A few weeks ago an investor walked into a presentation of a glitzy London residential development and was so bowled over that he put down a non-refundable deposit on a penthouse. The million-pound-plus he was paying seemed reasonable given the size of the apartment and the promise of stunning views.
Until, that is, his solicitor expressed some concerns and turned to a Kensington property consultant for advice. The upshot was that the investor withdrew from the purchase, preferring to lose £5,000 deposit rather than face an uncertain few years while the scheme was being built.
Linda Beaney, of Beaney Pearce, whose opinion of the investment prompted the buyer to walk away from it, says if he could have taken a five-year view it would have been a different story. "As it was, he had not looked at it holistically and had failed to take into account its locational strength and how long it might take to resolve problems such as transport. There was a chance he might have had to sell within a couple of years, which would be fraught with concerns."
Buying a property off-plan, rather than the finished product, is now commonplace but as people's initial wariness has worn off so, it seems, has some of their natural caution. The success of off-plan purchases in giving buyers the chance to get in early on a scheme with a great deal of choice and at a price that may have increased by 20 per cent at completion could encourage some buyers unknowingly to take risks.
Beaney believes there is a danger that far too many live in a fool's paradise in which they put the enhanced value of their investment down to their own judgment rather than the performance of the market as a whole. The more realistic picture, at least in the past year in London with some prices falling anywhere between 10 per cent and 20 per cent, have provided a nasty shock.
"Fifteen months ago, even sophisticated investors failed to recognise that the market was changing and there are those who paid through the nose for properties off-plan which they are now desperate to sell on." The safest investments are those where the purchaser has done their homework, she says, and that means spending a good deal of spare time researching an area thoroughly and making comparisons with other schemes. "A weekend is not enough. And however impressive a glitzy presentation and show flat may appear, you have to be sure that what you are buying is to the same specifications. I have seen some that are so vague they are not worth the paper they are printed on. A detailed specification annexed to the contract for purchase should cover everything from the height of the skirting board to the kitchen appliances."
The broad brush is not acceptable and allows a developer to drive a coach and houses through the small print. Beaney suggests that it is far better to employ a solicitor familiar with new developments at the outset rather than pay the price later, whether in terms of finished quality, management, further development of the site, car parking or delays during construction.
Delayed completions are a particular headache and they plague almost all building projects. The typical accusation made against developers is that they fail to give purchasers honest appraisals about progress, relying instead on over-optimistic assessments that can leave buyers high and dry. Owner-occupiers are particularly vulnerable since they will generally need to sell their homes first. The alternative is often moving into a badly finished home with a list of snagging problems.
Kings Chelsea, a seven-acre site between King's Road and Fulham Road, is a development in London that began selling off-plan three years ago and is regarded by estate agents as one of the most impressive they have dealt with. But the price of a high-quality finish has been long delays - a costly eight months in the case of one Beaney Pearce client. The developers, Northacre, have insisted on rigorous checks at key stages before giving the thumbs up to the contractors.
Edward Lewis of FPDSavills, one of the selling agents, puts the lengthy delay down to a refusal to cut corners in order to rush the final stage, a scenario which causes misery on many developments. Longs delays are a huge frustration, however, and something that people buying off-plan rarely have explained to them when they exchange contracts.
In the case of Kings, the end result is already proving to justify its initial promise and shows where buying off-plan is a wise move. Of the 288 apartments and houses, only 13 are left, ranging in price between £1.5 million and £4 million. A mixture of the refurbishment of listed buildings and new apartment blocs in secure landscaped grounds has proved a enormous attraction.
The mistake is to imagine every development will have a similar outcome. "The barrowboy syndrome is thriving and buyers should beware of 'bargains'," warns Beaney. "A property that appears to have been reduced may well have had an artificially high asking price."
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