How far will house prices fall [volume 4]
Discussion
MONEY WEEK -
hit nail head.
I read a stat in the FT yesterday that absolutely blew my mind.
There are now 54,000 homes planned or under construction “in the priciest areas of the capital”. Most will cost “close to or above the £1m mark” and most are two-bed flats.
Here’s the mind-blowing bit: in the same areas last year, just 3,900 homes were sold for more than £1m.
That would put potential supply at almost 14 times annual demand.
Welcome to the train crash about to happen that is high-end, new-build property in London…
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____________________________________
Who’s going to buy these flats?
I should say, not all of the 54,000 properties planned will necessarily be built, and not all will come to market in 2015. (The statistic comes from data company Lonres, researchers Dataloft and buying agents PropertyVision, by the way.)
But there is still a surfeit of supply. What's more, many of the 3,900 places that sold in 2014 for £1m or more were houses or had more than three bedrooms. What’s coming to market are two-bed flats.
I’ve been wrong on London property before. In 2007, I thought it would take a much bigger hit than it did. So I’m cautious when it comes to making bearish pronouncements.
But as I said in my New Year predictions piece, “high-end, new-build flats in London” – and I stress new builds, I’m not talking period properties – “have got bubble and pop written all over them.”
In fact, I can see so many things going wrong here that keeping my thoughts organised made this Money Morning one of the most difficult I’ve ever had to write.
Who is going to buy these properties, and who is going to live in them?
Families don’t want two-bed flats. ‘Normal’ people can’t afford £1m-plus properties. Even buy-to-let won’t work – factoring in service charges, you'd have to be taking in £40,000 a year in rent to make a £1m property worthwhile. That's a lot for a two-bedder.
So you’re left with very successful, upwardly mobile young people in their 20s or 30s. But will that sort of person want to buy some bland new build that feels like living in a hotel? Of course not. He or she will want somewhere groovy in Shoreditch.
And like most British people, Londoners prefer period properties. They’ll buy new builds if the price is right. But it isn’t. In many areas, new builds are at least as expensive as period homes per square foot – and they come with higher service charges.
There’s only so much naive ‘foreign’ money to be had
So who’s buying? Well, as Charlie Ellingworth of Property Vision puts it, many new builds are marketed at “unsophisticated” foreign investors.
We all know how estate agents might describe a house as “spacious” (if you happen to be a mouse), or “conveniently located for the area’s boutique eateries” (above a kebab shop).
So it is with ‘prime central London’ (PCL). What those familiar with the capital see as PCL and what an agent marketing a flat to Asian buyers, who’ve never been to the UK, sells as PCL, are two very different things.
We’re talking about places like Old Oak Common on the Acton-Willesden borders, Vauxhall-Nine Elms and Stratford. These areas may have a lot going for them – but they are not PCL. Vauxhall is a convenient area – for getting to somewhere else. There are some groovy nightclubs under the railway arches, but it is not a place you go to – it is a place you go through.
Yet flats are being marketed (and, in some cases, sold) there for millions and millions of pounds.
Sorry if I’ve seemed a bit London-centric, but this is really no different to the pre-2008 buy-to-let bubbles we saw in Manchester, Birmingham and Leeds. For the most part, those ‘trendy’ city centre tower block flats weren’t bought by locals, but from investors elsewhere in the UK.
The same happened in Dubai, Spain and even parts of the US. Locals weren’t buying, foreign investors were. They didn’t have the ‘sophisticated’ knowledge that locals do – so they bought the BS. And when the crash came, they paid the price.
Forget ‘Occupy’ – this is ‘Unoccupied’
I’ve lived in London most of my life. I can remember Arabs in the 1970s buying huge swathes of South Kensington, Bayswater and Paddington. In the 1980s the Japanese came, in the 1990s the Americans. In the 2000s it was the Russians and then the Chinese.
I don’t know who’ll be next, but someone will come along. There are a lot of people in the world.
