SALE -30% off property? – Hawk Eye
When is a sale not a sale…?It was last Saturday that I strode purposefully down the aisles of shirts, jackets, slacks (or if you are young and trendy trousers). Desperately searching for a shirt for a party that night. Almost instinctively I was drawn to the big red signs saying 10% off, or 20%, or even better 50% off. Sensing a bargain I began looking at the 50% off rail. As I started to rummage, I began to think about the sales promotions of old. The days when furniture retailers used to advertise the same closing down sale, week in and week out; you know the one. The closing down sale had by general consensus being going on since well before the start of the Boer War and showed no sign of ending. It was at that point that a thought flashed into my head. I began to wonder whether this whole ‘sale business’ was just a mirage. Could it be that the cunning retailers could pretend to reduce their prices by artificially inflating them first. Of course not! It was at that point that I vaguely recalled a Radio 4 show that had talked about just this issue. Some consumer expert had twittered on about the Trades Description Act (TDA) having made it illegal for any item to be marked as reduced unless it had been on sale at a higher price for 28 days in the proceeding six months. It’s amazing what rubbish you remember. Having got bored of the array of stripes, flowery patterns and generally dull bargain shirts in front of me; my mind started to wonder onto the far more engaging subject of property investment.Despite the existence of the TDA a whole industry has developed in the buy-to-let market that appears to inflate the price of property and then sell it at a ‘discount’. This practice where developers often using specialist broker companies target investors with claims of 10,15 and 20% discounts. Excuse me for being thick but if that is not effectively a sale then what is it? Unfortunately, many of the investors that are drawn to these schemes are ‘first timers’ and no nothing about property investment. They are often under the misapprehension that property ownership is their one-way ticket to an instant fortune. The problem with these developments is that no one in their right mind would buy them at the full price, apart from maybe a ‘half cut’ Russian billionaire that had got his decimal place in the wrong place in working out the cost in Rubles. Even with the discount these properties, which are predominately in urban locations and aimed at investors are still ludicrously expensive when compared to any of the surrounding second hand housing stock. How do these syndicates work? The essence of the arrangement is the relationship between the developer and the broking or property sourcing company. The broker markets the developers’ property, often prior to completion or even ‘off plan’ to their database of existing or potential investors. Upon the successful completion of a sale, the broker will take a commission. For the developer there is a huge advantage in that they are able to sell properties to investors at prices far higher than they could have achieved if they just relied on the local owner occupation market. Concerns over prices and valuations have being taken on board by some of the largest buy-to-let lenders in the market. Many have tightened their lending policy and lend only 70-75% on new property (less than 12 months old) where 12 months ago they would have been happy to lend up to their maximum loan to value of 85%. After breaking for a coffee I couldn’t muster the energy to continue searching for that elusive bargain, despite the reductions all the shirts I liked seemed terribly expensive. So I eventually went home and guess what? At the back of the wardrobe I found the perfect shirt for the party. Admittedly it looked a bit unloved, but with a wash and iron it came up as good as new. I reckon the smart investor has the same strategy with buying property as I have with purchasing shirts. What do you think? Go to Your Forum to post your views on ‘the best investments – new or old’ along with any experiences you have had buying new property through syndicates. I will be returning to the subject of investing in new developments and how and why it can go terribly wrong as well as keeping you right up to date with my shirt collection!HAWKEYE – A unique perspective on property investment.