Buying a house

[orangeman]

Hold on lads - a house is worth what it costs to build plus what it cost in land value plus the cost of what is required to complete the planning, design and sale processes plus a profit/ overheads % for the builder / developer


So a 1050 sq ft house ( minimum ) would be as follows :


1050 x say £60sq ft =                             £63k
planning, building control,
bank charges, financing costs,
design costs, estate agents costs etc say   £ 5k

Land cost - say £250k/ acre /8 per acre = £ 31k

Add developers profit 15% on above - say £ 15k


total :                  £  114k for the average semi detached house.


Obviously detached houses are going to be bigger and site costs are going to be more. Better locations, better finishes etc will mean a higher price.



So 10 times or 14 times the annual rent doesn't make sense.

Why 31K for a site? I live in Tyrone (like you) and less that 10 years ago you would have got sites at 10k or less. Why over a 200% increase in ten years?31k per site is over priced, 15k would be more like it.
Also why a 15k add on for the developer profit? They are paid for a job, like the other cost you included. They should not get a profit for each house they build but the standard wage for the job they do. i.e covered in the £60 per sq. ft. Even this £60 probably should be reduced as most people in the construction industry were getting more than they were skill for. I'd say 80k would closer for the above.

There aren't any sites available at 10k per site - 5/6 years ago they were 20 - 25k so I don't think 31k is unreasonable - this is the figure that the banks have factored in for site costs BTW.

Developers need a profit / overheads % added on to the bottom line - if there wasn't a profit, then nobody would be prepared to take the risk and build houses.

If you look at the only evidence that is avaialable, ie. house sales, there are plenty of houses being sold for £120k +. There aren't too many houses for sale at less than than figure and there are certainly no houses for sale at £80k. Anybody selling houses for less than £100k are probably selling them to meet bank demands to get cash in.

If you bought a house for £120k now,  what sort of yield would you get? i would suggest very little considering rent prices these days.
Surely therefore the asset is over valued.

Yield would be nil - in fact negative.

It's back to what it costs - 3/4 years ago before the boom, semi d's were £100k. They can't have come down from that figure.

[tyronefan]

how are you working out the yield OM

[Stall the Bailer]

5/6 years ago at 20-25k they were over priced, like they still are today. People were paying more than £120k this time last year and are still paying more than it costs to build them.
Take for example the houses built beside Healy Park in Omagh. They were built in 2003 and you could get one for under £70k. That developer took risk as you say. He must have got the site for less than 20 – 25K and wasn't expecting a 15% profit on each house.

[orangeman]

how are you working out the yield OM

Haven't actually worked it out - just speculating that it would be negative.

[orangeman]

5/6 years ago at 20-25k they were over priced, like they still are today. People were paying more than £120k this time last year and are still paying more than it costs to build them.
Take for example the houses built beside Healy Park in Omagh. They were built in 2003 and you could get one for under £70k. That developer took risk as you say. He must have got the site for less than 20 – 25K and wasn't expecting a 15% profit on each house.

Fair enough - but if the property bubble had not happened, how much would that house have gained in value using single figure appreciation per year ? More than £80k ?

[Stall the Bailer]

It would be 80 - 85 I guess (on 2.5 average increase)

[orangeman]

It would be 80 - 85 I guess (on 2.5 average increase)

Historically, due to the troubles or whatever else, house values in N. Ireland were a lot lower than comparable areas of the UK.

Are the higher prices in N. Ireland simply not reflecting a balancing exercise ?

[Stall the Bailer]

Is the average wage not also lower?
Our housing should then also be slightly lower.

[orangeman]

http://news.bbc.co.uk/1/hi/business/8286028.stm



In certain areas of UK, eg the North of England and Scotland, wages would have been similar but house prices in those parts were always more expensive than here. The differential to my mind was always too great.

[orangeman]

This isn't making a lot of sense - how are prices going up when most other things are coming down ?


More signs of house price rises 

The housing market has recovered during the year
UK house prices rose for the third consecutive month in September and showed the first quarterly increase for two years, according to the Halifax.

The average home rose in value by 1.6% in September compared with the previous month, to £163,533.

And prices in the three months to September increased by 2.8% compared with the previous quarter.

The Halifax, now part of Lloyds Banking Group, said that increased demand and a lack of supply were key to the rise.

[theskull1]

Can't help but think that those type of reports are simply attempts by marketing to kick start a property recovery.

• Salary x 3.5 factor
  Job security issues
  20% deposits required
  The FSA trying to get banks to hold more cash reserves will mean borrowing costs will increase
  

All tell my compass that prices will still come down a fair bit yet.

[orangeman]

Can't help but think that those type of reports are simply attempts by marketing to kick start a property recovery.

• Salary x 3.5 factor
  Job security issues
  20% deposits required
  The FSA trying to get banks to hold more cash reserves will mean borrowing costs will increase
  

All tell my compass that prices will still come down a fair bit yet.

Sounds like it alright.

[Goats Do Shave]

I thought it was 10% deposits required?

It is with Ulster Bank anyway!

[Smokin Joe]

I thought it was 10% deposits required?

It is with Ulster Bank anyway!

The bgger the deposit = cheaper mortgage rate.

[under the bar]

how are you working out the yield

To work out yield divide annual rent by cost of property and multiply by 100.

£6000/£150000*100 = 4%