But in most cases, they actually lived in the houses they bought! That’s the big disconnect we have today. And it can’t last.
Take the recently completed Vauxhall Tower by Vauxhall Bridge. It is Britain’s tallest residential building – 50 storeys high – and it holds 223 flats. But drive past at night and there are absolutely no lights on.
This is becoming a big social problem. London property is already unaffordable for most locals. The average wage in London is just above £40,000. The average London house price is £580,000. Anger about this is mounting every day – and it only increases when people see so many flats sitting there unoccupied.
So the idea that 54,000 new-build flats are going to be flogged off to foreigners, then allowed to sit empty is just absurd.
Whoever wins the next election will have to find new ways of increasing the tax take. Some kind of property tax looks inevitable. Mansion tax or no, an easy and politically expedient target will be to tax homes that are left vacant – Islington council is already talking about it.
I’m not suggesting foreign buyers in London will disappear. They won’t. And the overseas market is affected by all sorts of factors beyond anyone’s control – the currency markets (think of the rouble), capital controls, capital flight, capital repatriation and so on.
But markets ebb and flow. The equivalent new-build-for-foreigners market in Manhattan is already seeing a marked slowdown. And the main problem is that even by the standards of London property, these flats are hugely overpriced.
The mis-selling scandals, the eventual revelations about poor build quality, the outrage at high service charges and the ‘who’s carrying the can?’ moments are all coming.
As Monty Python used to say, “Run away!”
As for the knock-on impact – new-build was something of a canary in the coalmine, anticipating the wider property crash in 2008. I’m not saying we’ll see something similar happen this time. But it can hardly be positive for pricing power or sentiment if thousands of unwanted flats end up hitting the market.
hit nail head.
I read a stat in the FT yesterday that absolutely blew my mind.
There are now 54,000 homes planned or under construction “in the priciest areas of the capital”. Most will cost “close to or above the £1m mark” and most are two-bed flats.
Here’s the mind-blowing bit: in the same areas last year, just 3,900 homes were sold for more than £1m.
That would put potential supply at almost 14 times annual demand.
Welcome to the train crash about to happen that is high-end, new-build property in London…
____________________________________
____________________________________
Who’s going to buy these flats?
I should say, not all of the 54,000 properties planned will necessarily be built, and not all will come to market in 2015. (The statistic comes from data company Lonres, researchers Dataloft and buying agents PropertyVision, by the way.)
But there is still a surfeit of supply. What's more, many of the 3,900 places that sold in 2014 for £1m or more were houses or had more than three bedrooms. What’s coming to market are two-bed flats.
I’ve been wrong on London property before. In 2007, I thought it would take a much bigger hit than it did. So I’m cautious when it comes to making bearish pronouncements.
But as I said in my New Year predictions piece, “high-end, new-build flats in London” – and I stress new builds, I’m not talking period properties – “have got bubble and pop written all over them.”
In fact, I can see so many things going wrong here that keeping my thoughts organised made this Money Morning one of the most difficult I’ve ever had to write.
Who is going to buy these properties, and who is going to live in them?
Families don’t want two-bed flats. ‘Normal’ people can’t afford £1m-plus properties. Even buy-to-let won’t work – factoring in service charges, you'd have to be taking in £40,000 a year in rent to make a £1m property worthwhile. That's a lot for a two-bedder.
So you’re left with very successful, upwardly mobile young people in their 20s or 30s. But will that sort of person want to buy some bland new build that feels like living in a hotel? Of course not. He or she will want somewhere groovy in Shoreditch.
And like most British people, Londoners prefer period properties. They’ll buy new builds if the price is right. But it isn’t. In many areas, new builds are at least as expensive as period homes per square foot – and they come with higher service charges.
There’s only so much naive ‘foreign’ money to be had
So who’s buying? Well, as Charlie Ellingworth of Property Vision puts it, many new builds are marketed at “unsophisticated” foreign investors.
