Walking here from Barking train station, it hardly seems a place that the former group would choose to live. The station boasts a Wimpey, the high street is dominated by betting shops, and traders at the local street market are selling three bras for a pound. Nevertheless, the scheme's website boasts that the development will be 19 minutes from the Olympic Village, and just over two hours from Paris when the Eurostar comes to Stratford.
So how did the regeneration dream turn sour? Originally developed by Redrow, the housebuilder sold the Bath House block to private developers City & Docklands and Galliard while it was under construction. In turn, they sold it on to a consortium of private Irish investors, who sold on the individual flats at inflated prices. When these sales failed to complete, the Irish investors defaulted, leaving the developers with the task of re-selling the flats – and fast.
Galliard's sales director David Galvin is truly a man who can turn water into wine. The marketing concept of a 'stock liquidation sale' is a powerful one, blasted out in full-colour press adverts which scream "Purchasers' failure to complete enables up to £70,000 savings!" The sales are conducted on a first come, first served basis.
We meet outside the block at 9am ("You can't miss it, it's bright orange and brown," he says) and there is already a long queue. The team of sales staff, solicitors and mortgage advisers inside the building look pleasantly relieved as they down the first coffee of what will be a very long day.
"This is nothing compared to Poplar," says Mr Galvin. A fortnight ago, Galliard conducted a similar 'fire sale' of virtually a whole block of flats near Canary Wharf affected by exactly the same problem – non-completion. A queue of 500 people clamoured to buy a property after adverts claimed discounts of up to 50 per cent off the original sale prices.
"We did 130 sales on the Saturday morning just like that," Mr Galvin says. "It was truly phenomenal. Two-thirds of the sales were to owner-occupiers, mostly helped out with deposits by their parents, and a third were sold to investors. Buy-to-let mortgages are still hard to come by, but there were loads of cash buyers," he adds.
A few miles east in Barking, the queue is again dominated by first-time buyers lured by the price reductions, and curious investors. The sales criteria are strict – after all, the developers cannot afford to have sales fall through again.
Upon registration, would-be buyers are told they need deposits of 20 per cent (owner-occupiers) or 35 per cent (investors) to proceed. The exchange takes place on the day, and sales typically complete within 14 days.
At Barking, they are also given a pep talk about the block's lurid orange and brown interior, which is slowly being painted white.
The marketing campaign works like a dream; all but a handful of flats are sold, and there are plenty of satisfied buyers emerging clutching their paperwork, thinking they've got a bargain. But have they?
Hard bargain
Message boards on the popular website Global House Price Crash are very cynical about the sales techniques. "There's no such thing as 50 per cent off, as the flats were never actually sold for that price," says one post. "There are two-bedroom flats nearby for the same money," comments another. Obviously, there's no queue round the block for those.
In Barking, similar sentiments are expressed. "It's not a bargain at all," says local estate agent Paula Taylor of Edward James. "If you think that's a good price, you're living in cloud cuckoo land."
The cheapest two-bed flat is being sold for £165,000. But for just £1,000 more, the buyer could have plumped for a three-bedroom terraced house with a garden, minutes from Barking station.
Some investors in the queue had rental aspirations of £750 a month for one-beds, and £1,000 a month for two-beds. However, in Ms Taylor's opinion, the market rent for a one-bed flat is £600 a month, and £700 for a two bed.
"That area's very noisy at night as it's right in the middle of the town centre," she adds. "I've never had anyone come in and say they want to live there."
The sales must go on
For bargain-hunting readers, there is every reason to expect more of these 'fire sales' as the market lurches downwards. At present, it is developments in less-established locations built by thinly-capitalised private developers that are likely to be sold off at big discounts. But if house prices continue to fall, and the mortgage market remains tight, the trend could spread.
Other developers are not so quick to cut their losses and are suing buyers who fail to complete the purchase of off-plan sales. Landmark Docklands development Pan Peninsula is currently the subject of a fierce legal battle between the private developer, Ballymore, and a group of 90 investors who are struggling to complete purchases.
But even the large quoted housebuilders admit they are affected by the problem.
"It is a problem," says Berkeley's managing director Rob Perrins. "Historically, we have always had 1 per cent of sales that fail to complete, even in boom times. People overextend themselves, their circumstances change; on a rare occasion, the buyer dies."
Today, that 1 per cent has become 3 per cent, and Mr Perrins cites "mortgage valuations coming in very low" as the number one driver. "The banks only want to lend on 25 per cent deposits, which is quite critical for the market," he says.
Berkeley's standard contract involves a 10 per cent deposit, although many buyers opt to pay more, which has helped to protect its position. "Buyers sign an unconditional contract which forces people to complete," says Mr Perrins. His unspoken implication is; if you don't complete, we will sue.
Home economics
Against a backdrop of vastly depleted sales (even Berkeley's reservation rate has slumped by 50 per cent) non-completions are another thorn in the side for housebuilders. Housebuilding analysts remain very twitchy on the subject of off-plan sales falling through, although there is an argument to suggest the worst is over.
"Forward sales dried up in September 2007 after Northern Rock went bust, so hopefully there won't be too many more of these situations left to resolve," comments one broker.
But another hints at the hidden depths of the problem. "All the quoted housebuilders are negotiating with buyers who find they can't complete," admits the broker. "This could involve negotiating on the price, doing a deferred equity deal, a second charge loan, or even transferring the purchase to a less expensive unit. With the market the way it is, they'd be stupid not to."
The problem is certainly widespread. Quoted property company Quintain Estates had 80 buyers fail to complete off-plan purchases made at its Forum House development in Wembley last month. It has retained around £3m of forfeited deposits.
And Aim-traded Telford Homes has been hit hard by failed completions. It is in the process of placing affected schemes within the ownership of a separate subsidiary vehicle.
Recovery position
This autumn London Residential Opportunities hopes to become the first listed vehicle to target distressed new build.
And outside London, there are further signs that a 'two-tier' market is emerging, with homogenous new-build product falling faster and further in price than anything else. To this end, the wonderfully named Residential Property Recovery Fund is now in the throes of its first fund-raising. Targeted to raise £25m with a minimum investor contribution of £25,000, director Barney Buik says he has "distressed, mispriced residential property" in the Midlands and northern England firmly in his sights.
"Prices are circa 50 per cent below peak valuations in 2007, but the fact that property is cheap doesn't necessarily mean it's a bargain," says Mr Buik. The main source for purchases are housebuilders and developers "in deep trouble", as well as receivers and banks. The fund hopes to benefit from rising capital values in time, but its first concern is to generate cashflow by renting its properties.
"We are not scared of city centre flats in places like Leeds, where property has become a dirty word," Mr Buik says. But rather than search for the 'young professionals' these developments were originally targeted at, he intends to pursue lettings to students and housing associations.
"Working with housing associations is great, as they offer a very decent covenant and pay close to market rents," he adds. "We are not scared of social housing, even if it is direct from councils."
But what of investors who have managed to complete a new-build purchase, only to find their luxury block becomes home to a very different type of tenant?
"Any investor has got to be aware that if you make an off-plan investment, there is an inherent risk," Mr Buik proffers. "Those who believed that the market would keep on trebling have now got to take stock. Maybe they didn't make the right decision. But if you're a cash buyer, and you know what you are doing, there are great opportunities out there."
