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By Ruth Jackson, MoneyWeek
12 September 2008
It seems that regardless of the facts and figures it is impossible to shake the delusions out of the property market. Over the last two weeks doom and gloom has seeped from every purveyor of housing market statistics in Britain (see below). Yet still last weekend's property sections in the papers ploughed on with stories of the bargains to be had. So are any of them right?
At first glance, it looks as though Paul Farrow might have a point. Writing in The Sunday Telegraph he points out that with developers going bust across the country and even the still solvent ones desperate to offload their stock, prices are falling fast, making now a pretty good time to bargain for a new-build. But take a closer look and it's clear that the discounts don't actually make buying attractive – they merely bring the stated prices slightly closer to fair value than they were before.
During the bubble the recorded prices of various developments became so over-hyped that the Royal Institution of Chartered Surveyors (RICS) is changing its rules so that its members have to investigate the extent to which the developer is fiddling the numbers. In the past developers have reported prices without admitting to the "incentives" that have accompanied them – such as upgraded kitchens, cash back or paid up stamp duty. This has meant that surveyors routinely overvalued properties. That isn't allowed anymore, so upfront prices would have had to fall even if the property market wasn't crashing. The fact that it is crashing just means they're falling extra fast. New-build prices, according to auctioneer Allsop, have fallen 26% in the last year and are still falling at speed.
Still, Farrow isn't alone in thinking the new-build market is worth a punt. In The Daily Telegraph, Anna Tyzack suggests ignoring the developers themselves and looking to the auction market for a deal. Plenty of development properties are appearing at auction at very low-looking prices, "quite simply, because some poor property developer has gone belly-up", says Tyzack.
But the flats clearing at auction are cheap for a reason: there is a huge overhang of cheaply-developed new-build flats on the market right now. They were planned in the last stages of the bubble, but are hitting the market in the bust – just when no one wants them anymore. They'll stay cheap, and very probably get much cheaper, for a while to come.
Look at one of Tyzack's examples of a bargain new-build at auction. It is a two-bed, first-floor flat in Liverpool and comes with a reserve price of £180,000. The average house price in Merseyside in July was £134,765, according to the Land Registry. Clearly not all new-build vendors – however desperate they might be – have quite got the hang of the new market environment.
So if you see a new-build now that looks like a bargain – even your dream new-build – don't buy it. Just keep watching it. Odds are it will look even more of a bargain in a year or two.
• The latest figures from the Halifax House Price Index show that house prices fell 1.8% in August. That brings the fall over the last year to 10.9% and Britain's average house price to £174,178.
• House sales have dropped to their lowest level since 1978, according to the Royal Institution of Chartered Surveyors. The average estate agent in Britain sold 12.7 properties in the three months to August – with some selling less than one property a week, and those in London doing particularly badly. The figure is 47% lower than in the same period last year.
• Graham Beale, head of Nationwide Building Society and a man who has never in the past publicly admitted to knowing of any reason why house prices shouldn't rise forever, has announced that he expects house prices to fall by 25% from their peak in autumn last year.
• Mortgage lending has flattened out, says the Council of Mortgage Lenders. In July, 47,000 new loans were made, the same number as in June. That's still 51% fewer new loans than in July 2007. The number of mortgages given to first-time buyers dropped 48% between July 2007 and July 2008 to just 17,300. The average first-time buyer now needs a 15% deposit. A year ago he needed 10%.
• A Cypriot court is taking action against BuySell Cyprus, a UK company that markets Cypriot holiday homes to Britons. Cypriot police claim the firm is operating as an estate agent, but without a licence. This means that the firm may well not understand local property laws and is also able to charge more than the legal 5% commission fee. The whole thing, say the police, puts British buyers "at risk."
• The number of lots selling at property auctions has dropped from 70% a year ago to 56% now, according to the Essential Information Group, which monitors all auction activity in Britain. The rest don't make their reserve prices.
