Why aren't developers being forced to reduce prices by banks?

shamblertine · 08-03-2009 07:11PM #1

Was just looking at the price of some new apartments around Dublin and the lowest prices I could find for 1 bedroom apartments was usually 250k although most are priced over 300k. If developers sold at these prices they would be making huge profits, but the thing is they aren't selling, and yet they are being allowed to hold out and keep prices at these crazy levels, because the government/banks are allowing these developers to continue rolling over interest payments and defaulting on repayments at the taxpayers expense! Its ****ing disgraceful.

AckwelFoley · 08-03-2009 07:16PM

shamblertine wrote: »

Was just looking at the price of some new apartments around Dublin and the lowest prices I could find for 1 bedroom apartments was usually 250k although most are priced over 300k. If developers sold at these prices they would be making huge profits,.

You know nothing about Construction i assume. The Markup at the best of times for developers was 15 - 20% Sounds nice but considering the risk and amount of finance involved its not.

Many of the developments outside dublin are being sold at cost or less. The difficulty at selling at a loss is that it goes against any business sence to sell below cost, abd because its not like selling an apple at below cost, we're talking about vast sums of money here.
Also, the banks cannot determine the selling price of the property unless they decide to foreclose on the property which in that case will leave them with the headaches of selling it

galwayrush · 08-03-2009 07:18PM

Market conditions dictate price.

Rb · 08-03-2009 07:21PM

Careful now Snyper, that's an awful lot of sense you're talking in what is clearly supposed to be an anti-builder/Government rant.

I hate them probably more than most an yet I understand why they're currently selling at said prices.

mikemac · 08-03-2009 07:21PM

The developers paid huge money for those sites.
If they slash the price they may walk away with a loss.

Now taking a loss now might be better then a bigger loss plus interest in 6 months time.
Either way that's for the developer to decide. All the bank can do is foreclose, they can't dictate a price to suit shambertine's future plans.

shamblertine · 08-03-2009 07:29PM

snyper wrote: »

You know nothing about Construction i assume. The Markup at the best of times for developers was 15 - 20% Sounds nice but considering the risk and amount of finance involved its not.

Many of the developments outside dublin are being sold at cost or less. The difficulty at selling at a loss is that it goes against any business sence to sell below cost, abd because its not like selling an apple at below cost, we're talking about vast sums of money here.
Also, the banks cannot determine the selling price of the property unless they decide to foreclose on the property which in that case will leave them with the headaches of selling it

I'm sorry but I think that is complete crap. For example, just looking at the <snip> development, prices have been reduced by over 100k (which means the developers where aiming to get way above 15-20% markup. However the prices are still at crazy levels and still represent markups of way over 20%. These are very small 1 bedroom flats we are talking about here, they do not cost much to build especially considering the poor quality of them and the type of areas many of them are in.

shamblertine · 08-03-2009 07:33PM

mikemac wrote: »

The developers paid huge money for those sites.
If they slash the price they may walk away with a loss.

Thats the developers problem and not the taxpayers problem, or at least it shouldn't be the taxpayers problem. Time for the banks to start calling in these debts and taking over the assets of developers that were put up against their loans.

AckwelFoley · 08-03-2009 07:33PM

shamblertine wrote: »

These are very small 1 bedroom flats we are talking about here, they do not cost much to build especially considering the poor quality of them and the type of areas many of them are in.

How on earth do you know how much it cost to build a block of apartents?

Rb · 08-03-2009 07:36PM

OP reveal your sources that these developments are poor quality and are being cheap, or quit making stupid accusations.

ejmaztec · 08-03-2009 07:39PM

OP, perhaps it would be a better idea were the developer to get a 90% refund from the greedy bastard who sold him the site, then pass it on.

tolosenc · 08-03-2009 07:42PM

shamblertine wrote: »

Was just looking at the price of some new apartments around Dublin and the lowest prices I could find for 1 bedroom apartments was usually 250k although most are priced over 300k. If developers sold at these prices they would be making huge profits, but the thing is they aren't selling, and yet they are being allowed to hold out and keep prices at these crazy levels, because the government/banks are allowing these developers to continue rolling over interest payments and defaulting on repayments at the taxpayers expense! Its ****ing disgraceful.

