APRIL 2010 | www.opp.org.uk
BMV market analysis | 43
Finance takes time, and time is not always a commodity aff orded by developer’s cash- fl ow. They’ll often take a proper hit for cash, because it’s pretty much hand-to-mouth out there and speed of sale rules.
Peter Parfait, TheIdeasFactory.com
By taking on the developer’s mortgage, buyers are getting properties for little more than cost price and around 50% of the peak price. People will buy but you have to give them a deal they know they will never see again.
Bob Callan, Bargain Quality Homes
buyers are getting properties for little more than cost price and around 50% of the peak price. People will buy but you have to give them a deal they know they will never see again.” Price declines have slowed in Spain but the big question is whether further discounting will push market value down further. “I think that in most cases the prices are now in fact at physical cost in terms of land sourcing, planning and construction,” said Steve Long, managing director of specialist BMV agent Casacalida, which has just launched a new auction portal, Auction Property Direct, and is helping match distressed sellers with bargain hunting buyers. “No industry can sustain that as why would anyone work for nothing?”
Routes to market
Since BMV deals require volume sales to secure discounts, specialist agents and IFAs with networks tend to bulk purchase for the increased buying power. However, while large distribution networks are helping developers to sell, some agents and advisers bemoan the number of middle-men trying to get in on the action.
“There are so many sharks and
crooks in London that it’s tough to fi nd good partners, and there are too many people trying to get in the chain,” says Murphy. “We have people in the big fi ve agents to get product, but everyone else has it as well. Assetz are very good at sourcing BMV and seem to be the only ones who can get good commissions out of developers, because of their size and their network of sub-agents.” A single point of contact is
preferred by funds that don’t like to deal with too many sourcers, according to da Silva. “Auctions in the UK, or direct dealings with developers are best, as the middle-man chain can be very long in UK property sourcing, and rarely is eff ective control of the product in place otherwise,” says da Silva. “Both these routes work well for buyers with cash or a credit line in place. In other countries, I would insist on no more than two people between buyer and seller in the property sourcing chain.” Victor Sague of Taylor Wimpey
says auctions only work if discounts are high, say over 40%, but Inez Rix, owner of Direct Auctions in Marbella, says banks are not pricing to sell. “We don’t bother with the banks because
What is BMV?
Much of the debate about Below Market Value (BMV) deals over the last year has been about what it really means. Fundamentally, it means selling below open market value rather than merely discounting from peak price; but it’s hard to determine open market value when valuations are constantly re-adjusted. “Even in traditionally low-
discount markets such as the UK, the baseline start for sensible BMV conversations must be double what the general dis- counting policy of the country is during a ‘normal’ market i.e. UK 2x5% = 10% for residential or 2x15%=30% for off -plan or bulk developer stock; Spain 2x15% = 30%, USA/Fla = 2x15-20% = 30-40%,” explains Luis Teixeira da Silva, director of InvestCV. “This is thus a baseline against which true BMV should be calculated, so a good deal in the UK would be >10% (or 30%), Spain >30% etc, against bank valuation.” For Dominic Farrell, owner of
Distressed Assets, BMV is very simple. “We aim for 20% plus below the recent achieved sales price - which is ‘market value’ as opposed to the list price - of com- parable properties in the area,” he says. “That’s our minimum, but we have achieved as Luis da Silva says the discount
is only real in terms of what fi nance can be achieved - unless it’s cash. However, while banks have tried to keep prices higher in some markets, developers have been more open to lower valuations to shift product in others. Darren Carter, managing direc-
tor of Goldberg & Partners Global Real Estate, says developers are disinclined to pay for expensive valuations and usually let pur- chasers pay for them to get their mortgages. “A lot of banks own developers anyway now so there may be banks doing valuations or simply giving high percentage mortgages against their own products,” he explains. Luis da Silva disagrees, saying
that developers are more inclined to get them because valuations have generally ticked upwards. “Also, banks are starting to relax valuations because LTVs have fallen - so the net result to the customer may in fact be zero or close to it.” Peter Parfait, owner of TheIde-
asFactory.com, says developers are pricing for expectations of further discounts. “Developers are having to price at a level at which they expect to climb down; to what degree is depend- ent on the extent of their distress and/or cash-fl ow from day to day,” he says.
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