Many years ago, I remember being shocked when a football pundit berated a badly beaten team because it hadn’t received a single yellow card throughout the entire match. I struggled to understand his view; I’d always thought getting booked was a bad thing, but his reasoning was straightforward, if the players were pushing themselves right to the limit, they’d occasionally go beyond it – and if they didn’t, they weren’t trying hard enough.
I believe this is a perfect analogy for that traditional bane of the builders, the down-valuation.
At face value, down-valuations are bad news all round, particularly at a time when prices are falling. It makes it difficult to secure lending, unsettles the purchaser, invites a reduced offer and risks a cancellation. But, right now, we are in a rising market*. Much as it perplexes the ‘property experts’ the length and breadth of the nation, demand is still outstripping supply. Despite lockdowns, furlough, recession and the inevitable rise in unemployment that will follow, there are still more buyers than there are sellers and we all know how that outturns.
When the market is rising, down-valuations don’t have the same fear factor for the developer. Much easier to walk away from a deal, or a reduced offer, when you have two or three prospects waiting in the wings. There might even be the chance of a price gain in the process.
Right now, we have a hiatus in the housebuilding business. During the first lockdown, back in March, building was stopped completely but, while selling also stopped – the buyers never went away. All those who had decided to make this the year to move didn’t change their minds, they just delayed their plans. Add to that the ‘once in a lifetime’ reassessment households made about their lifestyle and work/life balance in the aftermath of the pandemic, and you have a perfect storm of pent-up demand.
The result of this extraordinary market event has been the creation of a supply vacuum. New build stock is just about non-existent, earliest completion dates for property being reserved at the moment is typically March and April of next year. And that’s without taking factors other than build into account, such as searches, valuations, and conveyancing. Delays in these disciplines are rife and getting worse. So, volumes are not the most important issue right now, everything that’ll be built this year, can be sold this year; it’s much more about value, maximising the return from precious inventory and realising the best price for every plot.