Do you understand the basics of economics?

shamblertine · 08-03-2009 07:43PM

snyper wrote: »

How on earth do you know how much it cost to build a block of apartents?

I have enough experience to know that the current prices they are at represent big markups.

AckwelFoley · 08-03-2009 07:46PM

shamblertine wrote: »

Thats the developers problem and not the taxpayers problem, or at least it shouldn't be the taxpayers problem. Time for the banks to start calling in these debts and taking over the assets of developers that were put up against their loans.

Balderdash.

What good is a block of appartments to a bank? They need money, they're not property investors. As said previously the market will determine the price.
Also, just getting back to your point on "ah shure its only a wee little flat it cant cost that much to build" - the price of building and the selling price of a particular appartment within a complex compared to another does not simply work on what it cost and on the 15 - 20 % markup. Its an entire complex, some appartments within the complex or development will have a higher value than others due to its location within relation to external features or within the development itself - these will obtain a higher value, other then will be less attractive and not reach as high a price. Some developments have had higher than 2o% markup, but industry average is 20%

Its an open market, if you want to build go through all the headaches and give away the property at cost price you are free to do it - you wont be a very successfull business man / woman but the country will love you because "you're a great aul decent fella"

I really dont understand the begrudgery in this country towards people that are sucessful and want to make a profit. Its really none of anyones concern what it costs to build anyhow - if it cost 10 cent the owner of the property is entitled to ask what ever they want for it - its uo to the general public to decide if the valuation of the property is akin to their own

shamblertine · 08-03-2009 07:47PM

Rb wrote: »

OP reveal your sources that these developments are poor quality and are being cheap, or quit making stupid accusations.

I have read enough accounts of people who bought apartments in similiar developments to know that many of them are of a poor standard.

AckwelFoley · 08-03-2009 07:50PM

shamblertine wrote: »

I have enough experience to know that the current prices they are at represent big markups.

no, with respect you dont. You're taking a wild shot in the dark at it based on assumptions.

What if within your expierence is the average cost of residential construction per sq ft in ireland excluding purchase price of the site?

MarkR · 08-03-2009 07:54PM

shamblertine wrote: »

Was just looking at the price of some new apartments around Dublin and the lowest prices I could find for 1 bedroom apartments was usually 250k although most are priced over 300k. If developers sold at these prices they would be making huge profits, but the thing is they aren't selling, and yet they are being allowed to hold out and keep prices at these crazy levels, because the government/banks are allowing these developers to continue rolling over interest payments and defaulting on repayments at the taxpayers expense! Its ****ing disgraceful.

Isn't it obvious? It's our evil overlords gracious benefactors, the lizard people, forcing them to keep the prices artifically high.

Rb · 08-03-2009 07:57PM

shamblertine wrote: »

I have read enough accounts of people who bought apartments in similiar developments to know that many of them are of a poor standard.

lol, k

AckwelFoley · 08-03-2009 08:11PM

lol, i think the OP is gone off to google the answer to my previous question.

Let me break it down for you.

Lets take a detached house in say - Westmeath 1500 sq ft.

Cost of construction to bulders finish - heavily depending on the design but we can say 80 euros per sq ft. Thats 120,000

Site cost average in 2007 aprox 120,000..

Total 240,000

Add to that legal fees and dutys and auctioneers fees. (but for now we'll ignore them but auctioneers fees and solicitors can b3 a percentage normally between 1 and 2.5%)

Selling price of that home would typically be under 300K but lets say 320,000

Profit 80,000!! Woot we're rich!! oh wait.. income tax.

you now got a profit of perhaps 45k.. not bad, but its alot of work and a big risk

javaboy · 08-03-2009 08:13PM

I'm not disputing any of your figure Snyper but wouldn't economies of scale enter into it when you're talking about housing developments rather than single builds?

shamblertine · 08-03-2009 08:14PM

snyper wrote: »

Balderdash.

