UK New Builds prices down by 40%

Would'nt believe Telegraph as source. They're likely to overplay the situation. In favour with its Tory readership. Per previous thread - it's election gear up, for possible election. Alls doom and gloom and caused by Labour - under Browne as chancellor.
 
MichaelDes said:
Would'nt believe Telegraph as source. They're likely to overplay the situation. In favour with its Tory readership. Per previous thread - it's election gear up, for possible election. Alls doom and gloom and caused by Labour - under Browne as chancellor.
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you'll see the same headlines in all the papers. The guardian and independent are even more bearish.

Even The Sun is talking of a crash so the general population are well aware of sentiment changing.

No election. Brown doesn't want to be the shortest PM in history.
 
Interesting programme on Panorama....Thames Meade & Abbeywood (SE28) in London 5 miles from Canary Wharf and the City...sub prime heaven. Repossessions at 80%...apartments only worth a fraction of the selling price. Sold top notch apartments to uneducated low income buyers...place falling apart at the seams. For at look at it http://www.hotproperty.co.uk/sales/property_search/postcode/se28.htm?page=7&WT.srch=1 , 2 bedroom apartments renting for £750 p.c.m. It's like a horse race come on SE25, whens your turn.
 
Think the headline to this thread is very misleading. Uk new builds prices are not down by 40%. The article was about properties bought at auction which had been foreclosed by banks - not all new build property in England. I own new build property and it hasn't fallen 40% in value. It has drifted by about 10% down in value ... but not 40%.
 
The Viking said:
Think the headline to this thread is very misleading. Uk new builds prices are not down by 40%. The article was about properties bought at auction which had been foreclosed by banks - not all new build property in England. I own new build property and it hasn't fallen 40% in value. It has drifted by about 10% down in value ... but not 40%.
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Where and when did you buy out of curiosity?
 
The Viking said:
Think the headline to this thread is very misleading. Uk new builds prices are not down by 40%. The article was about properties bought at auction which had been foreclosed by banks - not all new build property in England. I own new build property and it hasn't fallen 40% in value. It has drifted by about 10% down in value ... but not 40%.
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Of course the headline is missleading, its a newspaper after all. 40% falls across the board is not the case.

However, with some properties being reduced by this amount its a clear sign of the rip off aproach of UK developers.

It currently takes 2-3 years for a property to find its true value in the UK market. Anything newer than this is likely overpriced.

In the North I have seen/ heard of £250k apartments being revalued at £200k. Also heard of £185K apartments selling 2 years later for around £165k. Buying UK new builds is not a good investment.
 
ringledman said:
Of course the headline is missleading, its a newspaper after all. 40% falls across the board is not the case.

However, with some properties being reduced by this amount its a clear sign of the rip off aproach of UK developers.

It currently takes 2-3 years for a property to find its true value in the UK market. Anything newer than this is likely overpriced.

In the North I have seen/ heard of £250k apartments being revalued at £200k. Also heard of £185K apartments selling 2 years later for around £165k. Buying UK new builds is not a good investment.
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I wouldnt disagree with that in terms of the overvaluations - but I wouldnt agree with your statement that "buying UK new builds is not a good investment"
 
Article in FT weekend to-day, 'Canary Wharf ready to reap crossrail dividend'. Might be worth holding onto to your apartment long term.
 
slamdunkin said:
I wouldnt disagree with that in terms of the overvaluations - but I wouldnt agree with your statement that "buying UK new builds is not a good investment"
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On what basis? As UK growth is dead in the water on what basis can you afford to pay a premium for a new build when a few years later it is likely to be worth less?
 
ringledman said:
On what basis? As UK growth is dead in the water on what basis can you afford to pay a premium for a new build when a few years later it is likely to be worth less?
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on the basis that you just cant say that all locations wont make money - you just have to be more selective!
 
I read an interesting roundtable discussion with leading experts in the UK property market, some bears and a few bulls who are involved directly in major property businesses. Basically in the last three property collaspes the market fell 35% to realign the correction. This time there is a new phenomenon called the interest only mortgage which has provided bidders 40% leverage over traditional non payers. Therefore to consider the ramifications of a correction, for apartment’s blocks or area's with many more speculators than traditional home providers, the assumption to use is

-35%+(-35%x.4) = -49%

A fall in the region of 49% could be on the cards for areas such as inner Manchester, Huddersfield etc. That is, any areas with over development through interest only correlated to demand not being the primary driver. First thing to crash is the number of new applications or first time buyers then 24 months on the blood bath starts. Their reckoning is that panic will start at the end of 2008 or early 2009.

Although I have used the interest only option in the past, I think it is going to be the pariah similar to endowment mortgages - it could become a thing of the past. Interest only mortgages from 2001 have been extensively used to outbid traditional purchasers but those days are over. The bank has now got wise and tight. These new purchasers are in negative cash flow and as rates push up because of the inter bank lending, the squeeze on them will become to hard to withstand. Anyone getting out now will be lucky. Those thinking my property pays for itself as it was bought years ago, could lose substantial if not all of their equity that took so long to build up.
 
Wow: MichaelDes you`ve rattled my cage, having bought a 2 bed apt in Manchester last year, may have to put the Porche on hold for my retirement :(
 
MichaelDes said:
Generally from the city centre heading out to Salford and Old Trafford or just North of the City. Regarding another AAM posting related to the financial press that could be of interest. Sorry to butt in, whereabouts LS400?
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i think the worst hit flats in Manchester will be the city fringe ones. The Green Quarter, Great Ancoates St, Trinity St/ Chapel St etc. The type that were sold at around £180k for a two bed but are now selling for £150k or so.