We all know how estate agents might describe a house as “spacious” (if you happen to be a mouse), or “conveniently located for the area’s boutique eateries” (above a kebab shop).
So it is with ‘prime central London’ (PCL). What those familiar with the capital see as PCL and what an agent marketing a flat to Asian buyers, who’ve never been to the UK, sells as PCL, are two very different things.
We’re talking about places like Old Oak Common on the Acton-Willesden borders, Vauxhall-Nine Elms and Stratford. These areas may have a lot going for them – but they are not PCL. Vauxhall is a convenient area – for getting to somewhere else. There are some groovy nightclubs under the railway arches, but it is not a place you go to – it is a place you go through.
Yet flats are being marketed (and, in some cases, sold) there for millions and millions of pounds.
Sorry if I’ve seemed a bit London-centric, but this is really no different to the pre-2008 buy-to-let bubbles we saw in Manchester, Birmingham and Leeds. For the most part, those ‘trendy’ city centre tower block flats weren’t bought by locals, but from investors elsewhere in the UK.
The same happened in Dubai, Spain and even parts of the US. Locals weren’t buying, foreign investors were. They didn’t have the ‘sophisticated’ knowledge that locals do – so they bought the BS. And when the crash came, they paid the price.
Forget ‘Occupy’ – this is ‘Unoccupied’
I’ve lived in London most of my life. I can remember Arabs in the 1970s buying huge swathes of South Kensington, Bayswater and Paddington. In the 1980s the Japanese came, in the 1990s the Americans. In the 2000s it was the Russians and then the Chinese.
I don’t know who’ll be next, but someone will come along. There are a lot of people in the world.
But in most cases, they actually lived in the houses they bought! That’s the big disconnect we have today. And it can’t last.
Take the recently completed Vauxhall Tower by Vauxhall Bridge. It is Britain’s tallest residential building – 50 storeys high – and it holds 223 flats. But drive past at night and there are absolutely no lights on.
This is becoming a big social problem. London property is already unaffordable for most locals. The average wage in London is just above £40,000. The average London house price is £580,000. Anger about this is mounting every day – and it only increases when people see so many flats sitting there unoccupied.
So the idea that 54,000 new-build flats are going to be flogged off to foreigners, then allowed to sit empty is just absurd.
Whoever wins the next election will have to find new ways of increasing the tax take. Some kind of property tax looks inevitable. Mansion tax or no, an easy and politically expedient target will be to tax homes that are left vacant – Islington council is already talking about it.
I’m not suggesting foreign buyers in London will disappear. They won’t. And the overseas market is affected by all sorts of factors beyond anyone’s control – the currency markets (think of the rouble), capital controls, capital flight, capital repatriation and so on.
But markets ebb and flow. The equivalent new-build-for-foreigners market in Manhattan is already seeing a marked slowdown. And the main problem is that even by the standards of London property, these flats are hugely overpriced.
The mis-selling scandals, the eventual revelations about poor build quality, the outrage at high service charges and the ‘who’s carrying the can?’ moments are all coming.
As Monty Python used to say, “Run away!”
As for the knock-on impact – new-build was something of a canary in the coalmine, anticipating the wider property crash in 2008. I’m not saying we’ll see something similar happen this time. But it can hardly be positive for pricing power or sentiment if thousands of unwanted flats end up hitting the market.
z4RRSchris99 said:
Whoever wins the next election will have to find new ways of increasing the tax take. Some kind of property tax looks inevitable. Mansion tax or no, an easy and politically expedient target will be to tax homes that are left vacant – Islington council is already talking about it.
I'm not in favour of a envist property tax of any kind. But it does seem wrong that someone living on their own pays 75% council tax but an empty property attracts no tax. Even a luxury flat with 1 occupant would be better for everyone. Therefore I propose a 50% minimum Council Tax for all - giving a welcome reduction for single occupants who live in shoebox. It won't stop someone parking their capital in London and leaving the place empty but at least they'll be paying towards Council coffers.fido said:
z4RRSchris99 said:
Whoever wins the next election will have to find new ways of increasing the tax take. Some kind of property tax looks inevitable. Mansion tax or no, an easy and politically expedient target will be to tax homes that are left vacant – Islington council is already talking about it.