What good is a block of appartments to a bank? They need money, they're not property investors. As said previously the market will determine the price.
Also, just getting back to your point on "ah shure its only a wee little flat it cant cost that much to build" - the price of building and the selling price of a particular appartment within a complex compared to another does not simply work on what it cost and on the 15 - 20 % markup. Its an entire complex, some appartments within the complex or development will have a higher value than others due to its location within relation to external features or within the development itself - these will obtain a higher value, other then will be less attractive and not reach as high a price. Some developments have had higher than 2o% markup, but industry average is 20%

Its an open market, if you want to build go through all the headaches and give away the property at cost price you are free to do it - you wont be a very successfull business man / woman but the country will love you because "you're a great aul decent fella"

I really dont understand the begrudgery in this country towards people that are sucessful and want to make a profit. Its really none of anyones concern what it costs to build anyhow - if it cost 10 cent the owner of the property is entitled to ask what ever they want for it - its uo to the general public to decide if the valuation of the property is akin to their own

You're not getting the point I'm making, I don't want to get into a debate about cost or markups. My point is simple, many developers owe banks a lot of money, they have been defaulting and rolling over interest payments to these banks. The taxpayer is ultimately taking most of the hit on this because of the recapitalisation of the banks that was needed and the renationalisation of anglo. Its high time the developers started taking a few hits in order to pay back their loans. If this means banks taking control of assets and selling them for a price the market is willing to pay then fair enough, but at current prices these places just aren't shifting. The banks have been sending out messages that they are losing patience with the developers which is positive but its time for action now instead of words.

ejmaztec · 08-03-2009 08:15PM

snyper wrote: »

lol, i think the OP is gone off to google the answer to my previous question.

Let me break it down for you.

Lets take a detached house in say - Westmeath 1500 sq ft.

Cost of construction to bulders finish - heavily depending on the design but we can say 80 euros per sq ft. Thats 120,000

Site cost average in 2007 aprox 120,000..

Total 240,000

Add to that legal fees and tax.

Selling price of that home would typically be under 300K but lets say 320,000

Profit 80,000!! Woot we're rich!! oh wait.. income tax.

you now got a profit of perhaps 45k.. not bad, but its alot of work and a big risk

with the loan interest chipping away at the profit on a daily basis until someone miraculously gets their hands on the money to buy it...

shamblertine · 08-03-2009 08:18PM

snyper wrote: »

lol, i think the OP is gone off to google the answer to my previous question.

was having my dinner actually, chinese takeaway, was quite nice, the hot and chilli chicken wings in particular were delightful

AckwelFoley · 08-03-2009 08:18PM

javaboy wrote: »

I'm not disputing any of your figure Snyper but wouldn't economies of scale enter into it when you're talking about housing developments rather than single builds?

Yes - but selling prices are lower.. single dwellings higher price.. semi d's cheaper to build - lower selling price

ejmaztec · 08-03-2009 08:20PM

shamblertine wrote: »

You're not getting the point I'm making, I don't want to get into a debate about cost or markups. My point is simple, many developers owe banks a lot of money, they have been defaulting and rolling over interest payments to these banks. The taxpayer is ultimately taking most of the hit on this because of the recapitalisation of the banks that was needed and the renationalisation of anglo. Its high time the developers started taking a few hits in order to pay back their loans. If this means banks taking control of assets and selling them for a price the market is willing to pay then fair enough, but at current prices these places just aren't shifting. The banks have been sending out messages that they are losing patience with the developers which is positive but its time for action now instead of words.

Who's going to buy these knock-down properties and who's going to lend them the money?

AckwelFoley · 08-03-2009 08:26PM

shamblertine wrote: »

. Its high time the developers started taking a few hits in order to pay back their loans. .

