15th July 2017
Currently we are focusing our energies on a couple of land deals. I went to see one of them on Friday to get a feel for the area and the local village. I was pleasantly surprised. You get blinkered working in London, and tend not to see anything of substantial value outside of London. There is, however, some reason for this, as when there is a decline in property prices, London holds its prices far stronger than the rest of the UK.
However, the market is shaky at the moment, especially above the £1m mark and it seems this current environment of instability will last for at least a couple of years.
This deal has two deviations from our norm, it is outside of London and it is a land deal.
The village, which is only a few minutes’ drive from the site, shows affluence, character and is family focused, in that the properties there were large and substantial; unlike the collection of studios and one and two bedroom flats you find in London, which is reflective of the breakdown of the family nucleus.
The kind of cars you see in the village are also symptomatic of wealth, all of the £50k plus variety.
We often speak of property rising in value, when we say this we do not really mean property rises in value. Of course you have inflationary pressures on the costs of construction, however, what is really happening is the underlying land is going up in price.
The price of something is determined by only two things, one is supply and the other is demand. The supply of land is finite, you cannot create anymore.
Fundamentally it is the land which is scarce and rises in value. This is demonstrated by buildings insurance policies. The reinstatement value is the same, irrespective of where the building is; although it may be slightly more expensive due to parking and working restrictions in some locations, but once you take these out, the construction costs will be pretty similar.
So, the conclusion is, it’s raw land which has the value. Especially considering we are on a very small island to begin with.
This piece of land is located in the north, just slightly to the east of Aylesbury; and it is just outside of the village, which seems to be bursting to expand.
The financials are very strong. The purchase price is £4m, and the post planning value is expected to be at least £10m.
The chances of getting planning are very very strong. Our architects and planners have been all over this deal, and they are of the opinion it will be granted.
The most money to be made on property is not on development but on planning; especially when you view this from how much work is required in comparison to the output you gain. Planning in essence is paperwork, no construction work is undertaken.
This deal represents a chance to come in right at the outset and take the cream. The structure of the deal is also very favorable, only £1.5m is required and the rest is payable on planning. This is important, as when planning kicks in so does the lending. This mean the rest of the money will probably be provided by the bank.
The contracts are in and the deal is ready to be executed. If this sounds like your cup of tea, get in touch.
Suresh Vagjiani
