RSS

Contact us

Thursday 4 December 2008

Good news for the prudent: we’re heading for recession

Richard Northedge says those who did not overspend during the boom years will soon be able to buy whatever they want at bargain prices, perhaps even with borrowed money

Bargain seekers must be vigilant, however. The closer a company is to insolvency — and many retailers are already teetering — the deeper it will discount stock to generate cash. But the buyer must be careful not to part with money before receiving the goods or services. Where do you stand if your airline goes bust before you fly? In a queue at Stansted holding a ticket that looked cheap but is actually worthless, perhaps. Will those cut-price dining chairs be delivered before the liquidators lock the warehouse? Will your builder be back in Poland as soon as you pay him the first instalment?

Sooner or later there will be bargains on the biggest ticket item of all — property. But it will be later, not sooner. Housebuilders are a classic example of a business that failed to anticipate diminishing demand. They geared up for higher production, even by taking over rivals; their long lead-times mean they are still finishing homes they know will be hard to sell; and they have land banks that would have lasted five years at last year’s rate of building, but which will provide sites for decades at this year’s sales levels. The big builders are strapped for cash and slashing prices, offering ten-year interest-free loans on a quarter of the price, paying buyers’ stamp duty, legal fees and survey costs, and waiving the requirement for a mortgage deposit.

What bargain could be better than that? Most, unfortunately. It needs a lot more inducements than those to encourage the purchase of an asset that is likely to lose at least 10 per cent of its value over the next year. When the property market eventually turns, those builders — if they are still in business — may have cut production to meet the muted demand and withdrawn all the special-offer incentives, but there will be good value in the rest of the market. Just wait.

More articles from: Richard Northedge | this section

Print this article  |  Email to a friend  |  Permalink  |   Comment

Post this entry to:   del.icio.us | Digg | Newsvine | NowPublic | Reddit

Advertisement

Spectator Business | Apollo Magazine

Corporate | Advertising | Privacy | Terms

Spectator, 22 Old Queen Street, London, SW1H 9HP

All Articles and Content Copyright ©2008 by The Spectator | All Rights Reserved