets are full and the money is burning a hole in their pockets.

snip

Spot on. In the boom times the bosses claimed they were responsible for the rising share prices and record profits. So in the downturn it must be their fault too surely? In the boom times their success earned them increased multiples of their shop floor staff's wages but for some reason their solution to the hard times we're seeing is for the workers to take below-inflation pay rises. This is nonsense. If the dividend was cut to zero and the bosses cut their pay back to 2000 levels then the workers could get a decent pay rise and would start to spend again, cutting the depth and longevity of the recession, at which point the bosses can congratulate themselves on their success and give the workers another good kicking.

The problem is, they'd all wait for the other companies to do this first so they could freeload. I doubt the average executive would make any sacrifice to save the company if there was someone lower down who could make it for him, unless cashflow got so bad that his pension and payoff were threatened.

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The developers I do work for are making price drops. They just arent shown as such, they are labelled "allowances". This only really works with cash buyers now. Say a property is up for £200k, the developer may now offer to sell the property at £195k, make a £12k allowance, make an allowance of £1k for the buyer's legal fees, pay the stamp duty so that will be another £1950 and most of the time add curtains and carpets as well. So although the final sale figure will show that the property went for £195k, it actually went for a little under £180k. These are conservative reductions, on that sort of property a cash buyer can get up to a £30k allowance with some developers as well as all the extras. Once you come to their end of financial year that is the time to make very rude offers, basically go to them at the beginning of the month in which their financial year ends, tell them that you are a cash buyer and will exchange and complete by the end of the month, they will give you their firstborn if you buy one of their houses.

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Thats not possible- the reason that these people are paid so much is because they possess rare qualities of leadership and insight not possessed by normal men- people such as these are jewels of such scarcity that only the highest salaries and bonus incentives are sufficiant to retain their services. And I know this is true because they told me it was, and they are all unanimous on this, and their judgement is, of course, beyond question.

I've worked in a number of boardrooms of large companies and met a number of CEOs, companies with 100's of thousands of employees operating in every country. These people have a level of presence and drive about them that isn't normal. Their communication and motivational ability is off the charts, a five minute conversation leaves you feeling fantatastic and that you could achieve anything. They are extremely astute and can repeatadly make the right decision despite lack of information.

Even though you were being sarcastic in your post you were actually right on the money.

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I've worked in a number of boardrooms of large companies and met a number of CEOs, companies with 100's of thousands of employees operating in every country. These people have a level of presence and drive about them that isn't normal. Their communication and motivational ability is off the charts, a five minute conversation leaves you feeling fantatastic and that you could achieve anything. They are extremely astute and can repeatadly make the right decision despite lack of information.

Even though you were being sarcastic in your post you were actually right on the money.

I'd agree with this, there are genuine superstars out there.

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  • 395 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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