I was at a cocktail party last night to celebrate one of my school friends 30th birthday. Her younger brother was their with his partner and we started catching up. I have a reputation in my circle of friends as the resident property expert so it wasn?t long before the topic turned to house related matters. Now he?s a few years younger than me and bought his first home a couple of years ago and now wanted to sell and move somewhere bigger. The conversation went a bit like this.
So how's things?
Yeah not bad, would be perfect if I could sell this house of mine.
Oh whys it not selling?
Don't know really.
What sort of property is it?
A flat on the new development just down the road from where I used to live?
Oh I know the one. Did you buy it new?
Yes.
How does this affect me then??
What have you done to try and get it sold?
I've instructed an agent, then when nothing happened we reduced the price and then when still nothing happened we have been in touch with a property buying company who are coming out next week to have a look at it.
The conversation we had after this initial chat inspired me to write this article on why I think he has been conned/ripped of/misled twice already and could potentially be heading towards his third time.
So what was the first time?
Well in my opinion the first was when he bought the property. I absolutely loathe new build flats. And there are a many of reasons why. My first problem with them is that new build is always more expensive than its like for like counterparts in the area. In fact its normally more expensive than some better second
hand properties. I appreciate that you get less maintenance issues
and you can move straight in, however the downsides are much greater than the positives in my opinion. Let me list the downsides.
The first is obviously the developer is trying to squeeze as much profit out of each unit as possible, this happens in the second hand market I know, but the reason I don?t like it in this market is that developers manage to sometimes get away with dictating the market price in an area. This flat was in a suburban area where few flats existed and as such the developers where able to set the prices as they wished. What really makes me angry is that the cost of developing flats is much lower than other forms of housing, however rather than passing that saving onto the public the developers are more inclined to make even bigger profits.
The second is that because these types of property are sold to first time buyers and investors the market price is quite volatile. I recently saw a guy buy a property for £210,000 from a developer. This developer however sold the rest of the flats to one single investor for £150,000 and because he bought with cash he was able to charge well below market value for the rents. So this investor had a flat now worth £150,000 as the other investor dragged his prices down by buying in bulk and is massively undercuting him on the rent as well. This guy not only on lost thousands but was now having to put his own money in to fund the mortgage. His loss therefore was growing on a monthly basis. My mate was in the same kind of position he was trying to sell in a block where others were also selling so there was lots of choice for the buyers. Now I live on a street of relatively cheap 4 bed houses. Its very rare that any are on the market but when they are they sell very quickly as the buyers know that if they don?t come in with a good offer fast somebody else will. With a dearth of new build flats available, everywhere it seems now, my friend was not able to capitalise on this sort of position. We even talked about him renting the flat out but there were again that many flats in this building already let he was nervous taking this course of action. I agreed I had just read an article that day about a landmark development in Sheffield (its going to be our tallest residential block - well apart from the council ones built in the 60?s) selling out in record time. Now that got my interest as I thought and still do, that this market may be calming down. However on further reading it went on to say that 70% of the flats had been sold to investors.
That means that while the block is sold only 30% of those buying want to live there! What if the 70% who sold to let out find nobody else wants to live there? And if they do what will happen to the prices of the flats? In conclusion I believ that my friend made a very costly mistake in buying new build and compounded this by buying a new build flat.In later articles I will talk about the second and third points of why he has been taken for a ride by property professionals.
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