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Going against the grain

14th April 2020

The current environment is certainly conducive for buying.  Fear causes instability, and irrationality, this gets reflected in the property market.

When people are fearful it leads to pessimism, which means they weigh losses much more heavier than the equivalent gain.

This make them irrationally more fearful of getting a loss.

The deals are almost in plain site.  The first step is to take a view on the market which goes against the grain of most of the market.

There is an added problem in this environment which is unique.  Ordinally, if there was a down turn in property values, one could take comfort in the rental yield which stays robust, and at times increases in down turns.  The rationale being people need a place to stay; if they cannot purchase they need to rent.

However, currently we do not have the comfort of a tenant and rental income. Therefore, you could purchase something which cannot be rented and may stay vacant for many months to come.

This whole saga can be viewed as a temporary blip when contrasted with the London property market.  You have to look at this in perspective of the grander framework.  We are looking at a 500 year old mature property market.

The robustness of the residential sector can be demonstrated as follows.  It’s been attacked with rounds of stamp duty hikes and a completely unreasonable form of taxation.  However, is still survives and thrives.

Looking at the fundamentals, there is simply a housing shortage in this country which is not and will not be satisfied.  In fact, recent events will compound this issue.

It’s with this perspective in mind that we feel this is a good market to purchase in.

We have exchanged on two deals, on behalf of clients, this week; which we will be featuring shortly.  You will need to get comfortable with purchasing blind, or with a video of the property if you’re lucky.

The two we purchased were bought extremely well.  The kind of deals which people will look back on in disbelief.  Too good to be true they will say in times to come.

In truth, they were available in plain sight.  However, there are a few angles to them where we expect to be adding value.

There are many more to be had.  There is no guarantee of a capital uplift, so when you purchase a deal it should be bought on the basis the potential yield is strong, despite my earlier comment regarding yields.  In my opinion, the rental element will bounce back quicker and closer to what they were previously, than the capital values.

If you purchase a property on the basis the yield works, then the capital uplift will be a bonus.

At some point this surreal science fiction like episode will run its course.

We will be left with the stark reality, which is there are more people requiring homes than there are homes.

One of the deals we purchased is a commercial.  On commercial you benefit from the decrease in stamp duty.  There are also some very interesting things you can do which circumvent the planning process.  They can be done under permitted development.  This is a process which is laid out in legislation and has very tight parameters and also a time period.

The concept of the investment is to add enough value in order to return the clients money back to them, and then leaving them with the property for ‘free’ or get as close to this idea as possible, meaning very little of the original funds are left in the property.

Suresh Vagjiani

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