The Real Deal National

In Brexit-battered London, flipping condos in contract has become risky business

Speculators are struggling to make fast profits by signing contracts to buy London homes and selling the contracts at higher purchase prices
June 23, 2019 04:00PM

Speculators have made fat profits fast by agreeing in writing to buy luxury real estate in London, then selling the contracts at higher purchase prices (Credit: Pixabay)

Sagging home prices in London have injected greater risk into contract reassignment — a practice in which buyers try to make a profit by selling their units before their initial purchase transaction closes.

Speculators have made fat profits fast by agreeing in writing to buy luxury real estate in London, then selling the contracts at higher purchase prices. But declining prices for homes across Brexit-battered London have made contract reassignment riskier.

Illustrating the point is the case of one Singapore-based investor, who had pre-construction contracts to buy two London penthouses for $3.778 million each in 2016. He immediately listed the penthouses for $4.06 million each. But the contracts are still unsold, and if the investor fails to sell them before the penthouses are completed in 2020, he will be required to complete the purchase or forfeit his $755,600 deposit.

Prices for newly built homes in the Nine Elms area of London have dropped to $240 per square foot, down 15.4 percent from 2014, according to LonRes, a firm that monitors the prices of new homes in London.

LonRes research also shows comparable price declines of 9.3 percent in Earl’s Court, 8.3 percent in Canary Wharf and 5.2 percent in King’s Cross.

Resales of homes in new developments across London are closing at prices 13.1 percent below the asking prices, on average, compared to 2.2 percent in 2014, the firm found.

Most investors seeking to flip London homes acquired them near the end of 2015 and in early 2016, prior to the UK vote to exit the European Union, said Chris Osmond, sales director of brokerage firm Johns&Co.

Osmond has multiple listings for London-area homes available through contract reassignment, including a one-bedroom apartment in Canary Wharf with a $983,800 asking price – well below the $1.053 million price the investor agreed to pay.

The contract-flippers most at risk of taking a hefty loss are those who agreed to buy homes in lackluster developments, said Nathaniel Wilde, branch manager of Hamptons International in Sloane Square.

Sebastian de Angelis, head of new homes at brokerage firm Chestertons, said contract reassignment is most profitable “where all the phases have sold out, [and] people who really want to get into a particular development are willing to pay astronomical prices.” [Wall Street Journal] – Mike Seemuth