Thanks, in no small part, to the Northern Powerhouse initiative, Manchester has undergone and economic transformation which has not only benefited existing residents of the city, but attracted people to it, especially highly-skilled millennials from the south of England. This has, naturally, increased the demand for housing and, hence, Manchester’s attraction to property investors, both UK-based and international. While this is good news for renters, since it helps to ensure a good supply of high-quality accommodation at competitive prices, it can make life more challenging for first-time buyers trying to get on the property ladder.
BBC figures show almost 90% of a popular Manchester development is owned by investors
The BBC recently used figures from the Land Registry to investigate the ownership of the 77 residential units contained in the One Smithfield Square development. It discovered that only 9 of them appeared to be owner-occupied (about 12%) with a further 20 (about 26%) owned by British-based landlords either directly or via UK-registered property companies. Another 24 (about 31%) were owned by companies based in the British Virgin Islands, which are well known for their extremely generous tax rates. The remainder were all owned by international investors with some owners being traced back to Asia (Hong Kong and Singapore) and others to the Middle East (Kuwait and Saudi Arabia).
Investment funds are crucial to property development
Even though successive budgets have pledged government funds to assist with home-building, the fact still remains that most property developments are initially financed by the property developers who actually do the work. These home-building companies then sell-on the units to private buyers and they generally prefer to do so as quickly as possible in order both to improve their own cash-flow and to provide a return to their shareholders.
As a result, property developers often sell homes before they are actually completed and since it can be difficult to get a mortgage for an “off-plan” property (especially in the current economic climate), cash buyers generally get first choice of new-build units and in places such as Manchester, which is known for the strength of its property market, this can mean that all units are sold before they are even built, leaving first-time buyers to pick up any units which these investors choose to “flip”. This is not necessarily a huge issue where there is plenty of pre-built housing stock from which to choose but Manchester has a very high ration of new-build to pre-built properties.
The way forward
One obvious solution would simply be to make it easier for first-time buyers to get a mortgage on off-plan property. Admittedly there could be some practical challenges to overcome in order to implement such a scheme, basically the government would need to find a way to ensure that it would not be exploited by “cowboy builders” but it’s hard to see how this could be a deal-breaker given that the government already has a list of approved home builders for the Help to Buy scheme. The government could also mandate that these approved builders offer residential buyers, or, at least, first-time buyers, a “window to purchase” before opening up the development to the market as a whole.