City Residential: Risk has ruined fractional sales
The agent’s summer report details the waning use of fractional sales in Liverpool, while highlighting a build-to-rent development pipeline worth more than £600m.
Developers originally turned to fractional sales in order to help them deliver more units and schemes than typically afforded through a more traditional funding model. According to City Residential, there has been a distinct lack of bank funding for residential developments, which then forced developers to turn to fractional sales.
According to the report, this is down to the negative connotations associated with fractional sales due to a number of stalled schemes, including failed projects by North Point Global and Pinnacle Alliance amongst others, which were initially financed from fractional sales. When these schemes collapsed, the buyers had financed up to 75% of the buildings for no return, rather than the standard 10% deposit.
The agent’s managing director Alan Bevan said that other issues and challenges have arisen from fractional sales, but by no fault of its own: “Fractional sales schemes have been sold with the benefit of a guarantee yield by the developer. Often these guaranteed yields have been offered for a period of three to five years at levels between 7-10%.
“Unfortunately with the vast majority of these sales the quoted yields have been in excess of what is genuinely achievable and have resulted in returns lower than anticipated.”
This risk-averse attitude of investors, Bevan added, along with their eye towards developers which have a great track record of delivery of schemes in good locations, has also led to a rapid decrease in the fractional sales model.
“Although Liverpool has suffered a much higher percentage of stalled/problem sites than other UK cities, the model has started to struggle across the board,” he said.
“There is still a good strong demand for Liverpool property from both overseas and UK investors but the focus of these buyers will be those developers who can afford to fund schemes with more normal deposits and deliver on their promises.”
Overall however, despite Brexit fears which seem to have dissuaded some overseas investments in parts of the UK, Bevan believes Liverpool to have “become rather immune to the macro picture” and sees it “performing in line with expectation”.
“While transaction levels are definitely not booming, there appears to be a decent level of buyers and sellers looking to do deals at prices that genuinely reflect the true worth of the asset in question”, he said.
Liverpool’s build-to-rent pipeline now stands at 3,372 apartments, including the 661 built, with 1,002 under construction and a further 1,219 with planning approval, along with 490 awaiting planning. Combined, these have a gross development vale of £603m.
For City Residential’s full quarter three report, click here.
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More telling of the consequences of what has gone on is the “build to work in” pipeline. Which is all but empty.
Finally getting on with one 100k sq ft office block in no way starts to make up for it.
Proper investors need to see real change in the city, a new team running the show with a clear and believable plan as to how the city claws its way back.
At that point, when it looks like people in 10 years time will still have jobs in order to pay rent and mortgages, more healthy interest might start to be shown in Liverpool residential property again.
I say “might”, because, sadly, what if anything the city acheives now will only be a fraction of what it could have, had the past decade not been wasted in economic stagnation. Property investors and those that make their living from that will just have to lump that fact, along with the rest of us.
By Mike
It’s not only Liverpool but most cities. And most of liverpools problems are caused by Manchester people
By George
Well said Mike. Those of us already living north of the Pier Head cannot believe the amount of trashy build-to-rent development planned for the Central Docks. I do hope that LCC has a rethink on this policy, as apart from EFC’s stadium, there will be nothing to attract visitors to that area of the waterfront. Why did the City fail in its bid to attract Channel 4 ? A major opportunity lost !
By Anonymous
Well said Mike. Those of us already living North of the Pier Head cannot believe the amount of trashy Build-to-rent developments planned for the Central Docks. I do hope that LCC has a rethink on this strategy, as apart from the new EFC stadium, there will be nothing to attract visitors to that area of the Waterfront. It seems to me that a major opportunity was missed when the City failed to secure the re-location of Channel 4 to the area.
By Alan G
George, I’m more than happy to engage in a bit of Manc-baiting from time to time but how are they to blame for the fact this city has been horrifically badly run by ‘our people’ for as long as I can remember?
By Peter
Hey Mike, good points! It’s almost as though having competent, well connected, professional, outward-looking individuals in positions of power and influence locally is the best catalyst for change rather expending energy concocting some imaginary conspiracy theory that central government is plotting against Liverpool, isn’t it?
By Magic Mike
Anonymous – I think most of your comment should be aimed at Peel not LCC. I’m not sure national planning policy gives them too much scope to refuse applications for residential in that part of town. There is some positive stuff going on in the city along with much of the dross that has been delivered over the past few years by the usual suspects and the recent planning framework for the Baltic is a major step forward.
By BDAY
What a ridiculous comment from George. There isn’t much hope for Liverpool with immature statements like that. No wonder Manchester is motoring away from the rest of the North economically with 50 storey skyscrapers announced almost daily.
By Elephant
We need to secure homes and offices to live and work in, and to make Liverpool a world city and not just for us but for our children and our children’s children. After Brexit we can trade with Americans and open our docks again. In the north of England but not if it. Never forgeteth.
By Mary Mullarky
Based on some of the comments I think the docks are better off closed.
By L