ROUND TABLE Failed Projects
The high price of failed projects
Words | John Howell
hese were the questions put to this month’s Round Table. We invited developers, estate agents, lawyers and AIPP – one of the industry’s professional bodies – to dig deep into this diffi cult but vital issue.
T
HOW BIG IS THE PROBLEM? We went around the table. In less than fi ve minutes we identifi ed over 30 large and medium sized developers who have failed in the last couple of years. Gareth Fatchett (of UK law fi rm Regulatory Legal) and Neil Heaney (of Spanish law fi rm Judicare) have been dealing with many of these failures. In another couple of minutes, they were able to estimate the amounts lost by the investors in just these 30 cases: well over USD 2 billion, possibly USD 3 billion. That is a huge amount of money. Now, of course, the problem is that most of these ‘investors’ were not ‘investors’ at all. They were people who thought they were just buying a house. They paid their money and expected, in due time, to receive their property.
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It is true that many were foolish in paying over a large part of the price before work on the project even started. Many were also foolish in taking no legal advice. It is also true that some will have been off ered substantial discounts in return for providing the “seed- corn” funding needed – and so, perhaps, should have realised that their purchase involved an element of risk. It is also true that these buyers were buying at a time when there was a feeding frenzy over international property: a dangerous combination of unbridled optimism and greed. Sue Ash, chair of AIPP, summed it up: “Greed trumps caution every time”.
Yet the reality is that these people were sold real estate investments – “investment property” – and that their investments were wiped out. It’s not just that they didn’t
fl ourish: that they lost a part of the money they invested. These are the natural risks associated with any investment. No, in most cases they lost it all. The properties they bought were, in many cases, never started. In some cases the
SUE ASH
Chair of AIPP Tel: +44 20 7222 6172
developer did not even own the land. The money has been spent (or disappeared), the seller has gone bust and the buyers stand to lose everything.
HOW MANY FAIL?
Neil Heaney reckoned that 80% of ‘off plan’ projects – projects funded largely by off -plan sales – fail. Gareth Fatchett thought the number smaller – but still, perhaps, 40 or 50%. Of course, it is important to say that this is not the percentage of all projects that fail, just the percentage
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