Category Archives for "Beginner investors"

0

Should housebuilders offer snagging retention schemes?

Can property developers stop the unwanted yet likely government meddling?

The HomeOwners Alliance has launched a campaign aimed at reducing the escalating number of snags experienced by buyers of new homes. It wants the government to step in and act against property developers with a poor record of selling new build homes with numbers of unacceptable defects and snags.

Is there a problem with snags on new builds?

A recent survey carried out by YouGov for the HomeOwners Alliance found that new home buyers have mixed feelings about their new home. When snags were found, fewer than six in 10 felt their warranty provider was able to resolve disputes with the housebuilder within the first two years of ownership.

Considering that a recent New Homes Review found that 91% of new homes have defects, the HomeOwners Alliance survey casts a huge cloud over the new build sector. If nine out of 10 homes suffer snags, and six out of 10 of these are not put right within two years, this means that half of new homes are sold with defects that are not put right within the two years applied under builder warranties.

Sales of new homes will suffer

Homebuyers are coming to expect some snags in a new build property. There have been some real horror stories published in the media recently.

Cracking walls, subsidence, poor brickwork, gaps in windows and doors, central heating and hot water systems that don’t work, inadequate drainage, unpainted walls, poorly-fitted kitchens… the list is almost endless of the defects reported and the complaints made.

It may be that the government’s push to build more homes, and build them faster, has put such a strain on property developers that quality is being compromised. However, such reasoning doesn’t sit well with homebuyers. Most are not builders or tradesmen themselves. They feel that if they can spot defects, then experts should be more than able to do likewise.

The result is that the number of buyers of new homes that would recommend the housebuilder to others has taken a tumble.

Are snagging retention schemes the answer?

There is a growing feeling among consumers that it is money that talks. Buying a new home is the biggest investment most will ever make. The HomeOwners Alliance is campaigning for snagging retention schemes to be mandatory. Their suggestion is that at least 2.5% of the sale price should be held back, and only released when the homebuyer is satisfied that all snags have been taken care of satisfactorily.

The homeowners survey found that nine in 10 new homebuyers support snagging retention. It also found that 76% of the general public support it. The feeling is that holding back money would incentivise housebuilders to either get it right first time, or to fix issues quickly.

Will a snagging retention scheme work?

While a snagging retention scheme may appear a good idea, there are question marks over whether it could work in practice. For example:

• Might housebuilders simply increase their sales prices to compensate for the retained amount, therefore eliminating much of the incentive to improve quality of build and defect repair?
• Could new homeowners be tempted to ‘make up’ complaints to retain the snagging retention money?
• How would a scheme be monitored?
• What arbitration process needs to be formed to solve disputes?

While such practicalities may exist, they are unlikely to stop the government from considering and implementing a snagging retention scheme. The housing market is firmly in their sights.

They government has already banned tenant fees, increased stamp duty on investment properties, decreased tax relief on buy-to-let mortgages, and increased regulation in the private rented sector. They have attacked property investors and landlords, despite advice that they shouldn’t. It would not surprise us if they take up the mantle of a popular suggestion that ‘helps’ new homebuyers, irrespective of any advice they may receive.

So, should housebuilders offer snagging retention schemes?

Regulation is weighing increasingly heavily on property developers. The idea of a snagging retention scheme is certainly popular – and the government needs to build on its poor popularity. In the current environment, a mandatory snagging scheme is more, not less, likely to be introduced.

A proactive approach to the perception that build quality is reducing and housebuilders don’t care could be to offer snagging schemes as part of the new home sales package. If housebuilders offered such a scheme as a matter of course, potentially punitive legislation might be avoided. It could also be a good commercial decision – if homebuyers are more likely to buy from a housebuilder with a snagging retention scheme, those that offer snagging schemes are likely to sell more property.

The first snagging retention scheme is here

Persimmon has taken the first step. It recently announced the introduction to what it believes to be the first snagging retention scheme in the UK. The scheme should be in place by the end of June.

An average of £3,600 will be held back for defects that are detected at the point of purchase. This equates to 1.5% of home value, or around 6% of build fabric costs. Persimmon’s CEO Dave Jenkinson said:

“We are now accelerating the pace of change through the introduction of a contracted retention which will give homebuyers far greater satisfaction at the completion of the purchase.”

