SHARP PLUNGE IN PLANNING APPLICATIONS MAY MEAN NEW HOMES SHORTAGE

One leading city centre developer, City Lofts, is indicating that four of its projects could be redesigned - so that 500 planned apartments become hotel rooms instead.

The four City Lofts schemes to be redrawn are in Glasgow, Southampton, Sutton Coldfield and Manchester, while another scheme at Kings Waterfront in Liverpool - supposedly in the middle of a boom during its year as European City of Culture - could also be redrafted.

Says Liam Bailey, head of residential research at London and national agents Knight Frank: "The cutback is happening because the volume of sales achieved by builders in the last three months has fallen significantly.

"The number of sales in the new build sector is easily down around 30%, year on year, and there is potential for even heavier falls in the sector later in the year. This is making builders look much more closely at all schemes on the drawing board and making them ask if it is wise to proceed.

"The problem is that any significant change in new homes output, with more builders ready to build family homes in the green fields, will take time to achieve through the planning system.

"In the meantime, builders want to ensure that their headline prices are not seen to be falling, because it can be difficult to get them back up again - and they usually prefer to include various incentives, like part exchange, and fixtures and furnishings, to maintain price levels."

One major redevelopment project currently ruling out price cuts and incentives is Millbay, Plymouth, with the first 134 homes due for completion in late July in a total of more than 1,230 planned in a waterfront location.

Since sales began last September around 60 reservations have been secured - divided equally between investors and second home owners on one hand, and local buyers on the other.

Another 29 are earmarked for affordable housing through a housing association.

The scheme, intended to repeat the success of Portsmouth's successful Gunwharf Quays by mixing retail and leisure facilities, business premises and possibly two hotels, is backed with £50m of public funding and final homes could be sold in 2020.

Jointly developed by Muse Developments, a subsidiary of Morgan Sindall, with co-investors Legal & General and the quango English Partnerships, Millbay is planned to link the harbour area directly to the city centre, "for the first time in decades", by a tree-lined boulevard.

One-bedroom flats start at £90,000 and two-bedroom flats from £230,000, with a few town houses from £270,000. Many have views of a working harbour and Plymouth Sound beyond.

Says project director Howard Morris: "We want to build an inspirational urban environment in a historic location with spectacular waterfront views. It's a chance to live in an interesting location, with the convenience of city living.

"We have not needed any incentives to achieve sales so far. We are still achieving asking prices, and a mixed-use regeneration scheme of this type is such a long-term project it can ride out peaks and troughs in the market."

Plymouth has hardly figured on the radar of investors until now but Morris believes this could change because "there is very little new-build in Plymouth, either in the pipeline or at planning stage".

He says it could be 18 months before phase II of the new homes goes on sale - and by then, the credit crunch should have eased.

INFORMATION: Joint agents for Millbay, Plymouth are King Sturge, Plymouth (01752 880 044) and Savills' Bristol office (0117 910 0300).

:: GRADE II-MANSION TOPS THE REPOSSESSION STAKES

Although the number of repossessions is predicted to hit 45,000 in 2008, up from 27,000 in 2007, it's still a shock to see hapless bankers left holding the keys to one of the finest Grade II-listed stately homes in England.

Earls Croome Court in Worcestershire, with a splendid avenue of lime trees leading into an estate of 13 acres, was once the seat of the 11th earl of Coventry. Dated to the 16th century, it enjoys several mentions in the celebrated Architectural Guides compiled by Nikolaus Pevsner.

The main house offers 10,000 sq ft of living space but there's scope for much more accommodation in the grounds, including a stable block, a black and white barn with a two-storey granary and an additional cottage.

However, much of the repair work required - including re-instalment of the drawing room fireplace and refurbishment of the cottage - must be done under the beady eye of the local council and English Heritage.

The house also enjoys a superb setting, with fine views across the Malvern Hills. The nearest town is Upton-upon-Severn, with a notable marina.

There's a £1.95m price guide on Earls Croome Court. Although "repos" can't come much grander than this, a cheeky offer might have interesting results when bankers are so hungry for cash.

Agent Andrew Grant says: "The curious thing about this story is that when I last sold this property for Lady Coventry two years ago for £2.25m, the buyer was a man whose family was then involved in another repossession. He assured me the money would be forthcoming.

"It was. But on the sale of their previous property, I am still owed a fee of £5,500. I might be lucky to get it - but I believe a lot of little people are owed a great deal of money along the line."

INFORMATION: Andrew Grant Country Homes (01905 734 735) is selling Earls Croome Court, Worcestershire.

:: WHY SOUTH-WEST ENGLAND MIGHT DODGE HOUSING RECESSION

With nearly 25% of all the second homes in England, a sizeable inflow of 'downsizers' moving to smaller homes and plenty of public sector workers in secure jobs, South-West England could escape the worst of the housing market recession, says a new survey.

