In this post our Residential Director Harry Trower takes a look at the growing issue Jersey’s apartment market is facing.
I do not think it is right to call it a classic bubble. That word gets thrown around too easily. A bubble usually means prices are rising too quickly, buyers are getting carried away, and the market is being driven by emotion rather than value.
That is not really the issue here.
The issue in Jersey is more subtle, but still serious.
We may be creating an apartment overhang.
This is particularly noticeable in parts of the market where there is a lot of similar stock: one-bedroom apartments, two-bedroom apartments, new-build flats, first-time-buyer stock, shared-equity homes and nearly-new resales.
These are not all the same product, but they are competing for similar buyers.
That is where the pressure is.
Government intervention is a big part of the story. To be clear, the intention behind these schemes is understandable. Jersey has a serious affordability issue and many islanders need support to get onto the property ladder.
Andium, shared-equity schemes, assisted-purchase routes and first-time-buyer policies all exist because the open market is difficult for many people.
But good intentions do not remove unintended consequences.
When Government widens the criteria for who can buy Andium or assisted-purchase homes, it increases the buyer pool for those properties. That may help those schemes succeed. It may help shift stock. It may help more people buy.
But it can also reduce demand for ordinary private resale apartments.
That is the part that matters.
A buyer who would previously have been looking at a private resale flat may now qualify for an assisted route. That buyer is then pulled away from the private seller. The private seller is left competing with Government-supported homes, new-build stock, shared-equity products and, in some cases, developer incentives.
That is a difficult market to compete in.
This is also why the headline house price statistics do not always tell the full story. If Andium or assisted-purchase transactions are excluded from the official index, they still have an effect. They still take buyers out of the market. They still influence what people think property is worth. They still shape confidence.
Excluded from the stats does not mean excluded from the market.
That is one of the most important points.
On the ground, sellers feel competition whether or not that competition appears in the headline data. If a large number of assisted units sell in a quarter, those buyers are no longer looking at private apartments. That has a real effect on resale demand.
At the same time, some developers are offering incentives to keep sales moving. I am not criticising developers for doing that. They are responding to the market in front of them. But those incentives do change buyer behaviour.
A headline price might stay the same, but if the buyer is receiving a financial incentive, a rental support package, help with costs or some other benefit, then the real deal has changed.
A private seller usually cannot compete with that.
So where does that leave the owner of a second-hand apartment?
Often, in a difficult position.
They may have bought when the market was stronger. They may still be anchored to the price they paid. But today’s buyer is comparing that resale apartment against newer, supported or incentivised alternatives.
The market does not care what the seller paid. It cares what the buyer can get elsewhere today.
That is why some apartments are sitting.
This is not about panic. Good apartments in good locations will still sell if they are priced correctly. But average apartments at yesterday’s prices are going to struggle.
The shared-equity issue is another part of this.
Shared equity can be a useful way for people to buy. If someone can buy 75% of a home and the remaining 25% is retained by the scheme provider, that can make ownership possible.
But buyers need to understand the exit as well as the entry.
When they sell, they may have to repay the retained 25%. In simple terms, if the scheme owns or retains 25%, that share usually has to go back when the property is sold.
That is not necessarily a problem if the market has risen and the owner has built up enough equity. But if prices have fallen, stayed flat, or selling costs are high, there may be very little left after the mortgage, the retained equity share, legal fees and moving costs.
The risk is not always dramatic negative equity.
The bigger risk is being stuck.
Stuck in a flat that cannot sell for what the owner needs.
Stuck because the next property is still too expensive.
Stuck because the buyer pool is restricted.
Stuck because newer assisted stock looks better value.
Stuck because the 25% repayment leaves less cash than expected.
This is the bit that needs more attention.
Helping someone buy is only half the job. A functioning housing ladder also needs to let people move on.
If a first-time buyer purchases an apartment through shared equity but cannot sell it easily later, that is not a healthy market. It may solve the immediate affordability problem, but it can create a mobility problem later.
Recent Government policy changes could make this more pronounced. By widening eligibility and allowing more people to access first-time-buyer-style or assisted stock, the Government may support demand in the short term.
But in the mid term, it risks creating a two-tier apartment market.
On one side, you have Government-supported stock with a widened buyer pool.
On the other side, you have private resale stock trying to compete without the same support.
That may put more pressure on private sellers.
In the long term, the bigger question is whether Jersey is building a proper housing ladder or simply creating a first rung that is easier to get onto but harder to climb away from.
That is the unintended consequence.
The Government is trying to help buyers. But by constantly adjusting criteria and supporting certain parts of the market, it may unintentionally weaken other parts. The private resale market is one of them.
So where are we?
I do not think Jersey has a classic apartment bubble.
But I do think there is a real apartment overhang risk.
The pressure is coming from a combination of new supply, assisted-purchase schemes, changing Government criteria, developer incentives, affordability pressure and weaker resale demand.
For buyers, the advice is simple: do not just ask whether you can afford to buy. Ask whether you could sell if life changes.
For sellers, be realistic. The market has changed. Pricing has to reflect what buyers can get elsewhere.
For Government, the challenge is to think beyond the first purchase. It is not enough to help people get into apartments. The system also needs to allow them to move on.
That is the real test.