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Barratt Holds Joint Venture Talks In Funding Bid

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http://www.telegraph.co.uk/money/main.jhtm...nbarratt126.xml

Struggling housebuilder Barratt has held preliminary talks with major UK banks about creating joint ventures to own and rent out new homes it is struggling to sell.

Barratt is one of a number of housebuilders hoping to secure funding from banks such as HBOS.

The plan envisages a joint venture vehicle created between the housebuilder and a financial backer. The joint venture would then buy the houses at near cost price and rent them out to the private market, according to a report in today's property magazine Estates Gazette.

The plan is to potentially create property vehicles holding thousands of homes, large enough to float on the stockmarket as tax efficient real estate investment trusts.

The deal would allow Barratt to pay down debt and supply income to service its interest charges.

Barratt was recently forced to agree covenant waivers on £1.7bn of debt, significantly increasing the interest it must pay.

Property agents Jones Lang LaSalle are understood to be advising Barratt on the plan which is said to be at a very early stage.

Rent prices will collapse.

Edited by Ash4781

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Not only will it cut rents, but newbuilds are already in trouble because people are worried about being stuck next to social housing. This could exarcebate this as any large landlord is going to go first to the Local Authority for tennants.

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Not only will it cut rents, but newbuilds are already in trouble because people are worried about being stuck next to social housing. This could exarcebate this as any large landlord is going to go first to the Local Authority for tennants.

95% of social tenants would make excellent neighbours and if they weren't living in ugly concrete and brick bunkers you wouldn't know the difference - it s the 5% that make it all rot. Experience counts.

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I have another idea: SELL them at near cost, forget borrowing more to do it with an intermediary.

Trying to prop up the market against its will, is the path to disaster.

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Will the open venture plan purchase the unsold homes at slightly above cost to build or cost on the current open market?

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Rent prices will collapse.

Most of these developments are hopelessly uneconomic to start with. The profit margins, once the price of land, build costs, planning obligations etc are taken into account are very slim: probably about 30%. This is simply wiped out by a falling market, so no-one would take these now even at cost. You might as well wait until the vendors hand is forced, and get them below cost.

In reality those projects close to completion will either end up in the hands of an RSL, or to the highest bidder. Those at an early stage of construction will just get abandoned.

Who would buy a new build now.

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Most of these developments are hopelessly uneconomic to start with. The profit margins, once the price of land, build costs, planning obligations etc are taken into account are very slim: probably about 30%. This is simply wiped out by a falling market, so no-one would take these now even at cost. You might as well wait until the vendors hand is forced, and get them below cost.

In reality those projects close to completion will either end up in the hands of an RSL, or to the highest bidder. Those at an early stage of construction will just get abandoned.

Who would buy a new build now.

Bovis have a smallish development near me that I am keeping an eye on. A 5 bed detached is in the upper-300's which must mean they have already dropped a decent 20%. I would buy at 200k I think. Provided they threw in all the upgrades and paid stamp duty etc.

However, these kinds of deals will probably not come in until after the winter has set in and the economy is deep into negative growth territory. Buy from pessimists and sell to optimists is the Buffett approach and a good one at that.

New builds are often a good deal when the market is collapsing. Buyt don't touch them for anything less than a 40-50% discount from the top.

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In the unlikely event this comes off, I think it'll be a good thing. The biggest issue with renting in the UK for as long as I can remember is that you have to deal with some awful small scale landlord who really isn't in for the long term whatever they say. The entry of some large companies into the market who are likely to want to keep renting you a place for as long as you can pay and who, presumably, will have a big enough operation to do maintenance properly, might put the screws on the cowboys at last. Can't see it happening though, the numbers just don't seem to add up at current prices.

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In the unlikely event this comes off, I think it'll be a good thing. The biggest issue with renting in the UK for as long as I can remember is that you have to deal with some awful small scale landlord who really isn't in for the long term whatever they say. The entry of some large companies into the market who are likely to want to keep renting you a place for as long as you can pay and who, presumably, will have a big enough operation to do maintenance properly, might put the screws on the cowboys at last. Can't see it happening though, the numbers just don't seem to add up at current prices.

I know just the people, they are in Ashford and they are known as "The Wilsons".

Loved thoughout the land.

