Property developers caught in a perfect storm
House builders deserve sympathy, says Graham Norwood.
As property developers go, Tony Dowse is one of the good guys. He and his firm, Environ Communities, are feeling the pain of the credit crunch. By Christmas he should have finished his flagship scheme, Oaks Hamlet at King's Hill, on a former RAF station in Kent. But only 45 homes have been built or are under construction, while the final 16 will not start until lending improves. "We're around two years behind now. Every day costs money," he admits.
Unlike many builders his scheme consists largely of houses, not flats, and he chose to complete the early phase in 2007 even though only a handful of buyers signed purchase contracts. He is ensuring the surrounding areas are landscaped and maintained so the owners do not look out on a building site.
Dowse has to pay council tax, utility bills, gardening fees, marketing and security costs on those nearby empty homes that are finished but were not bought before the crisis. His firm is too small to offer part-exchange and while homes remain unsold, even after price falls of 10 per cent, he must pay interest on loans he took out to build them.
But the alternative, he says, would be "to have stopped all the work, built only the odd home, sell it, and leave those buyers to move in, only to find JCBs and mud outside their front doors until the market recovered. That's not what they paid for."
Contrary to popular belief, caring developers like Dowse do exist, and one little-publicised aspect of the credit crunch is that they are beset by problems.
An estimated 200 small-scale house builders have failed since late 2007; more than 20,000 newly built private homes are lying empty while the surviving developers pay for the loans and security until buyers start buying again and about 110,000 builders and craftspeople have lost their jobs so far.
It's the big "volume" builders that have tended to give development a bad name. Some borrowed heavily, according to market analysts, leading to plunging share prices and punitive debt restructuring deals. Bellway, one of the largest builders, has just paid three senior executives some £630,000 in bonuses despite profits plunging 30 per cent and sales collapsing by 50 per cent. This rubs salt into the wounds of some buyers who have felt they've been left high and dry.
Last spring, 24 people bought homes at Vivian Park Mews in Port Talbot but the builder, Ballantyne Homes, went bust with only eight homes complete. Those buyers moved in but have spent eight months living on a building site; the administrators finally found a developer last month willing to complete the project.
At Pembrey, overlooking Carmarthen Bay, six buyers of another Ballantyne scheme called Tranquillity are even less fortunate. They moved in to their new homes last year but most of the other 30 properties are unbuilt with no buyer in prospect.
Some of the house-building industry's woes have been caused by the wrong type of home being built in the wrong place. Liam Bailey leads the residential research team at estate agent Knight Frank, which advised developers on many of the largest schemes. He says: "We blindly thought one- and two-bedroom flats were partly, perhaps significantly, the answer to our problems. What we didn't consider was that apartments were being built above pubs and clubs in city centres, and the growing numbers of single-person households we were being told about were actually little old ladies outliving their male partners."
The downturn, however, does not discriminate between pile-'em-high developers and those like Dowse, creating quality family homes in genuine communities.
Those who want to buy in Oaks Hamlet say they cannot get their hands on the funds to buy. "Demand is there. They're either people wanting to move up to this sort of house and who cannot sell their current home, or they're older people downsizing who can't sell their home or sell their shares given recent stock market falls," explains Dowse.
"It's a perfect storm for developers," he says. "We're being hit in every direction."
- Details of Oaks Hamlet on www.oakshamlet.com, 01732 848316.
Your New Home Awards
- Your New Home industry awards for best developments are held in the first week of March (entries close February18); look out for our round-up of the most noteworthy winners in a subsequent issue of Property. See www.yournewhome.co.uk for more information.
IT’S A BUYER’S MARKET, SO IF YOU’VE GOT THE FUNDS, THERE ARE PLENTY OF PERKS
What's on offer We phoned around to find out what kind of deals are out there, and discovered that house builders are so keen to attract buyers these days that you'll be offered a 5 per cent discount on many new homes as soon as you make a telephone inquiry. Look even the slightest bit interested and there will be further perks ranging from free carpets and moving costs, to having the mortgage paid for a year.
But cash-rich, ready-to-go investors can get far better deals, especially if they purchase in areas with gluts of apartments on sale, many for a year or more. Discounts of 40 per cent or more can be obtained from some developers if you buy 10 properties but even more modest investors can strike very good deals.
Antler Homes has four flats in one block at Stone Bank Gardens, Leeds. They're normally £210,000 a piece but buy all four and they're £180,000 each with more reductions if you buy other Antler stock (www.antlerhomes.co.uk)
There's more than 20 per cent off some Barratt Homes' flats on sale in parts of Yorkshire, while a new scheme at Kennington Park Square in London has "10 per cent-plus" off one-bed flats from £262,000 if you bulk-buy four. In Bristol, two-bed apartments selling for £185,500 last summer are now £130,000 each if bought in bulk (www.barratt.co.uk)
Lace Market Properties is an urban regeneration firm so has a lot of city centre apartments on its books. At Marsh House, Bristol, flats from £149,000 are discounted 17 per cent to investors buying four or more (www.savills.com)
Just four of 34 holiday lodges at Salcombe, south Devon, have sold. Bulk-buyers can get £20,000 off each £140,000 lodge with a rent guarantee scheme under consideration. An ex-show home was £199,500 and is now £150,000 (www.marchandpetit.co.uk)
Find "about10 per cent, or more" off the £164,950 price of Redrow flats at the Hemisphere scheme in Edgbaston, Birmingham, if you buy four, say staff (www.redrow.co.uk)
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