Rising prices - 15 February 2010

Posted by Paul Collins No comments

The past couple of weeks have seen at least two different overseas property developers putting up their prices, in response, according to them, to increased consumer demand.

The two developers I personally have heard about build in two of the most popular destinations for UK overseas property buyers, which are also what would be considered established and safe markets. My question is: are these prices rises genuine, or are the developers getting a bit ahead of themselves?

There is no doubt the global recession has been a long hard slog for us all, and you could even argue that the overseas property world has seen a steeper drop and a harder landing than most. Therefore, the arrival of any kind of positive news for buyers, builders, owners and developers should be greeted with relief and enthusiasm. However, I fear there is a possibility that there is a recurrence of what some agents are seeing from private vendors in the UK – pre-emptive price rises.

This is a dangerous idea, and one which could kill off any recovery in overseas property before it has even taken hold. The concept is to raise prices now on the back of a perceived increase in buyers in the next six months. Although this sounds illogical, it has the intended result of persuading potential buyers who might be a little reticent about re-entering the market that there is increased movement in property sales. Added to this is the benefit of giving the impression that their properties are selling quickly, thus creating a degree more urgency to bring buyers back to the market.

The hope, if this is indeed what is happening, is that a virtuous circle is created – a kind of self-fulfilling optimism of better times in overseas property.

The downside could come if the price rises are ‘optimistic’ in their nature, and that interest in these specific overseas properties has not increased to an extent to warrant an increase in price. In that instance, all the price rises could do is to scare off any potential buyers who may have been considering getting into overseas property at what they see as the bottom of the market. This would leave the developers with fewer sales than they would otherwise have had, plus the option of either holding out for the increased price, or offering discounts to bring the properties back down to a realistic level; further undermining confidence in a market that desperately needs buyers to believe is on the way back.

I must reiterate that I can’t know if the price rises in question are genuine or not, but to a large extent that is academic – it is the perception of the buying public that matters. Therefore, would it not be sensible to hold off on price rises until we can be completely sure the market is recovering, rather than trying to get ahead of the game and introduce price rises as soon as possible? Is it worth risking the future health of your sales?

From conversations that I have had in recent weeks with UK agents, private vendors here are apparently using a similar tactic to try to maximize the sale price on their own properties. Having seen new build properties become more desirable as supply has reduced (owing to the restricted building carried out by developers in the past 18 months), forcing price rises, private sellers are keen to get their own slice of price increase.

Anecdotally, I heard from one agent who said a vendor had openly said they wouldn’t take any offers under asking price as they were trying to cover the predicted price rises in the next six months! Perhaps not the best way to sell your house…

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