UK New Builds prices down by 40%

[MichaelDes]

But what if interest rates really do shock? Note the words "historic lows."

Martin77 your point is hypothetical. Sterling futures are taking into consideration a rate cut of 25 basis point this January. I would imagine the ECB is near the top of the tree. The days is 15% interest will not be repeated again IMHO. If a property investment is self paying, I still hold the contention - hold. Property as an asset class like equity [based on its history] always rises in value and outpaces inflation. Finally IMO your analogy is very simplistic, to a limited extent it may explain trends for now in places like inner-city Manchester. But the market and its dynamics are generally more complicated for explanation.

 

[Martin77]

Martin77 your point is hypothetical. Sterling futures are taking into consideration a rate cut of 25 basis point this January. I would imagine the ECB is near the top of the tree. The days is 15% interest will not be repeated again IMHO. If a property investment is self paying, I still hold the contention - hold. Property as an asset class like equity [based on its history] always rises in value and outpaces inflation. Finally IMO your analogy is very simplistic, to a limited extent it may explain trends for now in places like inner-city Manchester. But the market and its dynamics are generally more complicated for explanation.

I agree that we shall never see 15.5% again in the foreseeable future. But it did happen. 7 or 8% in the next ten years is perfectly possible.

I also agree this is a very simplistic analysis. It is a simple illustration targeted at countering some of the arguments I have often seen aired on this forum, and it is already a level of complexity more than many investors seem to be making.

Regardless of my or your view of the likelihood of a coming crash or not, the point that I am trying to make is there are a very very significant number of people in the (UK) property market who
i) do not understand what financial structure they have in buy-to-let, and the risks they are taking.
ii) are having their dreams fuelled by a largely unregulated (overseas) property industry.
iii) got into the market relatively recently, and thus have not built up any equity cushion that they can use to exit the market cleanly if the rental and ownership markets do dip simultaneously for whatever reason.
iv) cannot afford to "hold" and thus ride out the dip, even if they want to.

That is a recipe for disaster for those particular people's portfolios and thus possibly the whole UK property market if anything at all provides a shock. (And it need not be interest rates. It could be an oversupply of appartments, new laws, tax changes, exchange rates, or anything else that affects the financial difference between renting and owning a property.) So the message is: make sure you won't become shark food as one of those forced sellers.

 

[Steve D]

Martin, your analysis of the situation is spot on. It always amazes when I see how willing Irish or British property investors buying foreign property without fully considering the risks. They often seem to think that because people have made money from property in these locations in the past few years that it will continue. They think that the party will go on forever! I believe that the days of making easy money from property are now over and many of these investors are going to get their fingers burnt.

As you said, interest rates for the past five years have been at historic lows. That has created a situation where credit was available too easily and that has created a world wide asset bubble. The present credit crunch, together with a normalising of interest rates (i.e. the long term average in Europe has usually been around 7%) will reduce affordability and therefore the huge increases in house prices that have taken place in the past 10 years will not be repeated for a long time, especially as house prices are collasping in a number of countries at the moment.

There are other risks that people who invest in overseas property don't always seem to take into consideration:
1) Currency risks - think of the people who rushed into buying properties in Florida in the past few years.
2) If you have a buy to let that is 1,000 miles away it is going to be much more difficult to resolve problems (e.g. tenants, plumbing, leaking roof, managing agent) than it would be if the BTL was 2 miles down the road.
3) Oil prices - if the continue to rise (most likely due to supply and demand) the fares to that lovely far flung destination are going to rise.
4) Local political/economic/social factors - for example, if the only people who are buying these properties are British and Irish investors, then you should smell a rat because it will probably mean that the locals cannot afford them or do not want them.
5) Build Quality/ Building Guarantees - this can often cause problems and investors often do not do homework before buying (e.g.a full survey). There are many rogue developers and builders out there and it can be very difficult to sort problems out in another country in a different language.
6) Taxation - investors do not always consider how their return will be affected by taxation, for example, their will be local taxes to consider, as well as Irish taxes.
7) Holiday homes - There are two opportunity cost to owning a holiday home: a) If you have a holiday home your capital will be tied up and you will not get a return until you sell it and hopefully make a captial gain, so you are loosing out on the return that you could have made elsewhere;
b) People with holiday homes have to make use of them but by doing that they are depriving themselves of visiting so many more places in the world!

 

[Duplex]

The Daily Mail
29 Oct 2007

Thousands of families face ruin from the buy-to-let timebomb

Like so many young professionals hoping to cash in on Britain's property boom, Paula Collins, a 26-year-old recruitment consultant from London, thought her money would be safe.

The buy-to-let market was booming and the deal from a Manchester developer seemed too good to pass on.

