Hammered! Buy-to-let unraveled.....

Richard Pendlebury, Daily Mail
25 June 2008

A famous party venue for 140 years, the Cafe Royal is perhaps an unusual location for a wake. But yesterday, several hundred people gathered under its crystal chandeliers to mark a further nail in the coffin of the property boom.

Officially, the event in question was simply the latest housing auction to be held at the Regent Street venue. Yet it became apparent early in the proceedings that the 297 lots on offer there were a guided tour of Britain's worsening property crash.

Over the course of the day, properties from Bridgend to Newcastle upon Tyne either failed to sell or went for sums which made a mockery of their original, overinflated, asking prices. 'It was wince-inducing,' said one auction analyst last night.

Many lots were mortgage repossessions being sold by banks. Of these, a good deal had been buy-to-let investments, which had failed through a combination of rising interest rates, over-supply, falling rental yields and a predicted sharp drop in overall property prices.

Want a cut-price, new-build dream apartment (albeit one overlooking a canal and the roof of the local B&Q store)? Looking to pay £100,000 less than the estate agent price of an identical duplex on the Thames?

Then the Dauphin Suite of the Cafe Royal was the place to be. The losses on such former 'investments' were often dizzying - if they did sell at all.

That last is an important qualification. Because, it seemed, many sellers have yet to reach a state of sufficient desperation - or, perhaps, pragmatism - that they will accept a bid at the lowest end, or even below, the guide price.

That day will come soon, no doubt. As soon as the bidding began at 10am, the auctioneer Chris Glenn's refrain of 'that is quite a long way off what my seller needs' became something of a mantra as lot after lot failed to achieve a sale.

One early indicator of the sale's price trend was to have been Lot 5a, an apartment in a development on a main road in central - Croydon.

While the lot was withheld from sale at the last minute, pending the freeholder's consent, its background is worth noting. It is in a block of 80 flats, 17 of which have appeared at auction as mortgage repossessions in the past two years. 'That strongly suggests they were buy-to-lets,' says David Sandeman of property auction analysts EIG.

Lot 5a was first sold in November 2005 for £285,000. Yesterday its guide price was a mere '£125,000 plus' - a cut of more than 50%. Others simply failed to reach an acceptable price - nine lots out of ten during one dismal sequence and 27 out of the first 44 which were offered.

Lot 65, a modern, two-bedroomed flat in Eastside Court, Southampton, which had originally sold for £181,000 in December 2005, was snapped up yesterday for only £110,500. The buyer was Dr Amrik Benning. He said he had bought it as a wedding present for his goddaughter, but he also had a portfolio of property himself.

'A lot of the housing stock is overinflated,' he said. 'I feel sorry for the person who lost this flat but I would never have bid more than £120,000. These flats can be built for £44-46,000 a unit. Quite simply the numbers didn't add up.' The tale of woe for sellers continued. Lot 71, a flat in Peppermint Road, Hitchin, Herts, was sold for £237,000 two summers ago, but was withdrawn yesterday after barely reaching its guide price of £130,000.

 Liverpool is one of the Northern cities notorious for oversupply of buy-to-let apartments. It was represented yesterday by Lot 80, a flat in the Old Fire Station development. The block has suffered a number of mortgage repossessions and bidding for Lot 80, which sold for £149,000 in 2006, failed to go above £101,500. Irish architect Patrick Hanley, 30, was a happy fellow. He got Lot 88, a flat in the Eastern Quay apartments on the River Thames, for £275,000.

A mortgage repossession, it had been originally sold for £340,000 in 2004. 'It's fantastic,' he said. 'And yet other identical flats in the building are still on sale for up to £400,000. How do you explain that?' It was a rhetorical question. The answer, of course, is that the other flats are now wildly overpriced.

In June 2006, Apartment 300 in Birmingham's Southside complex, sold for £210,000. Yesterday it changed hands for almost half that amount. In Cardiff, Lot 169, sold for £125,500, having fetched £290,000 less than two years ago. These are the figures of financial meltdown.

Mark O'Grady, a 24-year-old London property developer who bought the Cardiff flat, said: 'This particular block was very overpriced when they were initially sold off plan to a syndicate of investors. They were promised a high rental value but the cost of mortgages has changed since then.'

Some might not wish to live overlooking the Bridgewater Canal and the Altrincham branch of B&Q in Greater Manchester, even if it is in a '3-7 storey cantilevered' apartment block which resembles the prow of a cruise ship. If so, the 'award-winning' Budenberg Haus Projekte is not for you. When the developers first marketed the apartments in 2003 they boasted of their best launch sales ever - 46 apartments with a total value of £10m reserved in the first 48 hours.

But recently this cutting edge monument to the Greater Manchester property boom has suffered like many others. The block saw one of its two bedroomed units sold at the Cafe Royal yesterday for only £123,000. It was once valued at just under £200,000.

A unit in another new-build in Nottingham, which had gone for £125,000 little more than two years ago, failed to find a buyer yesterday, even with a guide price of £50,000. So with so many properties struggling to find buyers, who were the people wielding their numbered paddles? Mostly hardened property professionals - money men in suits alongside heavily tattooed builders - and the cash rich.

Certainly there was an absence of what one analyst viewing the auction list called 'those amateur Mr and Mrs Smiths or Johnny-come-latelys, who heard about a racket to make themselves millions, went to a slick seminar and were sold a dream not backed by the figures.

'They fell for it because until very recently you could not go wrong.' City property developer Akshaya Adhikari cast an eye around the room and remarked: 'The volume of people at the auctions is much lower than last year. Then, the hall was packed to bursting, but now it's only half full. But if it is a good property in the right location, you will always be able to turn a profit of some kind.'

Not everyone was in the business full-time. Two couples had, quite independently, travelled down from Huddersfield to battle over Lot 100, a dilapidated four-bedroomed property in an attractive part of the town. Its guide price: '£135,000 plus.' For the past three years, retired policeman Simon Nuttall and his wife Patricia have been buying, refurbishing and selling on homes. Profit margins were down, they said, but money could still be made. 'We'll sell it on or let it out depending on how the figures stack up,' said Mr Nuttall.

The Nuttalls hoped that they would be the only people prepared to travel from Yorkshire. They were not. Matthew Thompson, a 21-year-old business student at Huddersfield University, and his 20-year-old student girlfriend, Rebecca Howe, were also in Regent Street. Matthew, whose father is a property developer, said: 'We want to do it up and live in it. My father will do most of the work and we reckon it will be worth £400,000 when finished.

'It used to belong to someone who started an extension but overreached themselves. The work should take two years and it will be a great jump up the property ladder for us.'

Surprisingly, though, the Huddersfield house proved to be one of the highlights of the sale and, in the end, neither the Nuttalls nor Matthew and his girlfriend were the winners as it went for £204,000. Another daytripper from Huddersfield, a middle-aged man in a suit who declined to be named, became the new owner. 'Ideal for my family home,' is all he would say.

Final figures for the sale were not available last night but at some recent auctions held by other companies less than 50% of the lots have sold. Property analyst David Sandeman said last night: 'What happened today shows that it is getting bloody difficult in the property market. And I think there is only more pain to come. A lot of people did not do their homework before they bought in the boom time. Now they are paying the price.'

The Cafe Royal was first opened by a vintner who had fled bankruptcy in his native France. When he arrived in Britain he had only £5 to his name. After yesterday one imagines that is £5 more than many former property investors now possess.

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