He also said that the housebuilder is“determined that the house buying experience is not overshadowed by teething problems. Providing a homebuyer’s retention is an important step towards achieving this.”

Amid calls for snagging retention schemes to be obligatory, other housebuilders are likely to watch Persimmon’s scheme with interest. If it proves a commercial success, then it is probable that more developers will include such schemes in their sales strategies. This could put a halt to meddling by the government.

Self-regulation is always better than oversight by a government that doesn’t understand the housing market.

To connect with investors with long-term horizons, get in touch with Castlereach today. Call the team on 0207 923 5680. Our partnership will help get your new build and off-plan development sales to where you need them to be.

Live with passion

Brett Alegre-Wood

0

A hung parliament shouldn’t deter investors in regional off-plan property

What now for off-plan property sales in the UK?

So, general election fever is dead and buried. For now, anyway. But what impact is the hung parliament likely to have on off-plan property sales? We think the effect may be muted, especially in the regional cities where recent investment news has indicated resilience, stability and growth.

There will, of course, be warnings from property experts who predict the collapse of property values across the UK. Newspaper headlines will trumpet the demise of the buy-to-let investor. A period of political uncertainty as we dodge Brexit bullets, on top of UK property tax changes (which supposedly mean that “BTL is no longer profitable”) will prove the death knell for investment in the UK. At least, this is what the scaremongers would have everyone believe. Hasty developers may be tempted to pull their off-plan sales plans.

Swift action needed and taken

Perhaps we should learn from recent history. In 2010, the conundrum of the hung parliament was answered by the formation of a coalition government after several days of negotiations. Contrary to what people expected, the Conservative/Liberal coalition saw out its term. The government proved to be stable.

Mrs May has acted even more swiftly than David Cameron did in 2010. Within hours of everyone waking up to the news of a hung parliament, and wondering “what next?”, Mrs May announced she would seek a deal with the DUP, and put a new government in place.

In the aftermath of the vote, the pound fell by around 2% against the dollar and the euro and then stabilised. The stock market, which many expected to collapse, rose by a shade more than 1%.

The swiftness of Mrs May’s actions has gone some way to calm the markets. The need to keep the DUP on board might force the Brexit negotiation team to be less confrontational. The chances of a good deal for the UK may increase.

No bounce in property values, but an opportunity to take advantage of fundamentals

The post-election bounce in property values that many had predicted after a convincing Conservative victory may not happen just yet. However, if the negotiations begin well and the Con-DUP pact remains solid, there is no reason why UK property values should not perform similarly to the period between 2010 and 2015. The exception may be that this time around London gives up its star billing to the regional cities.

This election has not changed the startling shortage of new homes in the UK. In January 2017, the National Audit Office reported that there are more than 71,000 homeless households in England. A Parliamentary report confirmed estimates that demand for homes in England runs between 232,000 and 300,000 a year. The government’s target of 200,000 new homes built each year would fall some way short of the lowest estimates of demand, even if housebuilders had the capacity to pump up supply to target levels.

By the end of this parliament, investors from the UK and overseas who buy off-market and off-plan property in this market lull could be looking back and congratulating themselves for taking advantage of a politically prompted pause in the property market.

Investment attention turning away from London

London will continue to be a major centre for property investment, but the focus has shifted in recent months. Property in cities like Liverpool, Birmingham and Manchester are more affordable. Yields are higher. Significant spending on infrastructure and regeneration is ratcheting up inward investment.

Off-plan property is still in demand in these key regional locations. Supply has failed to keep pace with demand. Population growth, both at current levels and forecast, could widen this differential. Multi-billion pound projects, such as HS2 and HS3, offer significant potential for future growth. Travel times between major cities in the Midlands and the North and to London will be slashed.

We’ve seen increased interest from overseas investors in particular. The most recent fall in the pound is likely to prompt renewed search for value property investment opportunities.

