Investors losing faith in ‘fractional sales’, says Liverpool property expert

Managing director of leading agency City Residential, Alan Bevan, says after being stung by a number of high-profile failures investors are now more risk-averse. Tony McDonough reports

New Chinatown
New Chinatown was one of the collapsed North Point Global schemes


A leading residential property expert says the era of Liverpool developers using the much-maligned ‘fractional sales’ model may be coming to an end.

In his latest quarterly report on the city’s residential sector, Alan Bevan says that after being stung by the failure of a number of schemes by collapsed developers such as North Point Global, investors are now becoming much more risk-averse.

The managing director of leading agency City Residential claims many investors now favour the more traditional model of paying a 10% deposit on their properties after several years of being prepared to pay up to 75%.

“Over the last 12 months there is no doubt that the use of the fractional sales model has been on the wane,” he said.

Off-plan sale

Fractional sales (or buyer-funded deposits) have been utilised heavily across the UK (but particularly in northern UK cities over the last five years. They are an off-plan sale of a new build property to an investor who pays more than the standard 10% deposit on exchange.

In many cases the buyer has been paying up to 50% on exchange and more than often another 25% before completion. It grew in popularity with developers as bank funding became more more difficult to obtain and so they were effectively funding their schemes using investor’s cash.

Developers were also offering investors the extra incentive of guaranteed yields. Often these guaranteed yields have been offered for a period of three to five years at levels of between 7-10%. In many cases, even when the development has been successfully delivered, those generous yields haven’t followed.

The losses suffered by those who invested heavily in the failed schemes, such as North Point Global’s New Chinatown project, have proved devastating. Many were small investors in the Far East who could ill-afford the losses.

Legitimate method

Fractional sales does have its advocates. John Morley’s Legacie Developments has successfully delivered a number of schemes in Liverpool using the method and he told LBN in April that, if done properly, it is a legitimate way to fund projects.

“Fractional-investment sales have helped our property portfolio to expand rapidly, which has resulted in Legacie building the first-class accommodation Liverpool needs and deserves,” said Mr Morley.

Ropemaker Place
Legacie Developments has successfully used the fractional sales model for its Ropemaker Place scheme


However, Mr Bevan believes the method is now falling out of favour. He added: “Although Liverpool has suffered a much higher percentage of stalled/problem sites than other UK cities, the model has started to struggle across the board.

“Investors have become more risk aware than in the past and are looking for those developers where there is a track record of delivery and schemes that are well located and honestly marketed.

“Although the issues discussed above would suggest that it has become almost impossible to sell off plan property to investors this is not the case.

“There are numerous developers selling off plan in the city that are selling on a more traditional 10% deposit on exchange (or sometimes up to 20%) and delivering the product in a timely and professional manner.

“There is still a good strong demand for Liverpool property from both overseas and UK investors but the focus of these buyers will be those developers who can afford to fund schemes with more normal deposits and deliver on their promises.”

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