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Have they considered the possibility of simply reducing their prices to realistic levels? It seems to me that everyone involved in the property market is trying to do absolutely anything to sell a house apart from waking up to the fundamental problem - house prices are over-valued!

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I know just the people, they are in Ashford and they are known as "The Wilsons".

Loved thoughout the land.

Fair point, but they're a rather different proposition I'd say. What Barratts seem to be looking at is putting together a REIT which could be sold to joe public in the same way as a unit trust or a pension fund. That's a whole different arrangement to a BTL empire with shaky funding. In reality, it ought to be pretty much like a housing association only charging market rents and without the social remit. That has to be better than what we have now.

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New builds are often a good deal when the market is collapsing. Buyt don't touch them for anything less than a 40-50% discount from the top.

Most of the schemes i am working on are terrible. They provide employment for architects, consultants, lawyers and labourers which is about their only societal merit. Planning, buildings regs, environmental regulation etc has pushed the cost of construction through the roof, whilst costs are saved by using the cheapest materials possible. The build quality is not very good. These really are the slums of the future.

Im talking about urban, brownfield developments, but I imagine this is true for all developments. This is just how the development industry works.

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Have they considered the possibility of simply reducing their prices to realistic levels? It seems to me that everyone involved in the property market is trying to do absolutely anything to sell a house apart from waking up to the fundamental problem - house prices are over-valued!

REITs have all sorts of tax advantages that might allow them to, effectively, sell them at less of a loss than individually on the open market. I'm sure that's why they're looking at this approach.

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Have they considered the possibility of simply reducing their prices to realistic levels? It seems to me that everyone involved in the property market is trying to do absolutely anything to sell a house apart from waking up to the fundamental problem - house prices are over-valued!

bizarre isn't it?

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Barratt's are missing a trick here. They need a major security firm on board as well.

A bit of fencing and the prison overcrowding problem could be solved.

A bit more fencing and gated communities could work the other way round.

p-o-p

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Most of the schemes i am working on are terrible. They provide employment for architects, consultants, lawyers and labourers which is about their only societal merit. Planning, buildings regs, environmental regulation etc has pushed the cost of construction through the roof, whilst costs are saved by using the cheapest materials possible. The build quality is not very good. These really are the slums of the future.

Im talking about urban, brownfield developments, but I imagine this is true for all developments. This is just how the development industry works.

Can't imagine how badly this sort of stock will fare when rented out, it is not built for durability that is for sure. The materials/construction would only last the design lifetime if looked after very well, it will fall apart given serous wear and tear.

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Barratt's are missing a trick here. They need a major security firm on board as well.

A bit of fencing and the prison overcrowding problem could be solved.

A bit more fencing and gated communities could work the other way round.

p-o-p

Thye could also set aside a block for MPs, offer a shuttle service to and from the HP, and charge them £3600 per year as the same MPs ask students to pay when they are away from home.

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if the banks are not complete idiots they will require a 10% rental yield. But in this case the prices would have to crash by 50%. And in this case they can sell to landlords or normal people anyway ...

tha plan does not make sense for me ...

You are right of course but what it would do is to release cash to the builder now, and at the same time give them a sizeable piece of the upswing... theri think will probably be.... get 50% now with the prospect of more later is a better option than only getting 50% now by selling at a deep "discount".. it might well work but I suspect only with small developments where the rental demand will hold up... if they land some of theri larger developments wholly onto the rental market I don't think it would fly at all........ Banks will want to feel very conservative about what they lend on these I should think and may well seek additional "security" in the form of options over their "land banks" or somesuch.

The amazing stat... and its probably worse now ... is that the market cap of all the major housebuilders is something like £4.6bn... and yet last year you couldn't have bought even Persimmon alone for that sum. Without cashflow these companies might well go under such is the level of their debts and with transaction volumes so low theres a strong risk of that happening.

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Have they considered the possibility of simply reducing their prices to realistic levels? It seems to me that everyone involved in the property market is trying to do absolutely anything to sell a house apart from waking up to the fundamental problem - house prices are over-valued!

its greed, the ydont want to lower the price, in the end they have too the longer they wait out the harder it gets for them to find a buyer and the lower the prices drop.

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  • 399 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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