UK PROPERTY MARKET BUST OR STALLED???

[Paul]

I also do not subscribe to the big crash theory! It may flatten out, perhaps decline for a while, but nothing too dramatic. It's not such a bad thing anyway, the market naturally fluctuates, but inevitably goes up overall, and usually quite rapidly after a dip, meaning potentially large ROI's for many!

I read a recent survey stating 93% of BTL investors have no intention of selling, with over half looking to invest further. The large majority of serious investors I encounter are in it for the long term, looking to pick up the odd bargain, and are far from panicking!

 

[anna2]

I doesn't seem to me that there are many bargains around - not yet anyway. Maybe the repossession / auction stuff is the way to go.

 

[Gerry Pridham]

Does it matter?

We have been invested in UK property for 16 years. Back in 1992, yields on corporate or multilet property were about 16% per year, and cost of borrowing was about 12% per year, and 75% LTV was pretty much the norm.

Fast forward 15 years to 2007, and yields were 6% and cost of borrowing was 6% (effective).

Here's some stats for those who think of being in this business for more than 10 years:

3 bed terraced in Ashton u Lyne - 1972 £3,250, 2006 £160,000
4 bed semi in Gatley - 1980 £28,000, 2007 £215,000
4 bed detached in Wilmslow - 1998 £190,000 2007 £575,000
2 bed terraced in Denton - 2002 £36,500, 2007 £102,000

Yes, it's true that we may be entering a period of stability or price drops, but investment in property is the sum of two components - net income from rentals, and capital growth from price increases.

Rent for a 2 bed terraced in Denton - 1998 £290 per month, 2007 £450 per month.

So much is dependent on the medium term interest rates, I don't think it matters if properties go up or down. In the longer term, they always go up just as inflation goes up. In 1972 a wage was £20 per week - now it's £500 per week. That's a 25 times increase.

 

[Paul]

Certainly inceasing opportunities in repossesion/auctions on the way.

...and more tennants to play with too (that wasn't supposed to sound sinister!)

 

[sqftmag]

With a good independent mortgage advisor, investors are still able to find a variety of mortgage products. Today's interest rate hold should not affect the buy to let mortgage products too dramatically.

 

[Paul]

Doom shmoom! It looks like an overall slow down in prices, but not a stall. Whilst the specifics vary across the country, Savills, the chartered surveyors recently forecast an average 3% growth - Higher than the 1% from the Council of Mortgage Lenders and Hometrack, but still a growth. Keep the old peckers up folks!

 

[AnotherPropertyGuy]

More downbeat expectations in the newspapers and general sentiment that a crash has now started...

Telegraph: Property returns plunge to IPD all-time low

Property returns plunge to IPD all-time low - Telegraph

Guardian: Housing market closest to slump for 15 years, say chartered surveyors

Housing market closest to slump for 15 years, say chartered surveyors | Money | The Guardian

 

[Gerry Pridham]

Hi again,

Not sure if the market has softened, or there's just less competition in buying, but I've just concluded this deal in the UK:

OMV £72K
PP £65K
Sale and rent back at £100 pw on AST
One year rent in advance on completion

I'm not exactly your experienced BMV investor, but on paper this ranks with the best deals I've done here to date.

 

[Gerry Pridham]

Telegraph: Property returns plunge to IPD all-time low

Property returns plunge to IPD all-time low - Telegraph

Keep this lovely information coming, and get rid of the million property investors, I say.

Extract from article:
This takes the total drop in returns (capital values plus rental income) since the property market turned last summer to 9.5pc

My business planning model for UK property investment:

Low stochastic is 3% capital growth and net rental income
Medium stochastic is 5% capital growth and net rental income
High stochastic is 7% capital growth and net rental income

If this is the worst it gets, it's still way above my highest stochastic, which means (for our portfolio) a return on invested capital of 18% per year. Roll on the retirement.

 

[AnotherPropertyGuy]

Extract from article:
This takes the total drop in returns (capital values plus rental income) since the property market turned last summer to 9.5pc

If this is the worst it gets, it's still way above my highest stochastic, which means (for our portfolio) a return on invested capital of 18% per year. Roll on the retirement.

The article says that there has been a drop in returns of 9.5% since June 2007. I read this as -9.5%.

