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

shamblertine · 08-03-2009 09:22PM

snyper wrote: »

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

Well the assets are there for debts with anglo anyway, according to Eamon Ryan who said in the case of bad debts, assets secured against loans would come under state control.

And the tradesmen will already have been paid using the initial loan anyway, they don't wait until property has been sold until they get paid.

shamblertine · 08-03-2009 09:25PM

ejmaztec wrote: »

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.

but if prices were lowered the market would get moving again

ejmaztec · 08-03-2009 09:43PM

shamblertine wrote: »

but if prices were lowered the market would get moving again

It would if there was not the likelihood of mass unemployment.

The banks are being told to lend to people, but they're very reluctant to do this as job security has gone down with everything else. I know several cases where mortgages have been offered to prospective buyers, only for the lenders to go back on the deals at the last minutes. They've either pulled out altogether, or reduced substantially the amount of their original loan offer.

I wonder how much would be involved were the amounts of negative equity relating to relevant borrowers to be written off in some way - across the board. If we assume that property prices are never going back to the high level that they were, those borrowers will never be able to move if they have to find the difference between the selling price and the loan.

mickdw · 08-03-2009 11:52PM

The banks ARE putting the hammer on the smaller developers with a small 8 -10 house development sold v cheap in mayo. I guess in cases where the loans are secured on something other than the sale properties, the banks will be getting onto the developer telling him to free up some cash quick. Many small guys would have their home tied into the borrowings.

K-9 · 09-03-2009 12:12AM

shamblertine wrote: »

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.

Do you know how much they paid for the site?

Is this the same site?
<snip>

One bed, €165k, 2 beds €230k?

If they'd bought the site in the last 4/5 years, I can't see much profit in it.

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.

From the Tribune last week, that time has come:
http://www.tribune.ie/business/article/2009/mar/01/banks-finally-at-breaking-point-with-developers/

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?

They would to an extent, but never mind the building costs Snyper mentioned, Loan Interest and Development charges are huge. People tend to focus on building cost.

snyper wrote: »

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..

Many people don't realise how subcontractors and many small builder merchants, hire shops etc. are being screwed. As you point out, if developers sell at below or near cost, there will not be much left over for them.

snyper wrote: »

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

Most of it is on paper. Even if you bought a site for €10 million and you think it's worth €6 million now, nobody will offer that.

mickdw wrote: »

The banks ARE putting the hammer on the smaller developers with a small 8 -10 house development sold v cheap in mayo. I guess in cases where the loans are secured on something other than the sale properties, the banks will be getting onto the developer telling him to free up some cash quick. Many small guys would have their home tied into the borrowings.

Would be interesting to see what these other assets are? Shares?

Slutmonkey57b · 09-03-2009 12:21AM

All of these arguments are meaningless in the face of the collateralised debt markets.

peasant · 09-03-2009 12:30AM

snyper wrote: »

.. the little man gets fcuked..

sums it up nicely there

gurramok · 09-03-2009 01:07AM

So to sum up. buyers like shamblertine of shamblertine's friend Dave

cannot afford the asking price hence the gaffs stay vacant unsold and decrease in value over time which leads to bad debts for the developer and/or the bank.

They're all screwed including the little man, bar the buyer of course whose potential debt is decreasing over time.(falling prices leading to smaller mortgages)

K-9 · 09-03-2009 01:26AM

gurramok wrote: »

So to sum up. buyers like shamblertine of shamblertine's friend Dave cannot afford the asking price hence the gaffs stay vacant unsold and decrease in value over time which leads to bad debts for the developer and/or the bank.

They're all screwed including the little man, bar the buyer of course whose potential debt is decreasing over time.(falling prices leading to smaller mortgages)

YEP.

If the potential buyer stays employed and his/her wages aren't decimated by wage/hours cut, Pension/tax levies, tax rises, etc. etc. etc.

As long as banks don't cut lending levels to the old 2/3 times income levels when incomes are dropping.

In summary, property prices crashes isn't great, even for buyers.

Sam Vimes · 09-03-2009 09:07AM

snyper wrote: »

The developer i paying a much higher interest %

Well he's supposed to be. Many of them aren't paying it which is why we have to bail out the banks

ejmaztec wrote: »

It would if there was not the likelihood of mass unemployment.