Regional cities in early-stage recovery, says Hometrack

In late March, the Hometrack Index report concluded that England’s regional cities are in an early-stage recovery phase. It reported that:

• Sales volumes in Liverpool and Manchester are up by more than 40% in three years.
• Manchester’s price growth is leading all cities at 8.8% in the last year.
• Prices in Birmingham, Leicester and Portsmouth increased by more than 7%.
• Liverpool’s property price growth was not far behind, at 6.8%
• However, London’s price growth has fallen to 5.6%.

Although the report predicted temporarily slower demand in the regional cities due to the impact of Brexit and economic uncertainty, its forecast continued upside in property prices and activity.

Liverpool – a buy-to-let paradise?

Recent news from Mistoria Estate Agents is evidence that Liverpool’s private rented sector is in the middle of a huge boom.  Demand for tenancies is up by almost 20% across the city. Property investors in this university city are seeing unprecedented demand from students, with almost seven tenants chasing every room in shared buy-to-let property. High-quality rental properties are also in high demand.

Here, rental yields are among the highest in the country, with average yields a third higher than the national average. Some property opportunities offer yields of 10% and more, with property highly affordable for investment.

Opportunities that our investors are seeking

High gross yield and high growth opportunities are exactly the types of investment our investor client base is searching for. These investors understand that UK property fundamentals remain strong, despite the recent political shambles. Pinpointing locations for profitable investment is what our investor clients expect of us. Working with developers providing the best quality off-plan property sales is how we achieve this.

Contact us today on + 44 (0)207 923 5680, and we’ll start developing our segmented investor client lists specifically for marketing your development in London and the regional cities.

Live with passion,

Brett Alegre-Wood

0

Increase off-plan sales and take the luxury bubble bursting opportunity

Adaptable strategies to maximise new build sales

According to the Land Registry, the luxury end of the London property market has finally burst. Super prime sales have collapsed, but it’s not Brexit that’s to blame. With tens of millions in property developments designed for the high-end market remaining unsold, developers have to employ remodelling strategies to shift and sell their developments.

Here I’ll look at how the bottom has fallen out of London’s luxury property market, and what developers are doing to sell their developments. You’ll also discover how we work with developers to create strategies that sell.

Stamp duty stomps all over luxury development property sales

When the government increased stamp duty rates, it did so in the hope of reducing the number of additional properties bought. The idea – at least publicly – is that this will deter investors and leave more housing stock on the table for ‘genuine’ home buyers.

In the run-up to the introduction of the additional stamp duty land tax of 3%, buyers rushed through their purchases in March. Investors avoided the extra stamp duty, and the property market went through a month of incredibly high sales numbers. The extra demand helped to push property prices higher. Sales for two or three months suffered because purchases had been rushed through the market early. We also had Brexit in between.

A lot of market watchers blamed the fall in property investment transactions on Brexit, but with property market transactions now normalising again, it’s clear this wasn’t the case.

At the luxury end of the market, the so-called ‘super prime properties’ worth £10 million and more, sales have collapsed. In the three months to August 2015, there were 35 properties sold in the luxury bracket in London. This year sales have hit the rocks. Only five £10 million-plus properties sold in London in the comparable period. This lack of interest has also hit prices paid – an average of £16.3 million this year compared with £22 million last year.

The hardest hit in the luxury sector has been new builds – not a single one has sold.

Deflation of the bubble was inevitable

Prices of high-end luxury property in London have increased so far, so fast, that a correction was inevitable. Prices at the upper end of the market are always the first to be hit. With a review of non-dom inheritance tax on the cards, it’s unlikely that this end of the market will bounce anytime soon. Some analysts are predicting a multi-year lull in luxury home prices; and not only in London but across the UK.

Lower sales numbers at these higher prices might dismay the government (it will collect less stamp duty), but it could be devastating to developers who haven’t got a plan B. This is where revised off-plan property sales strategies come into play.

Deflating your luxury property could inflate your sales

We’ve found that the death of billionaire buyers is prompting developers to evolve their plans, and it’s working. As super prime sales have fallen, we’ve found that investment interest in smaller, more affordable properties has increased. It is especially the case from our foreign investor base, which has benefitted from the fall in the value of the pound. Off-plan property sales have suddenly become 20% better value. (Read more in our article “Foreign property investors demand new build property post-Brexit”.)

