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They took a gamble on the market...and lost
James Max7 Sep 2009
When a deal looks too good to be true, it probably is. Even now, the idea of buying a property at below market value seems appealing.
But that's on the assumption that prices stay stable or rise. And we all know what's happened to the property market in the past two years.
The purchaser of the off-plan development property is now facing the prospect of being forced to complete at prices as much as 30 to 40 per cent above current market value.
At a time when mortgages are hard to come by and jobs are on the line it is a horrible situation to be in.
But I don't have much sympathy for those who gambled on the property market, and lost. We were sold the concept that boom and bust had ended - a reckless statement by any yardstick.
It means ordinary people paid even less attention to the contract than usual.
Combine the notion that watching an episode of a property makeover TV show makes you an expert with easy credit and you have a recipe for disaster.
Now the homebuilders are in crisis. They have built properties worth far less than predicted. The developers may be enforcing legitimate contracts but unless this mess is resolved, the future of housebuilding as we know it is finished.
Purchasers need to understand the risks of property investment.
Lenders should be forced to commit at the time of exchange rather than time of completion and make loans based on ability to repay rather than on value alone.
And housebuilders should provide clearer contracts and take some of the loss if the market takes a turn during construction.
As for the Government - stop encouraging reckless borrowing to induce a false recovery.
James Max is a surveyor and former banker. He presents Business Matters on LBC 97.3FM.
Reader views (3)
"housebuilders should provide clearer contracts and take some of the loss if the market takes a turn during construction"
So if prices had gone up, the purchasers would have offered to split the profits 50/50 with the housebuilders?
I don't think so.
- Steve, UK, 08/09/2009 19:40
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A gamble is a gamble.
They bought at the height of an over-inflated boom. Anyone at the time who had a brain would have stopped to think twice. They didn't think and they lost.It's shame for these individuals but it's hard truth...theit greed blinded them to the consequences.
- Andrew Nicholls, Ely ,England, 07/09/2009 13:08
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I thought I was going to utterly disagree based on the unambiguous headline, but not entirely.
Buyers who bought in good faith do now face a horrible situation. Don't assume everybody caught in this trap is an investor though. The Berkeley Homes Collective is a homebuyers group whose 'investments' were for them to live in and build families etc hence why they put their total savings into the purchase. Phrases like 'gambled and lost' are classic emotive journalism to sell papers yet sadly inaccurate for many normal families affected by this.
Purchasers DO need to understand the risks of the contract. That's what conveyancing solicitors are supposed to flag yet they also fell woefully short in their duty of care in many cases. Average Joe relies on this information as he's not a banker or a lawyer.
Also, I agree the future of Off-plan is at best in the dock and at worst already sentenced. The actions of Pidgley et al are merely nails in their own coffin. The real investors, i.e. the City, will certainly be asking probing questions at Wednesday's AGM to assess the damage and the antidote.
- Steven, London, UK, 07/09/2009 12:02
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