...is that apparently the big house cost £1.4M. The smaller one would have been, at a guess, about £400K. So we're up to £1.8M. Building costs must be in the region of, say, £150K per unit. 6 units is £900K. I might be a bit high here but probably not massively so - call it £800K. Architect's fees, solicitor's fees, etc etc must amount to £20K - probably a lot more.
So, fairly conservatively, we're probably looking at about £2.5M plus. For 6 semi-detached houses.
Now, the largish detached house was £400K, and must be worth more than a smaller semi-detached property is going to be. Even assuming the resulting houses were worth £400K, somehow, on six properties you'd still LOSE £100K.
But it gets better. The properties were bought at the absolute peak of the market. Especially the large one, which was purchased in January. Prices have already fallen about 7.5% since then, and are predicted to continue to fall for the next 18 months or so. Most forecasters seem to think something in the region of 20% down on the peak price - some as much as 30%. Let's work with 20%.
With a 20% fall in house prices, the houses that would be worth £400K will in fact only be worth £320K each. Which works out at just £1.92M. They won't be able to get them on the market that quickly as they're not build yet, and they won't want to hang onto them as it's a commercial developer.
That's a massive loss of £580,000.00.
Let that be a lesson to you, barbarians. Leave nice properties where they are and learn from Persimmon, everyone's favourite mass-house-building company. Who have laid off 1100 workers because they can't make enough profit from house building any more.
Thoughts - most developers aim for, I guess, about 20% profit on a development. About that? Even if my estimates for building costs were double what it actually costs, and I can't see that they are, they would still be paying out £1.4M + £400K + £400K = £2.2M. Call it £2M. With a 20% profit they would have to sell for £400 each. That's after losing 20% over the next year or so. Which correlates to the equivalent of charging £480 per unit back in January. Which is a LOT - you might have got it, but I'd be surprised.
So, fairly conservatively, we're probably looking at about £2.5M plus. For 6 semi-detached houses.
Now, the largish detached house was £400K, and must be worth more than a smaller semi-detached property is going to be. Even assuming the resulting houses were worth £400K, somehow, on six properties you'd still LOSE £100K.
But it gets better. The properties were bought at the absolute peak of the market. Especially the large one, which was purchased in January. Prices have already fallen about 7.5% since then, and are predicted to continue to fall for the next 18 months or so. Most forecasters seem to think something in the region of 20% down on the peak price - some as much as 30%. Let's work with 20%.
With a 20% fall in house prices, the houses that would be worth £400K will in fact only be worth £320K each. Which works out at just £1.92M. They won't be able to get them on the market that quickly as they're not build yet, and they won't want to hang onto them as it's a commercial developer.
That's a massive loss of £580,000.00.
Let that be a lesson to you, barbarians. Leave nice properties where they are and learn from Persimmon, everyone's favourite mass-house-building company. Who have laid off 1100 workers because they can't make enough profit from house building any more.
Thoughts - most developers aim for, I guess, about 20% profit on a development. About that? Even if my estimates for building costs were double what it actually costs, and I can't see that they are, they would still be paying out £1.4M + £400K + £400K = £2.2M. Call it £2M. With a 20% profit they would have to sell for £400 each. That's after losing 20% over the next year or so. Which correlates to the equivalent of charging £480 per unit back in January. Which is a LOT - you might have got it, but I'd be surprised.
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