April 21

Will We See Prices In FreeFall? A Property Developer’s Perspective

I thought I would have a call around to many of my developer buddies and get a feel for the market. They reaffirmed many of the thoughts I have had over the past month. So where are large and small developers thinking prices are going? But what if they can’t afford the falls?
For all Brett’s Coronavirus resources https://www.gladfish.com/covid19/
Video Transcription:
Hey guys welcome to this session of coronavirus and property so what I wanted to do today was talk about I’ve been going at all our developers and having a look at you know or just talking to them and getting a sense for send an email around and I’ve been chatting to a few of them and I’m continuing to do that because I really like to get a sense for where they’re at and what you know some of these guys are on the boards of various you know the big businesses and that and they get a lot of data and they understand a lot of data and they have a lot of reach into various areas around the UK.
I really wanted to get a sense for where they’re at and what they’re thinking is and what they’re seeing after we get over this lockdown and the virus and how we come back and how their predictions are and I have to say right off the bat I’m pretty optimistic almost is the word you know it really has and it really seems that their approach across the board and remember a lot of these guys have been working with for 15 years now in the UK even longer than 15 years you know since 2004,  2003 you know some of them and the great thing about that is that you know there’s no bullshit between us you know that they’ll say you know things are pretty bad things are you know crap though you know they’ll ring me up and they’ll say Brett you know we’re not you know we’re struggling to sell this can you help us out you know and these sort of things so it’s not like them to across the board be quite optimistic about things.
Optimistic from a couple of perspectives optimistic because actually if you look at it that had a very low sales volume since Brexit. Brexit really cut their legs off the market apart from that helped by schemes I kind of done very well to help supply schemes they admit it and you know so that’s been very good to get people on the ladder so that’s the first thing you know that we come in from a low sales volume.
They hadn’t yet ramped up even though they had the election they are waiting on the budget before they started to look to ramp things up and they never got to do that so it’s a bit different in 2008 what they had was they come off a massive boom huge margins lots of cash flushing around and so all of a sudden everything ground to a halt so they had massive supply lag, which basically means there’s lots of supply come to the market right through the recession and therefore the word drop the prices and now dropping prices by somewhere between 10 and 30 per cent okay was the realistic drops that we saw in prices okay remember this is talking about a new build it probably wasn’t the 30% in
outside although actually to be fair it was too large we’re in a lot of areas.
So that was the sort of 2008 now it’s very different we’ve had three and a half years of Brixton we’ve had political uncertainty we’ve had everything you know it’s all I said a perfect storm where we’ve not been in recession but it’s been recession conditions where developers haven’t been building huge amounts they’re been building and selling building and selling the building and selling the building and selling you know and they’ve been selling to owner-occupiers which generally by the end of the cycle rather than off-plan investors which by the start of the cycle you know so there’s a lot of these sort of factors which are going into the reasons why they’re quite comfortable with how things are and actually they’re across the board they’re not as concerned as I thought they would be.
A couple of them have said and I think this is really apt and really interesting is that actually they haven’t got the margins yeah so regardless of where the prices drop or not if prices drop and they can’t sell and they can’t hold out until prices increase then they’re going to be in a position where some of those sites are going to be repossessed yeah and they’ll have to do follow sales and the bank will take them back yeah so there’s a lot of banks now getting involved to work out where things around there’s lots of scenarios is in going on about you know what happens if prices dropped 5%, 10%, 20%, 30% and that sort of thing which that’s normal to go on you know that’s absolutely normal right and I’m surprised about that but whereas they had the margin in 2008 they haven’t got now.
The reality is across the board what we were saying and the biggest discount that you know cuz I’m in it for myself and in a few guys, you know as investors so I’m like okay what can we do you know what can you do what’s likely to be the best you can do because what I’d rather do is go into my investors now and say right we’ve got ten per cent you know than to do okay now we’ve got two per cent and now that three per cent now a four per cent now at five per cent and eventually attempting that’s not the way to do it it’s better to just drop it now and then we look at building it up from there.
The reality is ten per cent was the most you know that anyone was even prepared to talk about in and even that was a stretch you know and even that was you know that was a couple and it wasn’t just one was a couple by far the majority of them were playing the wait-and-see game you know Brett listen we’re not doing anything right now we’re just waiting and seeing we’re in a position where we’ve got enough cash we’re okay you know we can ride it ride this out for a little while and we will keep doing that in an actual fact what they’re looking to do is there’s two things he says in 2008 they didn’t have in 2008 in 2020 there are two aspects that didn’t you know the first time which is obviously the supply lag the second one is that they never had a PRS (Private Rental Scheme) market of private rented market whereby pension funds will come in and they’ll buy an entire site and I’ll rent that out and they’ll want the return on that so they never had that whereas they have got it now so a lot of the bigger developers and even the some of the smaller ones are starting to build for that market so that market is less price sensitive than say you know what our investors are where we want the best price possible that market is more about yield so there’s a lot of different factors going on here that mean actually you know prices may not be dropping as much now we can’t avoid the economic reality that is if everyone becomes unemployed if businesses grind to a halt if inflation shoots through the roof if all these sort of massive things happen then yet potentially I’m wearing for a doozer and prices will drop but if that’s the case it seems for the most part we’re gonnahave lots and lots of elders going bust you know prices going freefall and it’s all but it you know turn to crap.
I don’t get a sense of that you know I really don’t get a sense of that you know talking around and that’s why I feel optimistic because I’m sitting here and you know I’m spending every day researching and reading articles and now spending probably four hours a day reading right now just you know reading, YouTube videos all the sort of stuff getting different opinions on things and then doing these videos and so that could expose yourself to lots of you know that is a bad article other hand it’s like oh no everything will be fine everybody hi I think it’s likely something in the middle but from a new-build perspective and from developers and remember and I’ve said this for many many years when you’re in a recession what you want to do is get your developers to develop more property ramp up of things so I think what you’re gonna see is stimulus going into this to get the mark of moving because that’s a that employs plumbers and you know brickies and all these sort of aspects of the whole supply chain and when you get that supply chain working you come out of recession a lot quicker than doing what we did last time which was austerity and not to anything yeah and then we have this ten-year austerity recession you know it may not have been a technical recession but things were dead for ten years for a decade you know and we lost a decade we don’t want to lose another decade okay so yeah guys that’s you know interesting perspective I think for today and you know yeah.
I have to say you know I’m little smirk on the face and that may get wiped off it may well get wiped off it may be that you know things turn to crap but I have to say looking at the broad spectrum of things I’m not actually as concerned as I could have been you know and understand you know we got out before tea staff and so I have to be aware of what’s going on I have to because you know I think that salaries they rely on me for guidance in what’s in a direction that’s the stuff you know but actually I’m pretty I’m getting more and more confident on getting more covering the government I’m getting more and more confident stimulus package of working I’m getting more and more confident in the tenants you know who are playing their part the landlords are paying their path and it just seems like everybody is coming together it’s an amazing thing after three and a half years of brexit where everybody was pulling apart and all of a sudden everyone’s comingtogether it’s a bloody impressive to see so you guys that’s my perspective for today have a great day stay safe stay healthy and still stay at home till the 7th of May if we’re out soon. It’s certainly looking like it is looking a lot more confident now you know the rates of you know deaths are coming down and that’s you know that that’s what we want to see so yeah we can imagine we can start seeing some more the light at the end of the tunnel alright guys speak to you soon.


UK Property Investors

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