Developers are remodelling their projects to appeal to the lower end of the market, where investment is still strong. It means creating four or more apartments from one, with lower price points that appeal to a different investor profile. There are planning hurdles to overcome, but once these have been ironed out, the developer can employ a range of strategies to sell to a more engaged audience.

Working hand-in-hand with developers

While the developers we work with have been building new developments in the best places and to the highest standards, we’ve been developing an excellent network of investors at home and abroad who turn to us to benefit from off-market property investment opportunities.

We discuss marketing plans with the developers and then swing into action with some sales strategies that protect the integrity of the development while increasing off-plan property sales.

We discuss property fundamentals (shops, schools, transport links, major employers and major investment) with the investor, relating how the developer’s property offered fits into the growth and income producing bracket that our investors are seeking.

Our investors rely on us to source incredible and exclusive deals – they take on a larger risk because we’re able to offer them ground floor opportunities that have real rental appeal in the long term. These investors aren’t for flipping; when it comes to selling your next tranche of off-plan properties, you won’t find you’ve got unexpected competition for buyers’ signatures.

Foreign investors are the lifeblood of off-plan property sales

We’ve seen a sizeable increase in enquiries from foreign property investors. They’ve been buoyed by the fall in the value of sterling. Despite the Brexit negativity in some quarters, the UK is still a great place to invest. Housing demand outstrips supply, we benefit from a stable government, and there’s an entrepreneurial spirit that is the envy of the world. The UK is the fifth largest economy in the world, and Brexit is unlikely to change that.

Meeting the challenges of off-plan sales together

Developers face some challenges. Working with local councils to source the best locations for development is among them. But the UK needs more than 1 million new homes, so the opportunity for developers is very much alive.

Property investors are interested in off-plan property in the best locations. That means buying property that benefits from nearby shops, schools, and transport options. Our investors expect these fundamentals to be present; repositioning difficult-to-sell super prime properties is a strategy that is likely to create units that investors want. We can then work together to create a sales strategy that compels investors to invest in your newly planned off-plan properties.

Contact us today on + 44 207 923 5680, and we’ll be happy to discuss the help and expertise we can offer you as we link the best developers with the best investors.

Live with passion and fun,

Brett

0

How to implement effective off-plan sales strategies

Early phase off-plan property sales strategy

Developing an effective off-plan sales strategy is key to achieving expected return on investment for property developers. It will help reduce the need for equity, help with funding and provide cash flow for the development, increasing buyer confidence and creating a virtuous sales circle going forward.

When developing a off plan sales strategy, you’ll need to gain the trust of end buyers and also be able to trust the partners you select in the process of off-market, off-plan sales.

Build key relationships first

You’ll have some key stakeholders, all of whom dovetail and work with you to take your project off the drawing board through to completion. Your lenders and buyers should be involved early, but you probably won’t want to publicise off-plan sales too soon. Off-market new build apartment sales can enhance your project balance sheet and help structure your pricing strategy going forward. Ensure you select off plan sales partners with a track record that matches your scheme.

Build trust with buyers and investors

Investors are keen to do business with developers who can be trusted. If you can demonstrate a track record of timely completions and working to pre-agreed specifications, that trust will grow more quickly and more freely.

Update your stakeholders regularly

People don’t like to be kept in the dark, so offer regular updates on how you are progressing towards milestones. Even if there’s a little bad news or a slight delay, it’s better letting your investors and funding partners know about them. not every little detail, but often in the absence of any news, investors can assume the worst. The important thing is how variations are handled, and to give plenty of warning if something goes awry. This allows your partners to manage relationships better in their world − in off-plan forward sales this is crucial.

Ensure buyers and investors understand the risks

Working with an experienced partner in off-market, off-plan sales gives you someone who will work with investors and you. Those who are aware that new build apartment sales are not without risk will be able to help you overcome issues as they arise. Usually, their clients are probably be long-term investors, which helps offer stability for your ongoing off-plan sales. Avoid speculative buyers who may be looking to flip their purchase at the most inconvenient time, putting pressure on prices and perceptions. Always choose your off-plan sales partner wisely.