But, they are taking the "hits"

The developer doesnt want to keep the property, hes got a loan to build it - he wants to sell it, but what is happening in most cases that i see locally is that the banks dont want to sell at a loss - the developer is wanting to sell at cost if needs be but may have to sell at a loss.. who loses out? The bank.. under the title of bad debt.

You may think that all developers are filthy rich, you'd be very wrong, some made very poor decisions and took on projects beyond their means and managed these projects badly.

I know many many people who worked for said developers and now are out of pocket to sums most people wouldnt make in 10 years. So if the property is sold at a loss the bank gets paid, the developers makes no money and has no money to pay the debts to the people that built the property.. again.. the little man gets fcuked..

shamblertine · 08-03-2009 08:28PM

ejmaztec wrote: »

Who's going to buy these knock-down properties and who's going to lend them the money?

My mate Dave will take one, and the bank will give him a loan. So in effect all thats happening is the debt and ownership is being transferred from someone who can't keep up repayments (the developer) to someone who can (my mate Dave).

AckwelFoley · 08-03-2009 08:31PM

shamblertine wrote: »

My mate Dave will take one, and the bank will give him a loan. So in effect all thats happening is the debt and ownership is being transferred from someone who can't keep up repayments (the developer) to someone who can (my mate Dave).

The developer i paying a much higher interest %

shamblertine · 08-03-2009 08:36PM

snyper wrote: »

But, they are taking the "hits"

The developer doesnt want to keep the property, hes got a loan to build it - he wants to sell it, but what is happening in most cases that i see locally is that the banks dont want to sell at a loss - the developer is wanting to sell at cost if needs be but may have to sell at a loss.. who loses out? The bank.. under the title of bad debt.

You may think that all developers are filthy rich, you'd be very wrong, some made very poor decisions and took on projects beyond their means and managed these projects badly.

I know many many people who worked for said developers and now are out of pocket to sums most people wouldnt make in 10 years. So if the property is sold at a loss the bank gets paid, the developers makes no money and has no money to pay the debts to the people that built the property.. again.. the little man gets fcuked..

The bank doesn't lose out if its sold at a loss, the developer still has to pay back what they borrowed for the project and if they can't then the assets they secured again the loan should be repossessed. Harsh but thats life. If I can't pay back my mortgage I can't go to the bank "I made some poor decisions, sure just write off my debt to bad debts." Doesn't work like that.

AckwelFoley · 08-03-2009 08:54PM

shamblertine wrote: »

The bank doesn't lose out if its sold at a loss, the developer still has to pay back what they borrowed for the project and if they can't then the assets they secured again the loan should be repossessed. Harsh but thats life. If I can't pay back my mortgage I can't go to the bank "I made some poor decisions, sure just write off my debt to bad debts." Doesn't work like that.

But the "assets" arent there, and even if they were, the tradesman still gets fcuked - because eveb if there were assets there the tradesman is last to get paid

What assets does a developer have? Nothing in many cases.. privately yes, but within the company no. Loans were secured on reputation in many cases im certain

Jonathan · 08-03-2009 08:56PM

shamblertine wrote: »

The bank doesn't lose out if its sold at a loss, the developer still has to pay back what they borrowed for the project and if they can't then the assets they secured again the loan should be repossessed. Harsh but thats life. If I can't pay back my mortgage I can't go to the bank "I made some poor decisions, sure just write off my debt to bad debts." Doesn't work like that.

Yes you can. It is called bankruptcy.

ejmaztec · 08-03-2009 09:07PM

shamblertine wrote: »

My mate Dave will take one, and the bank will give him a loan. So in effect all thats happening is the debt and ownership is being transferred from someone who can't keep up repayments (the developer) to someone who can (my mate Dave).

Your mate Dave is a very lucky man, but unfortunately, there aren't enough Daves around to to get all of the developers out of hock. In the present circumstances, even God would have trouble getting a loan using the Universe as collateral.

Why aren't developers being forced to reduce prices by banks?

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