The two-bedroom flat in the Castlefield area was valued at £175,950, but the developer was offering a 15 per cent discount, taking the price down to £149,500 - and best of all, no downpayment was required.
He would pay the 15 per cent deposit. Paula simply needed to cover her legal costs and stamp duty. If it sounded too good to be true, it was.
After 18 months, in which Manchester, like many northern cities, has seen a massive oversupply of new city centre apartments, Paula's flat is now worth just £140,000.

Her mortgage costs her £900 a month, but she receives only £600 a month in rent. That's when she could find a tenant. Now the flat is lying empty, so Paula has to stump up £900 a month just to cover costs.

http://www.dailymail.co.uk/pages/li...article_id=490296&in_page_id=1770&ito=newsnow

 

[Afuera]

Property as an asset class like equity [based on its history] always rises in value and outpaces inflation.

This is a myth. Property as an asset can become worthless too; there are plenty of abandoned/dereclict homes around the world to back that up. The long term nature of property cycles makes it difficult for the average person to analyze accurately though, as it goes beyond most people's memory. It's worth checking out info on the Herengracht index as this was a study on the houses in a good area of Amsterdam over a very long period of time. It was discovered that the real gains over this period were not much to shout about.

 

[LS400]

Hi
Sorry for the unanswered questions on the 18th oct by Qwertyuiop and MichaelDes , Apt was bought in North Manchester 4miles from citycenter, I bought at the lower end 120k.
This was a long term invest and can cover the cost unoccupied. Its a bonus that it has been let, since bought at 500 sterling. Hey relax Mr Keane (was said tounge in cheek) . jeeze

 

[ringledman]

Fascinating reading on rightmove sold prices for a block in Manchester City Centre -

19 May 2006 104 Apartment 1, Blantyre Street, Manchester, Greater Manchester M15 4JUFlat £150,600

29 Jul 2003 104 Apartment 1, Blantyre Street, Manchester, Greater Manchester M15 4JUFlat £208,756

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30 Mar 2007 71 Apartment 1, Blantyre Street, Manchester, Greater Manchester M15 4JUFlat £125,500

28 Jul 2003 71 Apartment 1, Blantyre Street, Manchester, Greater Manchester M15 4JU Flat £129,425
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29 Jun 2007 100 Apartment 1, Blantyre Street, Manchester, Greater Manchester M15 4JU Flat £248,950

17 Sep 2004 100 Apartment 1, Blantyre Street, Manchester, Greater Manchester M15 4JUFlat £396,750

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Feb 2006 109 Apartment 1, Blantyre Street, Manchester, Greater Manchester M15 4JU Flat £130,000

18 Oct 2004 109 Apartment 1, Blantyre Street, Manchester, Greater Manchester M15 4JU Flat £130,000

 

[slamdunkin]

Fascinating reading on rightmove sold prices for a block in Manchester City Centre -

19 May 2006 104 Apartment 1, Blantyre Street, Manchester, Greater Manchester M15 4JUFlat £150,600

29 Jul 2003 104 Apartment 1, Blantyre Street, Manchester, Greater Manchester M15 4JUFlat £208,756

--------------------------------------------------------------------------------------------

30 Mar 2007 71 Apartment 1, Blantyre Street, Manchester, Greater Manchester M15 4JUFlat £125,500

28 Jul 2003 71 Apartment 1, Blantyre Street, Manchester, Greater Manchester M15 4JU Flat £129,425
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29 Jun 2007 100 Apartment 1, Blantyre Street, Manchester, Greater Manchester M15 4JU Flat £248,950

17 Sep 2004 100 Apartment 1, Blantyre Street, Manchester, Greater Manchester M15 4JUFlat £396,750

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Feb 2006 109 Apartment 1, Blantyre Street, Manchester, Greater Manchester M15 4JU Flat £130,000

18 Oct 2004 109 Apartment 1, Blantyre Street, Manchester, Greater Manchester M15 4JU Flat £130,000

I assume that address is Bellways Citigate development. Possibly the worst, definately one of the worst scheme in Manchester - was definately overpriced - along with that other notable scheme Crosby's Hacienda which was also sold at heavily inflated prices.

Of course you are not going to make money if you "buy bad"

 

[ringledman]

I assume that address is Bellways Citigate development. Possibly the worst, definately one of the worst scheme in Manchester - was definately overpriced - along with that other notable scheme Crosby's Hacienda which was also sold at heavily inflated prices.

Of course you are not going to make money if you "buy bad"

Ive heard on the grapvine that Bellway still have 40 flats to shift in the development some 2 years after completion!

 

[slamdunkin]

Ive heard on the grapvine that Bellway still have 40 flats to shift in the development some 2 years after completion!

I didnt know the exact number but I know they have stock units left.

I know the exact details of the deal between them and Blantyre to purchase the site - that was their downfall - the day you buy is the day you sell and all that.

I bet we've problably met ringle!