Blinkered Vision

There was a lot in a recent auction guided for about £350K, in North West London.  From previous experience, when a property in a highly concentrated Indian location comes up, with a dangling carrot of a low guide price and it too at beginning of the auction, this has been by design; set to bring the herds in and pump the price up to double or treble of the guide.

Therefore, we dismissed the opportunity as a waste of effort.  The last property we geared up to bid on was a development opportunity, near Harrow & Wealdstone station, which was guided at £200K, and ended up selling for £375K, which makes no sense as the neighbouring property was on the market for £650K, and the build cost was £350K.

The only possible explanation I can think of was either someone wanted to keep their builders busy or they had a lot of spare cash to dispense with.

I never thought to actively track the property as it was dismissed as a set up.  A cursory glance only yesterday showed the property went for around £550K.  A colleague who owns several properties around the locality and even owns an estate agency across the road was of the same opinion.  He too was shocked when I shared the news.  He mentioned he knows someone who has a similar block valued recently at £725K, which sounds about right for this property.  This represents a discount of 25%.  Normally one doesn’t get a discount at this level in this location for a plain vanilla building.

This shows that although experience brings benefits, it can also serve to cloud and blinker vision.

Had I not had the ‘benefit’ of hindsight, and had gone into this deal wearing rose tinted glasses excited at the opportunity, perhaps there would have been a different outcome.

The fact it was allowed to go for this price, also means the reserve had to have been set a lot lower than it was worth.

The building consisted of a commercial on the ground floor with a four bedroom maisonette on the two upper floors.

An argument can be made that the added issue is the commercial borrowing rates have increased and therefore the expected yield needs to be higher to justify the investment, namely around 7-8%.

However I believe there is still a lot of money floating around in the market, including both cash buyers and still relatively cheap residential borrowing rates, for this not to be the overriding reason.

I expect there to be a turn in the market after January, where deals will become more common place, this will continue throughout 2023.

Suresh Vagjiani

Suresh Vagjiani
Suresh Vagjiani
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