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What are the risks of buying from a failing developer?

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  • Ybe
    Ybe Posts: 274 Forumite
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    This one looks far better value so why has it not sold for over 6 months? 

  • Butti
    Butti Posts: 5,014 Forumite
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    For the one that hasn’t sold I would think it has to do with the relatively short lease term and uncertainty in the whole market over leaseholds.  The Government keep making noises about what they will and won’t do that are contradictory which makes buyers twitchy.

    Do not buy from a company that you think is in trouble.  If they are in trouble they will have been taking money from buyers and lenders but not paying their sub-contractors. If they fail you will be at the end of the queue for payments and get very little back.  If the quality isn’t good you also won’t get anywhere.
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  • Ybe
    Ybe Posts: 274 Forumite
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    Butti said:
    For the one that hasn’t sold I would think it has to do with the relatively short lease term and uncertainty in the whole market over leaseholds.  The Government keep making noises about what they will and won’t do that are contradictory which makes buyers twitchy.

    Do not buy from a company that you think is in trouble.  If they are in trouble they will have been taking money from buyers and lenders but not paying their sub-contractors. If they fail you will be at the end of the queue for payments and get very little back.  If the quality isn’t good you also won’t get anywhere.
    I can’t tell if they’re in trouble. 
  • 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.
    This is a little more complex though - primarily our argument is that the client's deposit money was being Held to Order by the developer's solicitors, and that it was not yet the developers money, and so should not be being withheld. This is what I meant by buying from a possibly failing developer being risky. It seems that in the longer term the administrators may well agree with this standpoint, but at the moment even being able to get the matter in front of them is difficult. 
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  • OP =- don't have any faith whatsoever that the currently uncontrolled street parking will stay that way! 
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  • Section62
    Section62 Posts: 7,765 Forumite
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    Ybe said:

    ....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.
    If it is in London and in a street where parking is not yet controlled then it is only a matter of time before overspill parking from 'car free' developments will cause the council to introduce parking controls.  Assuming on-street parking will be available forever would be a mistake.

    Also, what the owner needs/wants in terms of parking is only one factor.  They should consider what friends/family visiting them might need - if you relocate yourself somewhere where the only way of getting there is by public transport it shouldn't come as a surprise later on if some friends/family don't want to visit because of the hassle of getting there.  For many people that lifestyle works, but generally it only works well in central London boroughs where the public transport system is good.  In outer London public transport isn't as good as non-Londoners might believe.  A development may be near a tube station, but how do you get anywhere when strikes or weekend maintenance work mean no services.

    To a degree some developers are selling a dream... they won't be around when the reality bites.
  • Ybe
    Ybe Posts: 274 Forumite
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    edited 15 November 2023 at 1:25PM
    Is this poor financial performance? They’re in their 4th consecutive year of net losses although the net loss is becoming smaller. Their net liabilities have grown. They are operating on bank loans and investments from their majority shareholder based in the US who have given them backing at least for the next 12 months. They also seem to be getting a fair bit of support from state grants. And they have this narrative - https://www.housingtoday.co.uk/news/pocket-living-falls-to-19m-loss/5118587.article
  • My biggest concern in buying a property from developers in financial troubles would be the warranty so if they go into administration, and you find there's a fault but you cannot do anything.
  • Ybe
    Ybe Posts: 274 Forumite
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    My biggest concern in buying a property from developers in financial troubles would be the warranty so if they go into administration, and you find there's a fault but you cannot do anything.
    I didn’t think about this at all. Thanks. 
  • Ybe
    Ybe Posts: 274 Forumite
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    Section62 said:
    Ybe said:

    ....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.
    If it is in London and in a street where parking is not yet controlled then it is only a matter of time before overspill parking from 'car free' developments will cause the council to introduce parking controls.  Assuming on-street parking will be available forever would be a mistake.

    Also, what the owner needs/wants in terms of parking is only one factor.  They should consider what friends/family visiting them might need - if you relocate yourself somewhere where the only way of getting there is by public transport it shouldn't come as a surprise later on if some friends/family don't want to visit because of the hassle of getting there.  For many people that lifestyle works, but generally it only works well in central London boroughs where the public transport system is good.  In outer London public transport isn't as good as non-Londoners might believe.  A development may be near a tube station, but how do you get anywhere when strikes or weekend maintenance work mean no services.

    To a degree some developers are selling a dream... they won't be around when the reality bites.
    I’ve found the tube pretty reliable in outer london including on weekends. I’ve never needed a car. 
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