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What are the risks of buying from a failing developer?

Ybe
Ybe Posts: 270
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edited 13 November 2023 at 8:38AM in House buying, renting & selling
I am still thinking of buying from Pocket Living but all their developments are doing terribly for sales. Only a handful of reservations across their 3 developments on sale at the moment and on one of their developments (Osier Forest E10), they have given up completely and sold off all 80 flats to the council who will turn it into a shared ownership block. They are also in their 5th consecutive year of net losses and are relying on their majority shareholder backing to survive. 

What are the risks of buying from this developer? 
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  • gwynlas
    gwynlas Posts: 1,621
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    You have already stated that one development sold off to become shared ownership therefor I would thin that the same thing might apply to the others.Whilst shared ownership comes with stability for others you as an owner occupier might have little say in future management of the development. If you are keen on this developmen in particular you could delay purchase until more properties sold or Pocket Living rescued by cash injection.
  • I wouldn't go any further with this - it can cause problems if the developer goes under while you are mid transaction - and particularly if it happens after you have paid your deposit, but before completion.
    🎉 MORTGAGE FREE (First time!) 30/09/2016 🎉 And now we go again…New mortgage taken 01/09/23 🏡
    Balance as at 01/09/23 = £115,000.00
    Balance as at 31/12/23 = £112,000.00
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  • Ybe
    Ybe Posts: 270
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    I wouldn't go any further with this - it can cause problems if the developer goes under while you are mid transaction - and particularly if it happens after you have paid your deposit, but before completion.
    What kind of problems?  
  • Ybe
    Ybe Posts: 270
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    gwynlas said:
    You have already stated that one development sold off to become shared ownership therefor I would thin that the same thing might apply to the others.Whilst shared ownership comes with stability for others you as an owner occupier might have little say in future management of the development. If you are keen on this developmen in particular you could delay purchase until more properties sold or Pocket Living rescued by cash injection.
    They have funding from their majority shareholder but no idea how long that’s guaranteed for. I don’t understand their annual report on companies house. 
  • lika_86
    lika_86 Posts: 1,730
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    From your posts before looking at these developments, they didn't look like a good investment before, if they're abandoning and selling off their developments then they're clearly not a good investment. I'm not sure what the hold is that these flats have over you but I'd let it go.
  • Ybe
    Ybe Posts: 270
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    lika_86 said:
    From your posts before looking at these developments, they didn't look like a good investment before, if they're abandoning and selling off their developments then they're clearly not a good investment. I'm not sure what the hold is that these flats have over you but I'd let it go.
    It’s in a nice area, it’s next to the tube station, it’s new build. And is hard to get anything new build at that price in the area.
  • Ybe said:
    I wouldn't go any further with this - it can cause problems if the developer goes under while you are mid transaction - and particularly if it happens after you have paid your deposit, but before completion.
    What kind of problems?  
    At work we currently have a client who is fighting to get their deposit back after the developer they were buying from went under just a short while before the intended date for completion. The property is not finished, and there is no prospect of it being so anytime soon, therefore they opted to step out of the transaction - they had every right to do so under the contract but the developer's solicitors will not release the deposit money back to the client as they say that as the developer is no longer trading, that decision has to be taken by the Administrators. The administrators have things like that as a very low priority, so currently our client is left in limbo. 
    🎉 MORTGAGE FREE (First time!) 30/09/2016 🎉 And now we go again…New mortgage taken 01/09/23 🏡
    Balance as at 01/09/23 = £115,000.00
    Balance as at 31/12/23 = £112,000.00
    SOA CALCULATOR (for DFW newbies): SOA Calculator
    she/her
  • lika_86
    lika_86 Posts: 1,730
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    Ybe said:
    lika_86 said:
    From your posts before looking at these developments, they didn't look like a good investment before, if they're abandoning and selling off their developments then they're clearly not a good investment. I'm not sure what the hold is that these flats have over you but I'd let it go.
    It’s in a nice area, it’s next to the tube station, it’s new build. And is hard to get anything new build at that price in the area.
    But you can also only sell to FTBs, can't have a car (or sell to someone who needs/wants parking) and they're overpriced.
  • Jonboy_1984
    Jonboy_1984 Posts: 1,194
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    Ybe said:
    I wouldn't go any further with this - it can cause problems if the developer goes under while you are mid transaction - and particularly if it happens after you have paid your deposit, but before completion.
    What kind of problems?  
    At work we currently have a client who is fighting to get their deposit back after the developer they were buying from went under just a short while before the intended date for completion. The property is not finished, and there is no prospect of it being so anytime soon, therefore they opted to step out of the transaction - they had every right to do so under the contract but the developer's solicitors will not release the deposit money back to the client as they say that as the developer is no longer trading, that decision has to be taken by the Administrators. The administrators have things like that as a very low priority, so currently our client is left in limbo. 

    Administrations typically take 12-18 months to get to the point of a payout and it’s often pennies in the pound after priority debtors (HMRC, secured banks etc) and the administrators are paid.
  • Ybe
    Ybe Posts: 270
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    So apparently their 1 development they sold off to the council was a council proposition which is different to what the news article is saying. That gives me a bit of comfort but implies the news article is quoting the council incorrectly. With the car free bit, there is street parking nearby which is uncontrolled and there are alot of young ftbs in london who don’t need or want a car. However, point taken about the reduced market pool to resell to. I think my main concern is paying more than I should pay. 
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