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Gherkin causes a pickle

I met an eccentric mad professor on a recent trip to Glastonbury, unsurprisingly he designed robot arms for a living. He in turn asked what I do and then we started speaking about property. He hasn’t really focused on buying any property but realised the need to do so.

His business has been doing well and running for over 20 years with orders coming in from all around the world, people wanting robotic arms designed for a variety of weird uses.

He has been coming to Glastonbury for just as long as he had been running his business. Ten years ago he decided to invest in a property in Glastonbury, which he purchased for £140k. The current price of this property is now £175k.

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It’s done a lot better than the property I purchased in City Centre Birmingham. It was sold by a sourcing agent who reportedly had a 15% discount off the ‘market price’ of £165k, this comes to £140k. This was bought about 12 years ago, with no money down apart from the legal fees and sourcing fees. I was told to put these fees on a credit card and then transfer it to another credit card therefore qualifying for a 0% rate for the life of the transfer.

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This was in the good old days of bountiful credit.

Birmingham was ‘sold’ as the second city of Europe with its new shopping centres and the new speed Rail link and the development which was occurring all around the town.

So with no money down I had bought my first apartment. It rented quite quickly for £650pm, every time it gets empty it rents quickly, for £650pm! For twelve straight years the rent hasn’t increased! We got lucky once on a corporate let of £750pm but that was the only fluctuation. After the mortgage and the service charge it was an investment which swallows money rather than produces.

The property is currently worth £135k. So over a 12 year period it has decreased in value. This deal made what my new friend had done pretty impressive. In actual fact his deal wasn’t sooo bad, I assume he would have put down the usual deposit of 25% this equates to £35,000 so a return of roughly 10% per annum on the money he’s invested isn’t terrible. It seems his purchase was done on the basis of sentiment.

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Unsure how great Birmingham City is, however its growth hasn’t reflected on this apartment very well. The property is slap bang in the City Centre so one would expect any uplift in the city to be reflected in the price of the property.

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Most investors purchase close to where they live purely out of sentiment, with some vague notion that their off spring will one day live there and the perception the investment is easier to control. The other popular idea is to purchase the property next door to you as soon it comes up for sale. Why?

When you analyse the reasons they do not make any sense, apart from some emotional or sentimental reasons, which have no basis in reality when you look at it from an investment point of view.

Price is dependent on supply and demand, if the demand rises and the supply is fixed the price rises. You could pretty much assume the supply of property is almost fixed, since they aren’t building very many more.

Therefore two things could have happened with regards to the Birmingham property, the demand is not there and supply is fixed, or there has been an oversupply of property and the demand is static or a combination of the two.

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My inclination is there simply isn’t enough demand to justify a price hike in property prices.

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In stark contrast to this is the demand for the Gherkin which has come up for sale this week, where upwards of 200 parties have registered their interest to purchase this iconic landmark building which is on the market for £650m. This means there is in total £130bn from 40 different countries chasing this one asset; there is no comparison to this asset probably in the world.

The countries leading the bidding are from Asia, in stark contrast to when the building was put up for sale in 2006 when there was zero interest in the building from Asia. Then the interest came from North America, Germany and Ireland, this time there was no interest from the Irish.

There has been a dramatic shift in the buyer profiles, in a relatively short time of 8 years. This is testimony to the global appeal of the London market. Even if one sector goes down the demand is variegated enough to allow another sector to pop up and fill its place keeping the overall demand robust.

The building is a receivership sale, it is owned by two parties Evan Randall being one, they are trying in a last ditch attempt to raise finance and come to some agreement before an interested party comes in and snatches the deal away from them.

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A clever approach I would have thought is not to approach the selling agents Deloitte and Savills who have been appointed by the lender, and instead approach the existing owner and work out a refinancing package. This way the interested party would circumvent all the other 199 interested parties and the agents, who probably have a short list of their preferred buyers.

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This would involve more creativity but would offer a sure chance of grabbing the asset away from the agents.

There is nothing to say you cannot refinance at any point before the property has been sold. This is a very good method to grab back assets which have reached the hands of the receiver.

The Real Deal 

St John’s Wood, London, NW8 Purchase Price: £1.35m

  • A large three bedroom flat in a beautiful block
  • Very long lease
  • Great natural light
  • Near High Street
  • Around 1,150 sq. ft. area
  • Requires modernisation
  • Very good long term buy and hold opportunity

Call us now to secure this deal!

Suresh Vagjiani

Sow & Reap

A Property Investment Company

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!Tips of the Week

Research the market: Before investing in a property do proper research about the market and growth prospects. But remember the internet has its limits, nothing beats local knowledge.

When trying to sell your property try not to put it on the market during holiday seasons. Your property may not easily sell during this period and after sometime it may become state.

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