This will lower house prices

More than half of the 1,900 ultra-luxury apartments built in London last year failed to sell, raising fears that the capital will be left with dozens of “posh ghost towers”.

The swanky flats, complete with private gyms, swimming pools and cinema rooms, are lying empty as hundreds of thousands of would-be first-time buyers struggle to find an affordable home.

The total number of unsold luxury new-build homes, which are rarely advertised at less than £1m, has now hit a record high of 3,000 units, as the rich overseas investors they were built for turn their backs on the UK due to Brexit uncertainty and the hike in stamp duty on second homes.

It doesn’t matter that these are “luxury” not “affordable.” There are still 3,000 more units and that will lower the price, fractionally of course, of every other property on the market. Because this supply and demand stuff really does work.

Wouldn’t surprise me at all if one or more of the developers, or perhaps developments, goes bust which would be an interesting time for a housing association to pick up some cheap stock, no?

20 comments on “This will lower house prices

  1. There is a load of homeles in Camden from what I hear.

    Perhaps this could be a new method of international deplomacy. Find all the flats owned by Russian politicians, criminals and oligarchs and inform them that their flats will be used to house the homeless with carte blanch to ruin the toilet and shit the bed.

  2. I hear that flats built for investment buyers are sticking in the market because you can’t make money letting them any more. This will lower prices in the short term but developers just won’t build any more. No problems will be solved as long as the only appreciation of the problem people have is that it’s a problem poor people can’t buy expensive houses and they ought to be able to. Even when the nation’s leaders think we don’t have enough poor people and need to import more.

  3. @Rhoda

    “you can’t make money letting them any more”

    What’s the sticking point here?

    Clearly more revenue is generated from letting than leaving empty (unless there is more woe caused by non-payers and tenants trashing the joint than the rent you do receive will cover, but in this end of the market it seems unlikely).

    Is the problem that landlords are speculating rents will be higher in say 6 months’ time so don’t want to get locked into a too cheap deal now?

  4. “Wouldn’t surprise me at all if one or more of the developers, or perhaps developments, goes bust which would be an interesting time for a housing association to pick up some cheap stock, no?”

    The housing association I’m a trustee of did that. Not in London, but similar set-up. Nice new-build block of flats, all finished except not yet connected to mains services. Developer went bust. Couldn’t be sold individually, as not connected to water, electric etc.; no local appetite (or capacity) at the time for a developer to buy to finish off, so we bought it cheap from the bankruptcy administrators. Even at housing association rent levels we’re making a nice profit.

  5. MyBurningEars said:
    “What’s the sticking point here? Clearly more revenue is generated from letting than leaving empty”

    Yes, but:

    a) Are they actually built, or just on the market and unsold? Top-end London flats tend to be sold off-plan, i.e. before they’re finished, so some of them might not yet be in a state to rent out.

    b) Apparently brand-new ones sell for less than second-hand ones. They don’t depreciate as much as cars, but a similar phenomenon, where even a short occupancy will knock something off the market value. So it’s better to wait a few months and sell new than to collect some rent in the meantime. Of course that depends on how long “a few months” stretches to.

    c) From memory there’s a VAT problem. To zero-rate (which the developer needs to do in order to reclaim the VAT on the building materials and costs), I think the first supply needs to be a sale (or long lease). A short lease is exempt, not zero-rated, so you can’t reclaim the VAT. I haven’t looked at this for years, but have a vague memory that it’s a permanent problem – if the first money you get from a new-build is a short lease, you can’t ever reclaim the VAT. There are ways round it – basically you sell to an associated company and that does the short-term lets – but you need to finance that and it needs to go into the accounts at market value, and since the market value is lower (temporarily, the developer hopes) that means the loss crystallises in this year’s accounts.

  6. ‘We’d be much better off with decent quality but lower-spec homes built for actual Londoners.’

    WE ?!?! What’s this ‘we’ shit?

    Not a hint of concern that the developers/investors aren’t making money. A decadent turd who thinks there will always be money, regardless of what happens in the economy.

    ‘The Business of America is business.’ – Calvin Coolidge’

    So it should be for England.

  7. Jan 18:
    Builders started work last year on 1,900 apartments priced at more than £1,500 per sq ft, but only 900 have sold, according to property data experts
    Oct 17:
    •64,000 units are under construction in London, which is 7% more than the previous record at the end of 2015.
    •28,000 of these have yet to be sold

    So in round numbers, the luxury end of the market is shifting units at the same rate as the rest of the market.
    Still, it’s good news for those who want more choice and lower prices, which should be everyone but surprisingly it isn’t.

  8. Apologies – arithmetic fail – I read the 2nd paragraph as 28000 have sold, when it’s unsold.
    The non-luxury market IS selling its units faster.

  9. MyBurningEars/;

    As I understand it recent changes in stamp duty, allowable expenses, tenants rights, cerification and licensing make it less profitable for a prospective small landlord to rent a property. A lot of various interests would love to drive private landlords out of the business, so that may be fine. But they are part of the supply side of the equation and their departure has consequences in price or availability. I don’t think they are holding out for higher rents, they seem to think the hassle factor is rather less in other forms of investment.

    Oh, and sometimes tenants are not what they might be, either.

  10. Ta RK.

    Have to admit, I did look into property investing myself and decided that as a little guy with few opportunities to scale or capacity (time, skills) do a lot of things like maintenance in-house, the rates of return on it were decidedly unattractive.

    Far as I could see, the main draw was the ability to leverage yourself to high heaven and potentially make a huge paper fortune if ever-spiralling trends in house price inflation continue. But the core business wasn’t terribly attractive in its own right. On the grounds that

    (a) it’s a high-hassle high-commitment way to invest, and I have enough hassle and commitments already,
    (b) I don’t like investments that are volatile, illiquid and too “chunky” to easily diversify,
    (c) I’m sufficiently risk-verse to not be a fan of investment strategies built around leveraging myself to the hilt,
    (d) Particularly not a fan of leveraging myself to the hilt to chase what might just be a massive bubble,
    (e) Especially so when interest rates have far more room to move up than to move down, as well as possible tightening up of LTV rules when by the time of remortgaging,

    I thought I was better off out of it.

  11. @TomSmith

    That’s a bugger cos it was a good one. You sometimes seem to be able to see a “trial” article … but through some combination of incognito/private window and/or VPN that I can’t seem to figure out how to replicate. His basic point was that property is substantially more risky than the property price indices suggest, for various reasons.

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