New Build Flats - Just in case you weren't aware!

Jonbvn · 21 February 2008 at 12:13PM

Good article in The Times this morning about new build flats.

http://business.timesonline.co.uk/tol/business/columnists/article3406269.ece

Moreover, the boom of the past few years has been fuelled not only by reckless bank lending but also by a “conspiracy of acquiescence” between developers and valuers at best and, in many cases, downright fraud. That is likely to make the ensuing bust all the more painful.

IMHO, there will be a lot of blood on the carpet after the market in NB flats reaches it's conclusion. Will the gov't support the big builders like they have NR? I don't think so.

merlinthehappypig · 21 February 2008 at 12:17PM

[FONT=Verdana, Arial, Helvetica, sans-serif]More on the same theme in this report, about the wider housing market as well:[/FONT]

[FONT=Verdana, Arial, Helvetica, sans-serif]Housebuilding stocks tumbled yesterday after a brutal research note from Dresdner Kleinwort analyst Alastair Stewart, who warned that “reckless lending and over-building of flats threatens recession.”[/FONT]

[FONT=Verdana, Arial, Helvetica, sans-serif]Most homebuilders will start reporting their results next week. But Stewart warned investors to “head for the exit” before then. Taking a wrecking ball to earnings forecasts, he said: “We believe it is pay-back time for years of speculation, to which most housebuilders are now indirectly exposed.”[/FONT]
[FONT=Verdana, Arial, Helvetica, sans-serif]Worst case, he expects to see “a multi-year slump, losses in two to three years, land write-downs, strain on cash and dividends.” [/FONT]

[FONT=Verdana, Arial, Helvetica, sans-serif]Of course, it’s not just the housebuilders who are going to be affected by the collapse in the housing market. Alliance & Leicester’s results yesterday just confirmed Stewart’s comments about “reckless lending.” [/FONT]

[FONT=Verdana, Arial, Helvetica, sans-serif]"Worst of all worlds" for Alliance and Leicester [/FONT]

[FONT=Verdana, Arial, Helvetica, sans-serif]The ex-building society saw shares fall to their lowest level in eight years – since it listed in fact. That’s a bit sobering really, for devotees of the ‘buy and hold’ investment strategy, if you think about it. If you were one of the lucky A&L customers to get a windfall when it demutualised, your shares are now worth less than they were then. In eight years. Sure, you got the money for nothing – but it could have been put to a lot better use than that. Even spending it would have been more profitable.[/FONT]

[FONT=Verdana, Arial, Helvetica, sans-serif]Anyway. A&L said its cost of funding is set to jump by £150m this year, as a result of the freeze in the credit markets, which destroyed its rival, Northern Rock. The group also ditched its profit growth target of 9% a year, and said it expects ‘core profit’ to be lower than in 2007. [/FONT]

[FONT=Verdana, Arial, Helvetica, sans-serif]They must have been putting testosterone in the City’s water supply yesterday, as Collins Stewart analyst Alex Potter was also pretty blunt when he called the results “a profit warning on revenues, costs and cash returns - the worst of all worlds”.[/FONT]

[FONT=Verdana, Arial, Helvetica, sans-serif]The bad news for the housing market (and of course, housebuilders) is that A&L is going to run down its mortgage book, and plans to ask all new borrowers for at least a 10% deposit. Beyond a shadow of a doubt, time has been called – by all the banks and building societies - on the reckless lending policies of the last few years. And reckless lending is the only thing that’s kept the housing bubble inflated. [/FONT]

[FONT=Verdana, Arial, Helvetica, sans-serif]Forget about a soft landing. Housing demand has been entirely a function of the amount of money available to borrow to pump into property. That availability isn’t diminishing slowly – it’s been pole-axed by the belated realization – stemming initially from the US - that borrowed money has to be paid back sometime. And that means demand will collapse.[/FONT]

[FONT=Verdana, Arial, Helvetica, sans-serif]Basic economics – cut demand, while supply remains constant, and the result is falling prices. It’ll take a while to show up in the major indices, and they’ll fight it all the way down with every statistical trick they can pull out of the book. But even so I’d expect Nationwide and Halifax to be showing annual falls in house prices by August at the very latest. Before that if we’re talking inflation-adjusted terms. [/FONT]

[FONT=Verdana, Arial, Helvetica, sans-serif]What can be done? David Blanchflower – the Monetary Policy Committee’s wannabe Ben Bernanke - voted for a half-point interest rate cut at the last meeting of the Bank of England’s interest-rate setting committee. Meanwhile, we also learned that oil had hit a new nominal record of $101 a barrel in New York, and gold also hit a new record of $945 an ounce.[/FONT]

[FONT=Verdana, Arial, Helvetica, sans-serif]But what’s inflation to Mr Blanchflower? The only inflation that matters to him is house price inflation. If it’s going up, life is good. If not, life is bad. But here’s a suggestion for Mr Blanchflower – look to Japan. You can slash interest rates all the way down to zero, but if lenders haven’t got the money to lend and borrowers haven’t got the stomach to overstretch themselves any further, it won’t do any good. In fact, all it does is mark you out as an abnormal economy scrabbling around on life support, which puts any sane person off investing in you – as Japan has discovered to its cost for nigh-on two decades now. [/FONT]

adr0ck · 21 February 2008 at 12:21PM

new build flats

enough said

i think the most telling part of the story (which i have posted lots of times) is

"Flats as a proportion of all housing starts have rocketed from 10 per cent to 15 per cent at the turn of the century to 49 per cent"

Richard_Webster · 21 February 2008 at 2:25PM

Lenders were so desperate to lend they didn't tell their valuers to apply a bit of objective common sense to valuations. If the valuers had been stronger the builders would have had to lower their prices.

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New Build Flats - Just in case you weren't aware!

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