For example, a commercial property had a value of £100,000 in June 2007 and it had rental income of £500 per month. Between June and December 2007, the property generated £3,500 in rental income but lost £13,000 in market value. So by December 2007 the property was worth £87,000. Hence a 9.5% drop.

Is that right? I don't think it can be as that is an almighty crash in just 6 months. So what does this 8.5% figure actually indicate?

 

[Gerry Pridham]

Hi Anotherpropertyguy.
The article is confusing in the way it presents its statistics. First of all, the first stat sentence says that overall returns have dropped 9.5%. that's no surprise because for the past five years, they have been somewhere between 25% and 16%.

Then he mixes residential with commercial and industrial and retail, and then throws in a mix of comment about returns in property companies (referring to share prices of property companies, but doesn't state whether these are builders or companies investing in retail, commercial, industrial or what.

Anyway, I am sure our primary interest is in the residential sector, and more useful information is obtained from Rightmove for up to the minute movements, then Halifax and Nationwide reports for actual completions albeit lagging the Rightmove figures by around six weeks, because Rightmove publishes asking prices and Halifax and Nationwide publish completion prices.

My prediction is that asking prices will soften only slightly, whereas completion prices will be the ones to watch, though they lag the movements in the market somewhat, they are what's important for longer term trending.

It may well be the case that property prices will drop this year, but that should be of no concern to anyone who has held property for more than three years (unless it's mortgaged to the hilt and the investor can't withstand a return to standard rate mortgages when the initial falsely low interest rate expires). We always say this is a long term business, and if prices do fall this year, it's more likely they will rise again next year.

 

[Paul]

As far as buy-to-let goes the news seems to be increasingly positive - Here's a few recent articles to that effect:

Landlords confident over buy-to-let future – aboutproperty.co.uk

Assetz® News - Buy-to-let feeling positive

Landlords enjoy windfall from global storm - Scotsman.com Business

Nationwide sanguine about buy to let - RL news

 

[Aegean]

I have just purchased a great new investment that I am getting my IFA to put into a SIPP.

It is a hotel room with a guarenteed 12% in the first year, no hassle.
After that I get 50% of the revenue

I have just sold a buy to let and this looks a really good alternative.

Quest2invest are the selling agents

If Harrogate or York good investment.

 

[Paul]

York is the 2nd 'safest bet' in the country according to Knight Frank!

 

[Fizzypopp]

A view from afar

I have been following this thread with some interest to see what the opinion is concerning the UK market. Our view is as it has been for many years that the market is being driven by false premises. Perhaps I am from the wrong camp. But as markets go in cycles and the real money people who make or break the wider picture are pulling from the residential markets in the UK there has to be a change at some point. Noting that 2 out of 5 employers are now for the first time in the last decade looking at substantial lay offs we will see the market alter slowly. The UK is still some 4-6 months behind the US and it has a very much higher reliance on credit to sustain the 'propping up' that has been seen by lax lending and over relaxed government control.

I can still see periods of hardening and softening as the market erodes. But overall as the UK has the inability to alter its economy from a service debt driven one into an export driven one it has little room for manouvering unlike the US that has vast resources both materially and manpower. The US will we hope alter its course over the next 2 - 3 years and start to get back some of its shape with regard to deficit control. Any controlling that Darling has to do if he has any morals will affect the economy greatly and very negatively

We are speaking to people / investors regularly and the consensus is at best to do nothing at this moment while they watch and wait.

Estate Agents who we have known for over 10 years say it is a very uncertain time and the view to survive is to diversify.

Paul

 

[propertyforum]

I reckon its just stalled. Property is still being sold and brought just not as much as this time last year.

 

[sqftmag]

DeeDee's answer get my vote!
Regards,
Michele

 

[Property Developer]

I see plenty of buying opportunities ahead for cash buyers. The big institutional money is starting to go back in at these reduced levels. There won't be another year like 2008 for a while. Fill your boots!!!

 

[overseas wills]

Re

I think this could be an interesting year for buyers but my concern is if the house prices fall and I believe they are falling how long will it take to get them back up again?

 

[Sanjay]

Hi,

Those in the market - keep buying AT THE RIGHT PRICE - as long as rental is strong - the buy to let model will work. My most profitable properties in my portfolio were bought.....in the last recession. The market will continue to grow as there is a dire shortage of property IN THE SOUTH EAST! - My opinion anyway