Leading London and national estate agency Knight Frank thinks South-West England - defined as Cornwall, Devon, Dorset, Somerset and South Wales - could escape with a house price reduction of just 1% in 2008, against 3% for the UK as a whole.

"The flow of investment capital from London into Bristol and Bath has been responsible for a large proportion of new development in the past decade," Knight Frank says.

"The concern now is that the cities' strong links with London do not overexpose them to recent financial market volatility".

Knight Frank also thinks any downside can be limited by major regeneration projects, substantially funded by public sector cash - including South Bristol, Avonmouth, Bath Western Riverside, and major urban regeneration projects in Newport and Cardiff.

Demand also remains strong for family housing in many areas of Somerset, Dorset, Devon and Cornwall.

The South-West currently includes 60,000 second homes - a quarter of the total in the UK - with many in coastal locations. By 2015, the number of second homes is projected to hit 405,000 - suggesting more than 100,000 in the South-West if it retains its current market share.

Knight Frank's major worry about the prospects for the South-West focus largely on transport - despite transport improvements it is still significantly easier and faster to travel from London to Edinburgh than it is from the capital to Penzance.

However it also points out that an increase in air travel, prompted by tourist demand and new investment, has improved accessibility across the region.

Peter Cornwell, who runs Marsdens Cottage Holidays in North Devon, says investors continue to chase holiday homes upwards of £300,000 - and are usually ready to put down deposits of at least £80,000.

"The credit crunch has erased the wannabees, leaving us to deal with serious purchasers", he says.

Marsdens evaluates the investment potential of holiday homes before purchasers have to commit themselves. Many buy new, purpose-built holiday apartments, also from £300,000 upwards and requiring less maintenance than a house.

Cornwell says gross income easily tops £20,000 per year, with half of that absorbed by maintenance and running costs before the mortgage is taken into account.

"At current price levels, holiday homes offer the prospect of long-term capital growth", he says.

"But if they are available for rental for 20 weeks a year and let for 10, they are very attractive as a tax proposition.

"An annual loss on a holiday home can be set against your income on your main job, so a £5,000 loss saves £2,000 of tax which would otherwise be charged to a higher rate taxpayer.

"And because holiday homes are accepted as a business by Mr Brown and Mr Darling, they are outside your estate for inheritance tax (IHT) purposes."

INFORMATION: Marsdens Cottage Holidays (01271 813 777/www.marsdens.co.uk); "A Different Region: Western Residential Development review 2008" is published by agents Knight Frank (0207 629 8171).

:: VALUATIONS BECOME KEY TO NEW HOME SALES

If property prices slide through 2008 as is widely predicted, the thorny question of valuations could become critical to many deals - and potentially a trigger for lots of litigation.

Many purchases agreed back in 2005/6 for instance are only now reaching completion, and in many cases current valuations are way below those prices originally agreed.

Simon Albertini, managing director of London agent Friend and Falcke says: "Speculators who have put down holding deposits (generally 10%) expecting to turn a contract will simply walk away if the uplift is not there when the time comes for them to complete.

"We are already seeing examples of this and the trend will grow."

Albertini says speculators were often allowed to put down holding deposits on the assumption they would complete and exchange when the building was finished. When they realise the value of the completed property is less than expected, they simply write the holding deposit off.

In theory, developers can claim a 10% deposit from buyers who exchanged contracts and also compensation from "walk away" purchasers if a property eventually has to be resold at a lower price, and for costs of remarketing.

Albertini says valuations are nothing like as variable and contentious on older, better quality properties in areas like Barnes in south-west London.

Investors themselves can also be driven to take legal action: Estates Gazette magazine recently reported an action by 75 buy-to-let investors who complained they were sold flats at more than they were really worth by a Leeds-based property firm.

Ironically, the question of valuations could soon become even trickier - I notice some builders in southern England now offer 110% part exchange. Presumably this bumps up the value of the property to be traded in, and persuades buyers to pay more for a new home than it might actually be worth.

The extra ingredient for potential trouble in a situation becoming more difficult by the week is the sales incentives, including help with mortgage repayments, fixtures and fittings which developers increasingly offer to persuade customers to accept the asking price.

It will therefore be interesting to see the formula which is about to be announced by Barratt chief executive Mark Clare, which is expected to compensate any lender who suffers losses as a result of Barratt's failure to disclose sales incentives on new homes.

Clare will promise that solicitors acting on Barratt sales will disclose all incentives - and commit his company to helping banks to sell repossessed homes.

For the rest of 2008, valuations - particularly of new property - could be jumping all over the place. Surveyors, in the middle of this, are likely to run into problems with developers and purchasers alike.

INFORMATION: Friend & Falcke (0207 581 3022).

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