Bleak outlook for city centre apartment investors

Property experts believe that some city centre apartment developments, built on the back of low interest rates, are in danger of standing empty for years.

Residential developments in Manchester, Leeds, Newcastle, Nottingham, Swindon, Basingstoke, Southampton and Bristol are among those not attracting tenants or buyers.

In addition lenders and developers have been issuing warnings about such new-build schemes.

Building firm Barratt has reported a fall in sales of between 5% and 10%, which it attributes to the Northern Rock crisis, and UCB Homeloans, part of Nationwide Building Society, has stopped lending to landlords buying new flats.

Some developers are increasing their incentive schemes for inner-city apartments, and in doing so are effectively reducing the price of the accommodation.

There have also been reports that new-build flats are coming under the auctioneer’s hammer as landlords investing in inner city apartment schemes are having their properties repossessed.

It is estimated that 40,000 one and two-bedroom flats, in complexes of 25 flats or more, have been built in UK city centres since 2000.

Investors are believed to have purchased between 70% and 90% of these new-builds.

Some investors have operated through property clubs, where prices were inflated and “rental guarantees” (whereby the developer guaranteed a level of return on the property) applied.

As these guarantees expire and the properties form part of the open lettings market, investors’ returns could be hard hit.

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