More than 1,000 flats lie empty in Leeds – and residential investors are haunted by the fear that their flats cannot be rented or sold at anything but a substantial loss. But, amazingly, another 15,000 new flats are in the pipeline. Lucy Barnard investigates.
“We’ve had enough trouble here already,” says a security guard, who forcefully escorts EG’s photographer from Aspect 14, a recently built block of 235 flats in Leeds city centre that is already looking decidedly shabby.
The block on Elmwood Lane at the edge of the Little London council estate has seen prices drop by as much as a quarter since 2003, when it was completed by Bryant Homes, a subsidiary of housebuilding giant Taylor Wimpey. Local agents estimate that around a fifth of the flats lie empty.
The majority of the block’s owners are buy-to-let investors who, in their panic to see their flats let, have often rented them out to tenants who are euphemistically known as “sub-prime”.
The problem is symptomatic of the city’s oversupply of new flats. According to Leeds city council’s council tax register, more than 1,000 flats lie empty – that’s almost 20% of the 6,000 flats that have built in the city centre over the past few years.
Few pedestrians walk past the newly laid lawns and stone water fountains surrounding these glass and concrete blocks that line the way from the railway station, along the canal and across Holbeck and the Markets area. A peak through the curtainless windows reveals bare wood laminate flooring and leftover pipe lagging.
Yet even more flats are on the way. The cranes dotted across the skyline are at work on another 2,989 flats. A further 5,805 have planning permission and 6,179 more are planned as part of the city’s ambition to be home to an “urban renaissance”. No wonder with such a glut, prices for city-centre flats in Leeds have been collapsing by as much as 30% (see p53).
Rob Hennis, sales manager at local estate agent Hunters, says that the firm has 60 city-centre flats on its books. “One investor bought three flats in a block called West Point in the Whitehall Quarter, all of which he’s been trying to sell since March,” he says. “We put them on the market at £169,950 and they sat empty but when we brought them down below the £150,000 stamp duty level, we sold two in a week. But if he lost £70,000 on each plus service charges – well that’s easily a whole flat!
“We are advising people that if they can’t get the price they need then they should look at the option to rent them out – but some investors don’t even have that option [because they can’t afford the mortgage payments on an investment they expected to sell on before it was completed]. We’ve got one guy who bought for his retirement who can’t even afford the mortgage payments even if he gets a tenant in. He will lose tens of thousands.”
So how has Leeds come to this?
According to Andrew Wells, partner in charge of Allsop’s Leeds office, the problem is that a lot of the flats were built in response to strong investor demand. Many investors paid overinflated prices with the hope of high returns and with no alternative strategy for their investments if they could not sell them on quickly.
“There is virtually no owner-occupier demand in the centre of Leeds,” says Wells.
“We’ve seen investor appetite for brand new flats virtually disappear since September. Some investors are adopting a wait-and -see attitude until next spring, others are more gloomy about the medium-term prospects. November 2007 has been the worst month for the market in central Leeds since the boom began in around 1998.”
Many of the investors who were buying in central Leeds did so on the advice of investment clubs, such as Instant Access. In fact, members of Instant Access – the largest property club in the UK, account for 1,000 of the new-build flat investors who have come into the city since 2002.
However, the company says that most of its investors have not lost money on their purchases at the moment but that the market is “tough”. “No doubt the credit crunch is playing on investor confidence and there’s a temporary oversupply in the city but we have lots of confidence in Leeds for the long term,” says an Inside Track spokesman. “One can see a lot of similarities with the London Docklands market in the early 1990s.
“The important thing to remember as a buy-to-let investor is that it is a medium to long-term strategy.”
But the list of buy-to-let disasters in Leeds continues to mount. Morris Properties, the company run by 30-year-old Simon Morris, is currently being investigated by West Yorkshire Police and the Serious Fraud Office after a BBC Inside Out programme alleged that the firm sold student flats to buy-to-let investors for inflated prices.
Connells, which valued 90% of the investments investigated by the BBC, said: “All our property valuations are carried out by RICS- qualified surveyors, supported by a variety of market evidence, and fully comply with industry-accepted guidelines.”
The slide in prices is having an effect on developers, and those who can afford to are mothballing proposed housing schemes. Work was set to start this month on George Wimpey’s 6.2-acre riverside site on Globe Road to the west of the city centre. Instead, the site remains a field of broken bricks and weeds, and fenced off with barbed wire.
Two weeks ago, the housebuilder announced that it was postponing construction of its 800-flat Green Bank development and “mothballing” its £1m marketing suite, which opened last summer, because of the oversupply (Residential, p36, 1 December).
“We are extremely disappointed to be postponing the construction of the Green Bank development and regret the inconvenience that this decision may have caused to our customers at this site,” says Wimpey. “This is a result of the current uncertain market conditions for high rise apartments in central Leeds.”
Next phases delayed
Last month, city-centre specialist Dandara said that it was delaying the next phases of its developments in Manchester and other northern cities until its existing 3,000 homes under construction or going through the planning process were sold. One of these is thought to be a proposal for 788 apartments between Manor Road and Sweet Street in Leeds for which the developer already has outline planning consent subject to agreeing an affordable housing contribution.
Isis Waterside Regeneration, a joint venture between British Waterways, AMEC Developments and Morley Fund Management’s Igloo, has also delayed the launch of its 282 flats (and a hotel development) on a 6.35- acre site at Granary Wharf in the city centre. It had planned for its marketing suite to be open for business this autumn – instead it will now be open for business in March 2008. Knight Frank, the agent on the scheme, said that this delay was not due to the downturn in the housing market in the city but was due to a change of contractor.
And it has emerged this week that Flax Place, a site one mile from Leeds city centre with consent for 194 luxury flats, and 1,800 sq ft of shops set to be developed by special purpose vehicle Flax Place Ltd, was put into administration by BDO Stoy Hayward.
Graham Newton, business restructuring partner at BDO Stoy Hayward, confirmed that he was looking for potential buyers for the site following the move.
Others are still cautiously pressing ahead. Lionel Levine of local surveyor and developer Lionel Levine & Co says that he is starting work on Monday to build 45 flats on his Cypress Point development on Skinner Lane in central Leeds, where he has already sold half the units off-plan. “There’s been a lot of panic over Leeds city-centre flats – which is understandable. As a developer, you have to be careful about your pricing strategy but, if you build a good product at the right price you should do well,” he says.
Moreover, Allsop’s Wells is adamant that the oversupply of city-centre flats is not just a Leeds issue, but is, in fact, causing problems for buy-to-let investors across the country. The mania for residential development and investment is hitting towns and cities from Glasgow to Basingstoke to Southampton, he says.
Last month, specialist buy-to-let lender Paragon warned that it was considering an emergency rights issue and was unable to provide mortgages to new customers until its £2.3bn warehousing facility was renewed. It said it had been put in this awkward situation by its own lenders, which were taking advantage of the credit crunch to aggressively raise their lending conditions.
Wells says: “While central London may enjoy further price rises due to its unique supply and demand characteristics, the impact of recent rate rises and the credit crunch will suppress house price inflation outside the capital.”
Leeds flat prices slump
Scheme Description Was sold for Today’s asking price Fall in price
Two double-bedroom flat on the 7th floor with “a city-facing balcony”. Includes one parking space
One-bedroom flat on the 8th floor with balcony, close to city centre. “Attractively priced”
One-bedroom flat on the 5th floor with full-width balcony. “Convenient for city-centre shopping district”
