Recently during an interview with an Asian based investment magazine we were asked the following question:
"Do the property developers just come to Asia to market all the properties the locals don't want?"
As a 12 year old music fanatic, every Monday I'd make a detour on the way home to visit Andy's Records (remember them?). At the back of the store in a dark corner sat the bargain basket, which was filled with all the music which obviously hadn't done too well in the charts that week. Everything was no more than 50 pence and I used to fish out a bargain once the hype of a particular release had died down.
Why is this relevant you ask? Well, in the same sense, it would appear that some Asian investors are under the assumption they are the bargain basement customers for London property once the hype has died down. However, this is simply not so. Firstly, there aren't really that many bargains to be had, and secondly, they are often the first to be offered the chance to buy in a particular development.
There are a number of drivers behind this, but a main factor is the changing way large developments are being financed. Before global finance markets took a tumble, development finance was readily available, if not also cheap, and developers took full advantage of this. It was therefore possible to build on a fully speculative basis and worry about sales later in the process. However, this all changed as finance markets contracted and debt became much harder to come by. If you did get offered debt, the interest rates and terms made your project near enough unprofitable.
This is where the off plan sales became more prevalent. If a UK developer can secure a sale off plan to an Asian buyer, this is essentially a source of finance or the security needed to gain finance and allow the development to be built. No one likes risk, especially banks, so having a buyer already committed before a brick is laid reduces risk significantly.
Therefore the Asian market is playing a much more important role than they probably realise. One would guess that has got to be a good bargaining position when buying, no?
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On a different note, it's great to see how our relationships develop with some clients as we go through the buying process. Last Tuesday evening, I received a text message from a highly valued client asking if I wanted to go for dinner. I politely declined as I was already at dinner with another client, and he promptly text back saying, "glad you are busy, that was actually meant for my girlfriend!" I hope she's not the jealous type.