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Come rain or shine, the deal’s got to be done

On Monday morning there were mass travel issues due to the harsh weather late night. One of my colleagues left home at 7am to get to the office early, instead he arrived at 9.30am. Public and road transport were both delayed.

What’s the relevance of this to property I hear you ask? Come rain or shine there’s an auction on this day; the Savills auction. Whether the room is full or half empty it will take place. Price is determined by demand and supply, here the supply is Lots for sale and the demand is based on the number of people who turn up for the auction and the phone bidders.

The good thing about auctions is the sales happen there and then; once the hammer has fallen the property is sold. It only takes two buyers to drive the price up and only one of them has to stay at home for the price of the property to be low.

Currently we have a property market which is heating up and this is even more so for Central London properties coming up for auction, where prices currently will be going up almost exponentially.

I know a dealer who regularly disposes his properties in auction to achieve a higher price than you can get from agents. However on a day like this where the flow of buyers will be hampered it pays to make the extra effort to attend. If the train and car won’t get you there on time then jump on a bike if necessary! This will get you there on time and who knows you may pick up a bargain.

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The year 2012 was when we had the Olympics, it was also the year of the Queen’s Jubilee; at one Allsops auction in May the turnout was really poor, the room was only half full. This is in stark contrast to times when the doors in the auction room had to be closed due to over capacity.

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During this time we were in the unfortunate position of selling a couple of Lots in the auction. One, a block of 4 flats in Harlesden; the other, a block of three flats in Shepherd’s Bush. We were hoping to dispose of both prior to the completion dates which we had agreed for three months.

The block in Harlesden didn’t sell during the auction. One of the parties approached me privately and done the deal at £700k under an auction contract. This was still cheap, I later learned they had sold the block on. The other block didn’t sell, we had an offer of £600k but refused it as £650k was our bottom line. The same property is now selling for £921k without any work being done on it or money spent on it. So what changed? The market has certainly heated up but this was a deal even at £650k, simply the crowd was not there to bid the prices up. This is a 40% increase in just over a year.

We had purchased the pair of properties at £1.25m and were aimingto sell prior to completion by dumping it in the auction, however the timing was wrong. The demand was either on holiday or focusing on the Olympics and the Queen’s Jubilee. It should have been foreseen given what was going on in the country, everyone seemed to be in holiday mood.

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These were both excellent deals and they should have been picked up. We were on the wrong side of the fence on this auction as sellers and not buyers, however it taught me a valuable lesson. Timing is everything and it pays to know which factors can disrupt the attendance at auctions; bad weather being one.

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So, when the weather is bad all the more reason to attend as there’s a chance you could end up with a good deal.

We are currently at the beginning of a spike in property prices more so in the Central London region, not that this will be the only hot spot. I believe areas like Ealing and Shepard’s Bush will be going up heavily in the next 2-3 years. Naturally there will be a seasonal lull in prices over the Christmas period, after this time prices will begin their rise being boosted by the government Help to Buy scheme, which will be rolled out in January 2014.

Lending has increased currently, brokers are busy again and valuations are taking longer. This is a sign that prices are going up. It’s worth taking note the credit crunch was a shortage of credit, this is what led to a decrease in house prices. There is still a fundamental requirement for property in the UK this is highlighted in the Barker Report commissioned by the government in 2004 which points to a fundamental lack in the housing supply.

Also this quote taken from The Housing Report November 2012 by the National Housing Federation, Shelter and the Chartered Institute of Housing highlights it too: “DCLG has updated previously published data on the number of new homes built overall in 2011, providing an adjusted total of 114,160 homes – up 7% on the previous year. As was noted in the last edition of The Housing Report, while this increase was welcome, the 2011 figure remains the lowest annual total of any year – aside from the 106,720 in 2010 – for more than six decades. The numbers of new build starts appear to be far from healthy, hitting 23,510 in the three months to the end of June 2012 – down slightly from the previous quarter, and down 30% since the Government took office.”

Enough houses simply aren’t being built. While housing supply has fallen, demand has increased. We now need to build at the rate of at least 250,000 new homes a year to match the annual population growth, and at an even higher rate to replace our ageing housing stock and meet the accumulated backlog.

The Government has helped with its Help to Buy scheme, but this alone will not be enough to stimulate the lack of supply. This shortage of property is good if you’re an investor. But the high level of demand means it’s difficult to find deals. But this also means you’re more likely to benefit from future capital growth.

 

The Real Deal

 

Ealing, London, W5

Prime Freehold Retail Parade

 

 

Investment Considerations:

  • Ealing is a prosperous west London suburb
  • Close to the proposed Crossrail station
  • Unbroken four shop parade
  • Producing £183,000 income per annum
  • Purchase price £2.4m, quick exchange required

Suresh Vagjiani

Sow & Reap

A Property Investment Company

 

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!Tips of the Week

Control your emotions. When it comes to an investment property don’t consider this emotionally; keep buying to live in and buying to Let separate.

The return on property can only come in two forms, one is capital growth and the other is rental income; there is no third way. But capital growth is how you canmake most of the money and this is driven by location.

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