The banks are being told to lend to people, but they're very reluctant to do this as job security has gone down with everything else. I know several cases where mortgages have been offered to prospective buyers, only for the lenders to go back on the deals at the last minutes.

That's the most frustrating thing. The banks won't lend because job security is low but in many cases job security is low because businesses can't get loans to tide them over. Both problems are causing each other

asdasd · 09-03-2009 02:34PM

All of these arguments are meaningless in the face of the collateralised debt markets.

Yes. its a new paradigm. People who think that falling housing prices will hurt the economy just don't understand collateralised debt markets. Good job the bankers were on top of it.

Anyway. Synpers points about builders/developers not having that much room for profit may well be accurate but are beside the point. They can take either the losses or declare bankruptcy.

It does seem that we are bailing banks out so this does not happen. BOI and AIB are priced by markets for nationalisation. However I think that, nevertheless, the vast majority of developers will still go bankrupt, because Ireland cannot afford their debt. As for whether banks want to sell property, or not, I don't really see the point of guaranteeing the land against the development unless they are prepared to own the collateral and sell it.

When we own the banks fully we can use them for social housing.

K-9 · 09-03-2009 04:06PM

K-9 wrote: »

Do you know how much they paid for the site?

Is this the same site?
<snip>

One bed, €165k, 2 beds €230k?

If they'd bought the site in the last 4/5 years, I can't see much profit in it.

Apologies Terry. Should have been more selective in shamblertines quote. The reason I referenced that development wasn't to do with alleged poor quality in anyway, just prices from €165k. Depending on site costs, the builder could be selling at cost or even less.

asdasd wrote:

Yes. its a new paradigm. People who think that falling housing prices will hurt the economy just don't understand collateralised debt markets. Good job the bankers were on top of it.

Anyway. Synpers points about builders/developers not having that much room for profit may well be accurate but are beside the point. They can take either the losses or declare bankruptcy.

It does seem that we are bailing banks out so this does not happen.

Not necessarily. Some will suffer losses and some will go bankrupt, nationalisation or not.

Bear in mind development debt is usually short term, 2/3 year debt. All good when you are selling of plans, not great when maybe more than half of a development is unsold or not even developed because they can't sell. The more long term viable loans could be restructured.

Getting the finance to do that was proving too expensive or impossible on the market.

Ulysses Gaze · 09-03-2009 07:02PM

Bear in mind development debt is usually short term, 2/3 year debt. All good when you are selling of plans, not great when maybe more than half of a development is unsold or not even developed because they can't sell.

Problem is that more people are now trying to get out of 'Off the Plan" contracts they signed 2/3 yrs ago as they have only paid deposits and while initially approved for mortgages, banks are refusing to grant them these as the value of the properties have dropped since the initial contract was signed.

So developers are now trying to enforce specific performance of contracts which means court cases.....elongating their ability to get hold of cash.

K-9 · 09-03-2009 08:57PM

Ulysses Gaze wrote: »

Problem is that more people are now trying to get out of 'Off the Plan" contracts they signed 2/3 yrs ago as they have only paid deposits and while initially approved for mortgages, banks are refusing to grant them these as the value of the properties have dropped since the initial contract was signed.

So developers are now trying to enforce specific performance of contracts which means court cases.....elongating their ability to get hold of cash.

I think most builders will try and negotiate a reduced price.
Better getting 80% of the original price now than waiting a few years with no guarentee.

AckwelFoley · 10-03-2009 09:24PM

shamblertine wrote: »

And the tradesmen will already have been paid using the initial loan anyway, they don't wait until property has been sold until they get paid.

lol no.

I can give you literally dozens of cases, again locally to me - where tradesmen- roofers, plasterers, blocklayers that have money owed to them ranging from 5 - 6 thousand to one particular case of a plastering contractor being owed over 250,000

AckwelFoley · 10-03-2009 09:43PM

K-9 wrote: »

I think most builders will try and negotiate a reduced price.
Better getting 80% of the original price now than waiting a few years with no guarentee.

well, yes, but i like my method better...

A good friend of mine in america is a contractor, and 10 years ago he gave me some very good advice which i stick to.

