Friday, 8 April 2016

Economic Myths: "House prices slashed to lure foreign landlords"

Emailed in by MBK, from The Times:

Housebuilders are offering discounts of 15 per cent to 20 per cent to entice investors into the British residential property market amid fears of a slowdown prompted by the buy-to-let stamp duty premium and forthcoming EU referendum.

Chris Lacey, head of residential investment at CBRE, said he had recently been involved in “three or four” deals in central London with a gross development value — value when built — of between £150 million and £250 million, in which institutional investors had bought packages of 100 apartments or more at a discount of up to 15 per cent.

For a start, they are talking primarily about flats, not houses and 15% - 20% is not 'slashed' in a market where prices have been rising at 10% a year for decades.

The main point is that this is quite normal practice for speculative builders.

The article mentions that the developer can "de-risk" (i.e. he doesn't have to worry about future price fluctuations, which is part of the reason for the discount, an equally important factor is the interest saving.

Developers have to finance the construction somehow. They could pay the bank ...% interest each year for the two or three years that the development takes or they can just pre-sell at a 15% - 20% discount meaning they get more of the sales proceeds up front (usually staged payments as buildings are completed).

A further point to note is that developers like bumping up official asking prices to above market values and then giving notional discounts or offering "Stamp Duty paid and free carpets" or whatever.

Finally, it has nothing to do with 'foreign landlords' either, they'd be happy to give anybody that sort of discount, especially if they are buying in bulk.


Steven_L said...

A discount on a price that the item was never sold for? An 'RRP'? Except it's not even an 'RRP' is it because the manufacturer is the one doing the retailing. So actually it's just a good old fashioned misleading price indication, used to draw gullible punters in.

Mark Wadsworth said...

SL, exactly, it's all just marketing ploys.