Staging your off-plan sales strategy

Those first off-plan new build apartment sales will probably command a greater discount than later units. This is the nature of risk versus reward, and the earliest purchases are the riskiest from an investor’s point of view. You’ll need to consider how much equity needs to be raised and how many units need to be sold to reduce your financing needs. having a strong set of figures is critical and releasing properties at a regulated rate as part of your off-plan sales strategy will help you to finance your project and stabilise / secure prices.

Off-plan sales strategy reduces your risk and maximises income

By buying off-plan and new build apartments, Castlereach offer valuable and useful ways to reduce your risk. They’ll help your pricing going forward and give lenders greater confidence in your development. Your capacity to fund at competitive rates will probably increase as well as increase your overall profit and reduce the time and effort it’ll take hit your unit sales targets.

Off plan sales partnerships

Our investors understand the nature of risk and trust us to carry out the due diligence necessary to reduce their risk to a minimum per development. The feedback we give provides invaluable evidence of actual demand. This helps execute your sales strategy, and facilitate the build process as your development progresses.

To discuss your off-plan sales strategy and how many units you would like us to buy from you to help your development achieve your unit sales targets, call us on +44 207 923 5680 and chat to the team.

Live with Passion,

Brett Alegre-Wood

0

The Challenges facing property investors and new build property developers

Understanding needs of new build property for sale

New analysis from Yorkshire Building Society suggests that the undersupply of new home developments might be worse than previously feared. The UK now needs more than one million new homes. For property investors and new build property developers, this is a reality that promises profits and security though it’s not without challenges.

Here, I look at some of these challenges faced by new build property investors and developers with new build property for sale.

It can be hard for property developers to work with councils

For many new build property developers, working with local councils is challenging. One major problem is that councils don’t necessarily have the control they need to allow sites to be offered to developers. The best sites always come online eventually, but if you wait for this to happen, you could miss other, more profitable opportunities in the meantime.

Central government is beginning to devolve funding to local authorities. Manchester, Liverpool, and the West Midlands are cases in point. These authorities now have billions that were previously controlled by central government. As this devolution increases, so will the ability of councils to control housing funding. They’ll be given the freedom to develop public land that is surplus to requirement. This should help new build property developers to purchase the best land to develop more quickly. When this happens, there are even better opportunities for property investors searching for new build property for sale.

To succeed, new build property needs infrastructure

The millennial generation is more mobile, more agile in their work, and returning to renting as a lifestyle option. When you rent, you have the ability to move jobs. You’re not tied to a single location because of home ownership. Millennials are also less inclined to be car owners. They are more prepared to use public transport.

Property investors are therefore more interested in new build property for sale that offers lifestyle benefits. Apart from modern appliances, secure buildings and WiFi, the real issues centre on infrastructure:

• Does the new build property for sale benefit from being close to a transport hub?
• Is it easy to travel to and from work? To go on holiday?
• Are amenities close, such as retail and leisure facilities, restaurants and nightlife?

These are issues that will probably make or break for new build property developers, too.

The financing issue for property investors and new build property developers

Since the Global Financial Crisis, financing has become more difficult for new build developers and property investors.

As a developer, access to a bank of high net worth investors is essential. You’ll be able to take advantage of the desire for investment in new build property for sale. Off-plan sales should increase cash flow and make financing easier.

As a high net worth property investor, you’ll have the funds to benefit from the very best offers from new build property developers.

Trust nd confidence is essential for both parties

Trust is a key principle in the business of off-plan sales of new build properties.

As a property investor, you’ll want to know that you are dealing with a reputable new build property developer. You will expect to see a track record of successful completions and be kept informed of progress.

As a property developer, you’ll want to know your early off plan property investors are genuine, long-term investors. You’ll benefit from payments made when they are due, on schedule, without fuss.

Castlereach squares this circle. We have a large and continually growing bank of investors from around the world, actively searching for quality new build developers to buy from. For developers, our sales process is under the radar and off-market, not interfering with their own sales channels.

As a property investor, you’ll benefit from our expertise in working with the best new build property developers and our research capabilities.

As a property developer, you’ll benefit from our extensive reach and unique client contacts.

Contact us today on + 44 207 923 5680, and we’ll be happy to discuss the help and expertise we can offer you as we link the best developers with the best investors.

Speak soon,

Martin Sadler