The market will determine the price’ is an old property adage. Some developers have attempted to change this by ‘creating’ their own market, ie associating buildings with ultra-luxury and /or brand names. The Versace decorated Aykon building in London and much of the Miami condo market (which includes Aston Martin, Porsche Design and Armani developments), are good examples of this. However, whilst there is market for this type of product, most buyers (certainly in the UK) will be traditional in so far as they are limited in their spending by affordability and consequently are very price conscious. Given this, developers must be very aware of the demographic they are appealing to and be precise in their pricing. For example, two new apartment buildings in the same postcode with a 40% price differential is going to be problematic, as those buying in that postcode will broadly tend to share the same basic demographic in terms of age and income. To highlight this by way of example: one would not find a Ford and Ferrari dealership next to each other as each attracts a different buyer. Same with new build property and postcodes.
In the case of Beaumont and Atlas, it is the latter that has benefited from the former’s higher pricing: Beaumont providing context to Atlas’ asking prices, without buyers having to do much further homework. If Atlas was a stand alone development, buyers may have sought further price justification before committing, and the results may not have been so favourable. We found it interesting that Canaletto, the developer behind the Beaumont offer, maintained that they were not a distressed seller and therefore did not need to drop their unit prices. Our reaction was two-fold – firstly that the Atlas product was good value (buyers agreeing with us and the units now having sold out prior to the end of construction) and secondly, with millions tied up in the development, the total return for Canaletto investors may suffer as its cash is tied up for longer. If Canaletto had lowered its price, it may have been seen as an alternative to Atlas and sold units, allowing it to free up capital for other projects. We are sure the Atlas developers are eyeing another site. Another way of looking at it is as follows: inflation from 2016 to 2019 is just over 6% – so the effective price Canaletto are achieving, if sold as asking price today, is a 6% discount on the original asking price, without factoring in any borrowing costs. The market may well recover and Canaletto may be proven right (who knows) but we would rather be liquid than be left with a block of unsold flats. But that’s just us!
In the residential market, getting the price right is key. At Maskells, in addition to achieved market prices, we look at the demographic that is likely to buy in a particular postcode, we research the average income and the average cost of mortgages and this allows us to direct our clients as to the pricing they are seeking to achieve. Incorrect pricing means that there will be fewer viewings (if any) and a lower probability of sale. That does not serve us or them, so being as accurate as possible is essential in this market where there are few buyers.”