Investment or insurance

Last week we registered to bid at an auction; cleared all the anti money laundering requirements, signed the terms and paid the deposit.  Very different to a decade ago when you could rock up in a cab, wave your umbrella, and even pay the deposit in cash – possibly!   

We now operate in a parallel world simultaneously as the 3D one in which we exist. 

Our lot was in the last quarter.  In a physical auction the crowd thins considerably as the day goes on.  Online however, with the ability to bid from your phone, this trait may have disappeared.   

The lots were all going way above the guide price, crazily above it.  This was a lot we were bidding for on behalf of a client who was dipping his toe into property for the first time, at a young age.  The property went for more than treble the guide price.  And the overall figures for the auction was a sale rate of 86%, raising over £30M.   

From this instant snap shot of the property economy, it sure didn’t seem like the UK economy was struggling or on the brink of a war which has been in the making for the last few years.   

This is pretty similar across the board.  An auction is a good and accurate assessment of where the property market is at.  Normally with comparables they tend to be inaccurate and outdated by their very nature.  For example, if you use a comparable of a sold property it may be three months old, the deal may have been agreed about six months before then, this means now this piece of data is nine months old.  As recent events have shown in nine months the world could be in a very different zone.   

The auction day is the actual day where the deals have not only been agreed, but also executed.  In property there is a large gap between agreeing a deal and it actually being executed.  Auctions are as instantaneous as is gets, the deal is agreed and instantly executed.   

The appetite for property has only increased in the UK, as time has gone on.  I’m wondering perhaps the sentiment is that investors are not shying away from property but they are utilizing the current market conditions in order to get bargains.  And when they come the appetite for these types of deals is very strong.  Property at various times of economic uncertainty has been seen as a safety net, an insurance against the uncertain back drop; and for wealthy overseas buyers, a safety deposit box.  Somewhere safe to park your funds, until the storm has passed. 

The general sentiment is prices are dropping, bearing this in mind, the auction results are counter intuitive.  There are two possible answers to this: one is the auctioneer only takes on properties where the reserve is sufficiently low enough to result in a sale.  The other is BTL rates have recently dropped to reasonable levels; not in comparison to the honeymoon period which we have had for over a decade, but historically.  Therefore, from a yield perspective it is justified to hang on to a property for five years where the rent can cover the 3.99% fixed for five years rate.     

Suresh Vagjiani
Suresh Vagjiani
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