Outlook for 2012


As we enter the New Year it is natural to enquire what’s in store for the property market in the coming year.

Recapping a little on 2011 will give an indication of which pockets of the market are resilient and have been shielded from the turbulent times we have gone through in recent years. 
Interestingly the auction results have been fairly strong especially for sought after locations where prices achieved have been higher than would have been through a sale via an agent. One recent example is of a one bedroom period conversion in Bayswater, described as being on the 3rd and 4th floors but in actual fact was only on the 4th floor, the 3rd having only the staircase leading up to the 4th floor, giving the false impression it is a duplex. This was on a fresh lease of 125 years. The property sold for £410,000 on the 15th December 2011. Traditionally December is one of the quietest times of the year for property. This small example illustrates the power of location.

In trying to foresee as to which way the market will move in 2012, let’s see what the commentator’s say:

Nationwide last Friday reported a fall in house prices for the first time in four months. Robert Gardner Nationwide’s chief economist says next year isn’t shaping up to be much better than 2011 for the UK economy and the housing market adding prices will move either sideways or modestly lower as the UK economy struggles to gain momentum.

The Nationwide figures did show London and nearby boroughs have performed better than the rest of the country.

According to Zoopla the number of properties worth £1m+ has grown by 26744 since the same period last year with London registering the biggest increase with 18% more homes worth more than £1m.

There is a consensus where commentators agree the gap between prime property and the mainstream market will continue to grow.

One thing is clear we are operating in a two tier market, one is central London and the other is the rest of the UK. Of course you have pockets where the growth remains solid and deals are hard to come by regardless of the economic climate notably Asian dominated areas and Jewish areas seem to hold their value well because both of these sectors are astute with their monies and also tend to purchase close by to where they live – currently because of their emphasis on extended families. Woking in Surrey had the biggest average rise with prices at £299,654, up from £257,590 a year earlier.

Overall the verdict is this year for property will be a shaky one, but bear in mind this is the year of the Olympics and therefore you have what’s known as the Olympic effect which will serve to counteract the downward pressure of the economy.

It is clear central London will still have the most profitable growth prospects and is seen has a safe place to put your money in times of economic uncertainty not just for UK investors but throughout the world.

And let’s get things in perspective, though different types of investments are discussed in the same way this is not any investment, this is property we are speaking about not some paper asset company on the stock market whose price can go through the floor and disappear along with your money. A ‘crash’ is usually defined as a drop in price of 15-20%. After all a property simply cannot disappear – it is impossible.

A favorite saying of mine is buying a dud property is like have a bad haircut if you wait long enough it will always grow back.

Another point to bear in mind is if you purchase purely for cashflow and have no intention of selling in the short to medium term or perhaps ever then what relevance in the price fluctuation? As the only time price applies is when you decide to cash in. Therefore if this isn’t in the next few years the price drop in one sense is irrelevant as long as the monthly income is coming in.

A real life example of this is a property priced at £275,000, which we sourced for a client recently, has been rented for £430pw generating £22,300. A deposit of £100,000 and a borrowing of £200k was required to purchase the property. Assuming a 5% interest rate would give an interest payment of £10k this would mean you have a net income of £7300 even after allowing a generous £5k for expenses. Here the intention is to keep the property as a cash cow.

The Real Deal

Real life examples from the street bought to you weekly.

It may not always make sense to sell given the purchasing cost involved.

Recently we picked up a studio for a client priced at £235,000 a relatively large amount of £30k was spent on the property to do it up to a high spec. The original aim was to purchase, develop and resell. The client had dipped their toe in BTL previously and were by no means experienced property investors. The last property bought was for their son who was at university, rather than renting they thought why not purchase instead. A common misconception in my opinion, better to keep the two objectives separate, otherwise you will not achieve the best returns. Luckily on this occasion they resold with a modest profit.

The property we sourced was a studio in the plush areas of Maidavale, acquiring the property was no easy task as it was a repossession and these have a tendency to attract offers just as you are about to exchange. We managed to keep the deal together and the property was purchased.It was bought with a redemption free mortgage to allow resell without incurring a penalty from the lender.

The property has a current market value of between £300-£325,000. However on closer analysis when we done the figures it did not make sense to sell it. Buying and selling property means the cost of buying and selling gets taken off your profit margin which in this case is about £18,500. People often forget this is not the only option to release equity. You can refinance and take out 75% of the property value, and keep the property rising in value for you. Because of its location it will rent like a hotcake and we believe properties in this location will still continue to rise into the coming year. It seems the best scenario is to keep hold of the property. This allows your money not to be buried in the property and to keep progressing.

The Victorian House

We will be running a weekly column on educating our readers on Victorian properties as it has been one of the most common type of property in England, yet apart from the name no one seems to know much about them. 

The Victorian house takes its name from the reign of Queen Victoria who ruled from 1837 to 1901. The main impetus for building prolifically during her reign was the increase in population which doubled between 1841 and 1901. Compounding this was the break down of the extended family in England where the family nucleus became smaller and more numerous. A similar theme is occurring now in India, as she marches to economic prosperity.

The other reasons were the rise of steam power trains and mass production methods – this happened in a much larger scale and at greater speed during this period.

By 1867 there were 13,500 miles of railway in the UK which carried the cheaper and better building materials throughout the country at less cost than canal or sea, which were the common routes of transportation at the time.

Britain managed to build a huge empire during the Victorian period. It was also a time of tremendous change in the lives of British people. In 1837 most people lived in villages and worked on the land; by 1901, most lived in towns and worked in offices, shops and factories so this was a period when massive urbanization took place. Again we can draw a direct parallel to India where the population is swapping the fields and the bullock carts for literally a Porsche and the city lights, and this is Ahmedabad I am writing of!

Suresh Vagjiani

Managing Director

Sow & Reap

A Property Investment & Financing company.

Suresh Vagjiani
Suresh Vagjiani
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