Off Plan Developments – It May be Getting Harder to Walk Away

I see that some property investors who walked away from off plan deals face being prosecuted by the developers after a test case which a developer won.
In the last few years, lots of purchasers have tried to walk away from duff off plan property deals - figuring it was better to lose their deposits than complete purchases on properties where the values had fallen heavily (and they were effectively overpaying.)
In some cases, willing buyers were unable to complete their deals anyway as their mortgage lenders had pulled financing as prices of these types of properties collapsed.
(Not terribly bright valuations done in the first place then by the banks!)

High Court Case
The recent High Court test case was won by Prestige Homes and this case could lead to lots of other cases being taken to court by developers.
However, at least one group of investors is resisting, claiming one developer recommended customers use the developers own preferred solicitors who presented purchasers with lists of valuations supposedly carried out by other surveying firms which miraculously matched the sales list”.
Somehow, this all seems very familiar.
I have to say that it really is a case of buyer-beware in property, especially where new build was concerned.
Back in the early and mid Noughties, many new and green investors got mugged by so called "property clubs" into buying a lot of new build stuff that was way overpriced.
We are still seeing the fall out today.

Keys
When I buy a property I love it if the previous occupant leaves lots of keys behind.
Getting new keys cut seems to be getting rather expensive these days and even worse, takes up lots of time as the keys you get copied often don’t fit, necessitating extra trips back to the locksmiths.
This is one of the really irritating nitty gritty aspects of being a hands-on landlord.
If any locksmith can guarantee that he can cut an EXACT copy of a key that he guarantees to fit my locks perfectly, then he can have all my key cutting business.

BBC International – Why Bother
I’m just back from a lovely business -cum-holiday break in Mexico.
And as I always when I’m abroad I watched CNN to keep up with the news - not the much inferior BBC TV service.
If the BBC cannot put out a decent international product, maybe it would be best to shut it down completely.
The BBC Radio service overseas is great… but the TV…. Well, I wouldn’t bother.

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How the buy to let mortgage frauds were carried out - Part 1 - by David Lawrenson of Lettingfocus.com.

Ah, here we are at the eve of New Year 2009 and we really are at the end of a fascinating year.
One of legendary investor Warren Buffett’s most well known sayings is “It’s only when the tide goes out that you can see who was swimming naked.”
As stock and property markets have tumbled, so with a sad inevitability, we start to see the sharp practices and downright frauds come to light which were once hidden in the fog and haze of the bull markets.
In the stock markets, just last week, the appropriately named Mr. Madoff emerged into the sunlight and into prison as his unique pyramid scheme collapsed.
In the residential property market, it now appears that there have been quite a few frauds taking place off the back of the boom in new build flats which were bought mostly by novice buy to let investors.
In this weeks and next weeks blog I’ll look at exactly how the fraudsters were able to pull off the fraud and who they needed to co-opt to do it.

THE RISE OF THE IDENTIKIT NEW BUILD CITY CENTRE FLAT
To understand this a bit more though, you need to go back in history a bit and understand the background.
Back in the years 1999-2003 smart people had already made quite a bit of money in buying and letting property.
Prices of residential property in most areas were up nicely from their 1992-1994 lows and rental yields were high.
Naturally enough other would-be property magnates saw this and wanted a slice of the pie too.
Smart property investment companies, syndicates and clubs recognised this growing need as well and set themselves up to bulk buy flats from builders which they would sell on to buyers (mainly investors) who would be attracted by some snappy marketing – eg You Too Can Make a Passive Income in Property.
The flats looked great in the marketing brochures – smart new pads in city centres that would be desired by an allegedly endless stream of young professionals eager for rented accommodation.
(It didn’t occur to many investors that the stream of young professionals would be limited, that they would eventually want a more suitable property with a garden for the kids or that the massively increased stock of the same accommodation would have a downward effect on flat prices and rents, but hey, that’s a different story.)

BIG DISCOUNTS ON NEW BUILD FLATS OFFERED
The builders were happy to sell these boxes in bulk offplan as this helped their cashflow and they eagerly offered generous discounts of up to 30% to the property investment companies to encourage them to bulk buy in this way.
So far, so good.
No fraud yet and it has to be said that most property investment companies doing this were not fraudsters.
In part two next week I’ll look at how these discounts, the presence of real of fictitious secondary buyers, sloppy valuations and the lack of transparency in the mortgage process allowed the mortgage frauds to happen.
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Property Price Forecasts. How Can I Verify If They Are True. Letting Focus Has the Answers

Here’s a trick many property companies promoting off plan property use.
What they will do is sell the first few five or ten units at a low price to get initial finance in. Sometimes these units are sold to other companies that the builder has a “close relationship” with.
Of course, the next lot which is being sold to the public is marketed at a higher price.
They are then able to use the fact that the price “has gone up” in their marketing literature and that investors should “get in quick” before they miss the boat.
Watch out for this trick, which is especially common in property abroad.

ABOUT LETTINGFOCUS.COM

LettingFocus.com are the experts on landlord issues and I’m David Lawrenson, the author of “Successful Property Letting” – which has been the UK’s top selling property and buy to let book for the last 3 years.
We help landlords and property investors make money in property by coaching them in ways that work and which are of minimal risk.

I have been a landlord and property investor myself for over 25 years.
At LettingFocus we offer independent unbiased advice for property investors and landlords both on a one to one mentoring and coaching basis as well as through occasional group seminars.
Property syndicates and property advice in the UK is still largely unregulated and “advice” is more often more about making the promoter money than giving useful information
With no link to property firms, developers or bridging loan providers, at LettingFocus, we aim to give unbiased independent advice on where and what type of property to buy for investment, when to buy and how to buy property at a low price.
We also show you how to manage tenants properly and in ways that take up as little of your time as possible.

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Have you seen this article on a related topic: Buying Below Market Value

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