I'm not in favour of a envist property tax of any kind. But it does seem wrong that someone living on their own pays 75% council tax but an empty property attracts no tax. Even a luxury flat with 1 occupant would be better for everyone. Therefore I propose a 50% minimum Council Tax for all - giving a welcome reduction for single occupants who live in shoebox. It won't stop someone parking their capital in London and leaving the place empty but at least they'll be paying towards Council coffers.Burwood said:
happy to be corrected but you DO pay council tax on empty flats in london.
Empty properties are exempt when they are:owned by a body established for charitable purposes only (exempt for up to six months)
left empty by someone who has gone into prison
left empty by someone receiving personal care in a hospital or a home elsewhere; or someone who has moved in order to provide personal care to another person
left empty by students
waiting for probate or letters of administration to be granted (and for up to six months after)
repossessed by the mortgage lender
the responsibility of a bankrupt's trustee
empty because their occupation is forbidden by law
waiting to be occupied by a minister of religion
dwellings or homes annexed to another dwelling that cannot be let separately
Forces barracks and married quarters are also exempt. Their occupants will contribute to the cost of local services through a special arrangement.
z4RRSchris99 said:
Burwood said:
happy to be corrected but you DO pay council tax on empty flats in london.
Empty properties are exempt when they are:owned by a body established for charitable purposes only (exempt for up to six months)
left empty by someone who has gone into prison
left empty by someone receiving personal care in a hospital or a home elsewhere; or someone who has moved in order to provide personal care to another person
left empty by students
waiting for probate or letters of administration to be granted (and for up to six months after)
repossessed by the mortgage lender
the responsibility of a bankrupt's trustee
empty because their occupation is forbidden by law
waiting to be occupied by a minister of religion
dwellings or homes annexed to another dwelling that cannot be let separately
Forces barracks and married quarters are also exempt. Their occupants will contribute to the cost of local services through a special arrangement.
Burwood said:
I get that but we are talking primarily about owners in HK/china etc who just leave them empty-there is no exemption. I understand that councils were thinking about a 2X tax charge on properties left vacant (although this will fail for a number of reasons)
it should be 5% of the purchase price per year if you deliberately leave it empty in areas of high demand.KFC said:
Burwood said:
I get that but we are talking primarily about owners in HK/china etc who just leave them empty-there is no exemption. I understand that councils were thinking about a 2X tax charge on properties left vacant (although this will fail for a number of reasons)
it should be 5% of the purchase price per year if you deliberately leave it empty in areas of high demand.I will add, the Govt should mandate reciprocal real property laws such that if a country will not allow a UK citizen to own property, we should exclude their citizens. You can not own property in China or in fact any asset without a partnership with a chinese citizen/entity.
Burwood said:
I believe you should be free to do what you want with your property but I respect your sentiments. As an aside. is it really high demand in 1M quid 2 beds arena? I would have thought the demand is for 200k flats somewhere.
I will add, the Govt should mandate reciprocal real property laws such that if a country will not allow a UK citizen to own property, we should exclude their citizens. You can not own property in China or in fact any asset without a partnership with a chinese citizen/entity.
Generally I would agree, you should be allowed to do what you want with your own property. But when it gets to silly levels and russian/chinese money forcing British taxpayers out of areas they should reasonably be able to live in, something probably needs doing about it. I will add, the Govt should mandate reciprocal real property laws such that if a country will not allow a UK citizen to own property, we should exclude their citizens. You can not own property in China or in fact any asset without a partnership with a chinese citizen/entity.