The luxury type smack bang in the city centre may be more immune from higher interest rates but even the beetham tower looks like they are not selling for what people paid.

I have a 2 bed flat in south manchester, bottom end of the market. No sign of it dropping in value yet but they have always been reasonably priced.

I still think the leafy southern suburbs are the only ok places to buy in Manchester and only then apartments which are older than 3 years old and their prices can be check on rightmove.
 
LS400 said:
Wow: MichaelDes you`ve rattled my cage, having bought a 2 bed apt in Manchester last year, may have to put the Porche on hold for my retirement :(
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Do people really think its that easy - buy a property (anywhere in the world) and a few years later you are up enough to buy a porche!

WOW - why are we not all doing it then, if it is so easy?

People have become complacent and think anybody can do it, I reckon the next 10 years will see nothing but property deflation across the globe as all the "winners" of the last 10 years try to cash in.
 
MrKeane said:
Do people really think its that easy - buy a property (anywhere in the world) and a few years later you are up enough to buy a porche!

WOW - why are we not all doing it then, if it is so easy?

People have become complacent and think anybody can do it, I reckon the next 10 years will see nothing but property deflation across the globe as all the "winners" of the last 10 years try to cash in.
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Ah - like - I'd say he might have been kinda joking maybe ?
 
The thing that really concerns me about all of this is how naiive the financial modelling seems to be before people set off on what is a pretty major investment in property.

The general attitude even on this forum seems to be "if it washes its face" then it is OK.

i.e. the rule for assessing a deal is:
if I have a good feeling, and current achievable rental > current mortgage payments then everything is fine.

The main reason that buy to let seems to be attractive is that you only need a small initial investment, and the mortgage is someone else's money.

But what this ignores entirely is that the mortgage is real financial gearing. It may be the bank's money, but if things go wrong, it is still your debt.

Whilst gearing works in your favour in a rising market, it will equally bite you in a static or falling market.

Imagine the following simple example.
House 222K
Investment 30K
Mortgage: 192K at 5% = 800 per month
Rental income 1000 per month
costs: negligible for simplicities sake
tax: ignored (!)
Capital appreciation: taken at market value as a profit at the end of the life of the property, but only if you are not a forced seller.

I mean if your model is rent > mortgage = invest, then you would look at this deal and say rent = 1000, mortgage = 800 so go for it, really attractive return of 200 per month on 30K = 8% plus any capital appreciation minus costs.

But now ask yourself one simple question: "what if interest rates really do shock?"

We've been in benign, almost freak, financial conditions for the last 5-10 years. Inflation around 2%, property soaring in value way faster than generic inflation, interest rates at historic lows of 4.5 - 5 %.

Note the words "historic lows."

I remember when I bought my first property, the mortgage rate was 15.5%.
Yes. Fifteen and and a half percent per year.

So a couple of points rise in base interest rates to 7 or 8% (perfectly "normal" in times gone by) is going to mean that those mortgage payments jump to 1120-1280 per month in our example. So that is a pretty huge negative shift to a loss of 280 + costs per month, from a healthy profit of 200 - costs per month, on an investment of 30K of equity = a shift from a 8% profit per annum to 11.2% loss per annum.

Even if you have a fixed rate mortgage, these are generally only fixed for 5 years. Meanwhile rents will probably continue increasing somewhere near generic inflation of 3%.

Once there is significant oversupply, the rental market income may also dry up or decrease as people chase tennants. That means reduced rental income from maybe 1000 down to 900 per month, making the loss a whopping 15.2% p.a. on your initial 30K, if you can get a tennant at all. If you cannot get a tennant the loss is 51% p.a. (15.36K mortgage/30K equity). This is already observable in cities like Manchester.

You don't need to be a genius to work out that once you go significantly below 0 on your current account then it is game over.

This is the key point. You have effectively created a geared "contract for difference" between the rental and owning markets. At the minute the rental and owning markets seem to be headed in synch in the wrong directions. And you need hard cash to cover that difference. If shares go down, you do not need cash. You can sit and wait and ride things out. But you always need to pay the mortgage or else risk losing your entire asset, or even your own house.

Unless you either have substantial liquid assets to ride out any problem, or have a balanced investment portfolio, you are going to become a forced seller sooner or later as your cash dries up. It is not like you can sell half of the house easily. And once that starts to really hit, it is a triple whammy. Not only do you have the reduced rental income, you are not in control as a forced seller and lose your potential capital gain, and the general capital value will also reduce as more forced sellers dump on the market.

I mean do people seriously not do best, worst, and medium case planning with such major investments of 100K+?

I think it is obvious even from the above simple example that buy-to-let is a highly geared asset and merits decent risk analysis. The "smart" guys seem to be the ones with huge amounts of cash targeting the forced sellers. They are buying well below market value and then renting back the same house to those same distressed people who were forced to sell in the first place..... whatever you think about them personally at least the numbers stack up. Even if things go wrong, they can dump the house at their own convenience gaining a fraction of someone else's years of equity appreciation.

Hedge funds are banned from selling such highly geared assets to retail investors. And yet the property market is more than happy to service them, and is virtually unregulated, especially overseas. Buyer beware.
 
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