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New-build property schemes are in disarray as developers and buyers run into trouble. Graham Norwood reports
The Pan Peninsula is a development of two linked towers near Canary Wharf in London's Docklands. It was completed earlier this year and boasts luxury features that, before the recession, were regarded as must-haves for well-heeled buyers, including a 24-hour concierge, gym, residents' private cinema and a cocktail bar on the 48th floor.
The 750-plus units ranged from £258,000 for a studio flat to a reported £12m for an upper-storey penthouse. Though service charges for the flats run into thousands of pounds a year, most sold rapidly off-plan at the 2006 launch – indeed, 104 sold in one day.
A representative of Ballymore, the developer, said in 2006 that Canary Wharf would become increasingly wealthier as banks and law firms relocated to the area. At that time, Pan Peninsula's buyers paid holding deposits of up to 20%. Now the scheme is completed, Ballymore wants them to start paying mortgages for the rest – but the buyers' lenders have revalued the units downwards to reflect 2009 prices.
Businessman Denesh Bhabuta bought his studio flat – 335 square feet including the balcony – for £264,000 in 2007, but his mortgage provider has downvalued it by £65,000 to £199,000. "I've spoken with my family to try to make up the shortfall," says Bhabuta, adding that some buyers are so desperate they have resorted to using credit cards to make mortgage payments.
"Other buyers who have had their properties reassessed by mortgage companies have had them down-valued by between 17% and 35%." That means buyers of some of the largest units may have "funding gaps" of hundreds of thousands of pounds between the amount they must pay and the values they are now told by lenders that their properties are worth.
Distressed residents set up the Pan Peninsula Buyers' Association in February to campaign for the contracts to be quashed or revised. The PPBA, which claims to have signed up 44% of buyers, has created a website, which is similar in appearance to Ballymore's official site.
"We've asked Ballymore to get around a table to discuss various options because it's in everyone's interest to resolve this" says Bhabuta, a member of the PPBA committee, adding that Ballymore has so far refused to enter into "serious discussions".
The PPBA is believed to be asking that Ballymore cut the price of units, or rephase payments to allow buyers to renegotiate mortgage deals, or arrange interest-free loans to buyers to cover shortfalls caused by the down-valuations.
Ballymore has told buyers they are "required to proceed with the purchase at the contract price" as the purchases were not made "on a subject-to-mortgage basis". Paul Keogh, strategy and communications director at Ballymore, says the firm is "actively speaking" with buyers, individually. "With our help, many of them have been able to complete. Unfortunately, some individuals are in serious financial difficulty. Asking to meet in a group, with different circumstances*, does not help," he says.
Pan Peninsula buyers include Irish investors, overseas financiers, entertainment figures such as DJs and sportsmen, and British brokers and bankers – some now thought to have lost jobs in the downturn.
Similar problems are hitting more typical buyers in modest schemes. London housebuilder Ipsus has transferred at least one buyer who had financial difficulties from the apartment he had bought to a smaller, less expensive unit in the same scheme. It has also deferred 15% of the purchase price for 10 years to reduce the size of the mortgage required now by the buyer.
The Council of Mortgage Lenders *advises purchasers facing problems to let the builder and lender know as early as possible to reach a compromise.
Meanwhile not everyone is sympathetic to the plight of the buyers who face difficulties paying Pan Peninsula's asking prices. "Unless there is something in the contract that gives buyers the express right for a revaluation at completion, I can't see what comeback you have," warns one blogger on local website.
Graham Norwood finds similar problems across the UK
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