KFC said:
Burwood said:
I believe you should be free to do what you want with your property but I respect your sentiments. As an aside. is it really high demand in 1M quid 2 beds arena? I would have thought the demand is for 200k flats somewhere.
I will add, the Govt should mandate reciprocal real property laws such that if a country will not allow a UK citizen to own property, we should exclude their citizens. You can not own property in China or in fact any asset without a partnership with a chinese citizen/entity.
Generally I would agree, you should be allowed to do what you want with your own property. But when it gets to silly levels and russian/chinese money forcing British taxpayers out of areas they should reasonably be able to live in, something probably needs doing about it. I will add, the Govt should mandate reciprocal real property laws such that if a country will not allow a UK citizen to own property, we should exclude their citizens. You can not own property in China or in fact any asset without a partnership with a chinese citizen/entity.
Well that went well...
http://www.property118.com/westbromtracker-today-j...
Now they are going to find out that they can't just pass the cost on to their tenants.
http://www.property118.com/westbromtracker-today-j...
Now they are going to find out that they can't just pass the cost on to their tenants.
jdw1234 said:
Well that went well...
http://www.property118.com/westbromtracker-today-j...
Now they are going to find out that they can't just pass the cost on to their tenants.
As someone with a tracker mortgage I find that case very disturbing.http://www.property118.com/westbromtracker-today-j...
Now they are going to find out that they can't just pass the cost on to their tenants.
Doesn't it also sever any remaining link between BoE interest rates and consumer spending power?
IroningMan said:
jdw1234 said:
Well that went well...
http://www.property118.com/westbromtracker-today-j...
Now they are going to find out that they can't just pass the cost on to their tenants.
As someone with a tracker mortgage I find that case very disturbing.http://www.property118.com/westbromtracker-today-j...
Now they are going to find out that they can't just pass the cost on to their tenants.
Doesn't it also sever any remaining link between BoE interest rates and consumer spending power?
I don't get your second point.
jdw1234 said:
Well that went well...
http://www.property118.com/westbromtracker-today-j...
Now they are going to find out that they can't just pass the cost on to their tenants.
That's crazy, it seems to effectively render a tracker pretty meaingless doesn't it, I doubt that's the last of it.http://www.property118.com/westbromtracker-today-j...
Now they are going to find out that they can't just pass the cost on to their tenants.
IroningMan said:
I don't see the differentiation between BTL and personal. Perhaps it's in the judgement, but those commenting and closely involved don't seem to see it, either.
Btl mortgages aren't regulated, consumer mortgages are. The argument here is that these landlords have multiple properties and therefore are professional investors, well should be. I agree it doesn't make sense from a laymans point of view though, to most the tracker should have been a tracker unless there was precise wording in the contract to allow the differential to be increased from the agreed rate.
This isn't the first mortgage company to raise rates in this way, several others already have and the ombudsman has agreed the west brom rate hike legal.
Edited by Brite spark on Thursday 29th January 15:12
Brite spark said:
I agree it doesn't make sense from a laymans point of view though, to most the tracker should have been a tracker unless there was precise wording in the contract to allow the differential to be increased from the agreed rate.
It's an absolute travesty.It is a simple question of contract law - nothing to do with the ombudsman or regulation.
Either the contract was "fixed spread for term" or "not fixed spread for term".
It looks like the judge decided the standard terms ("we can adjust the rate") over-ruled the specific product offer terms.
Which doesn't sound like cricket to me.
I don't see what the issue is, the contract says they can adjust the rate and they did, tough tits.
Obviously the business owners that took out these commercial loans had their solicitors check the contracts out before they signed up...
It amazes me that people assume btl is just an easy way to make money/invest and not that it is in effect running a small business and comes with the pitfalls (and benefits) of doing so.
Obviously the business owners that took out these commercial loans had their solicitors check the contracts out before they signed up...
It amazes me that people assume btl is just an easy way to make money/invest and not that it is in effect running a small business and comes with the pitfalls (and benefits) of doing so.
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