If the bank are into the investment project for more money than you are then you are skating on thin ice and essentially orking for the bank. Yes i understand most business' in todays world cant operate like that but, id rather keep the projects smaller and controllable than too large and risky and very much market dependant.

Example, a house i built for myself - bought the site in 1999 for 20k built the entire house myself with the exception of the electrical work, so the labour cost was covered (i didnt pay myself, which was essentially my investment) I did get a mortgage for 50k but by the time i did, the site alone was worth over 100k due to the massive increases of development property.

2 years ago the house was worth 400k, now its worth 250 300k? I lost essentially 100k last year.. i dont give a bollocks.. i owe the bank perhaps 90k, i still have positive equity in the property.

Granted the example ive given there is not "normal" for most people, but when i bought that site first i was earning a mere £200 per week, so it still was a large investment for me. Realistically thats not possible for most people, but it is perhaps food for thought as why many/most europeans dont own their own home, maybe it is because they are more prudent than us irish?

Slutmonkey57b · 11-03-2009 02:16PM

asdasd wrote: »

Yes. its a new paradigm. People who think that falling housing prices will hurt the economy just don't understand collateralised debt markets. Good job the bankers were on top of it.

I'm not sure if this is a sarcastic response or not.

House prices, Anglo scandals, cute hoor financial dealings, empty land banks etc all affect our economy, certainly.

But bankers aren't panicking because Sean Fitz owes a couple of hundred million here and there. They're panicking in case the whole system collapses.

asdasd · 11-03-2009 02:18PM

I'm not sure if this is a sarcastic response or not.

of course it was.

K-9 · 11-03-2009 02:18PM

snyper wrote: »

Realistically thats not possible for most people, but it is perhaps food for thought as why many/most europeans dont own their own home, maybe it is because they are more prudent than us irish?

Maybe plus we are property obsessed. It will never go down you know!

Big Wave · 11-03-2009 02:24PM

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.

The whole topic makes no sense - why would the banks be able to tell property developers to drop prices? The banks don't own them or have any authority over them - WTF?

K-9 · 11-03-2009 02:26PM

Big Wave wrote: »

The banks don't own them or have any authority over them - WTF?

They do when they owe them millions and have legal charges against the Company.

Slutmonkey57b · 11-03-2009 02:30PM

K-9 wrote: »

As long as banks don't cut lending levels to the old 2/3 times income levels when incomes are dropping.

Countries with the most stable property markets are ones whose banks are restricted in exactly that fashion.

Offering 95/98/100% mortgages to a limited number of people who qualify for them is far less dangerous than increasing the gearings from 3.5x salary to 5x Combined income for all borrowers. The Irish Times' "5 properties @...." feature wouldn't have been nearly as frightening (or amusing) if banks here hadn't been pressured into raising gearing levels to the exent they were. People have short memories if they forget all the whinging about "Old-fashioned" Irish banks not getting with the times and handing out money more freely so young buyers weren't shut out of the market. A better solution would have been to reduce the overheating in the market in the first place.

K-9 · 11-03-2009 02:37PM

Slutmonkey57b wrote: »

Countries with the most stable property markets are ones whose banks are restricted in exactly that fashion.

Offering 95/98/100% mortgages to a limited number of people who qualify for them is far less dangerous than increasing the gearings from 3.5x salary to 5x Combined income for all borrowers. The Irish Times' "5 properties @...." feature wouldn't have been nearly as frightening (or amusing) if banks here hadn't been pressured into raising gearing levels to the exent they were. People have short memories if they forget all the whinging about "Old-fashioned" Irish banks not getting with the times and handing out money more freely so young buyers weren't shut out of the market. A better solution would have been to reduce the overheating in the market in the first place.

Agreed, but until average prices come back to 2/3 times average salaries banks shouldn't be lending at all.

I wouldn't say banks felt pressurised, they had no problem whatsoever increasing the borrowing threshold, taking "rent a room" into it etc. etc.

Car finance etc. too.

Slutmonkey57b · 13-03-2009 09:15PM

asdasd wrote: »

of course it was.

Well, if all you're worried about is a few small beer Irish developers and banks go ahead. There's much more scary stuff out there to worry about.

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

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