Prepare the war chest

It will be interesting to see how the property market behaves this coming year, with all the uncertainty that’s in the world currently.   

Of course, there will be the expected overall dip in prices in general, but what I’m interested in is what happens within certain price points and geographic locations.   

It will be very difficult for a simple BTL deal to stack up in the coming times, especially in desirable locations, as the yields in these locations tend to be low anyway; therefore, for it to stack up on a conventional mortgage will prove to be tough.  However, there will still be interest from certain investors, as they will be focused on capital growth, which will more than make up for the subdued yield.   

However, this will mean ordinary buyers will be priced out, and leaves the door open for cash buyers, those who have existing credit lines, and private banking clients, where yield tends not to be a consideration.   

Development projects will tend to go down the most in value because there are more moving parts associated with a project. This combined with a background of economic uncertainty is not a good combination to be occurring together.   

If a project takes say twelve months to complete, there is the risk of build costs increasing during this period.  You may say this is the builder’s problem not yours; it will be very much your problem when the builder walks off the project due to it being unviable.   

There is the issue of being able to sell or refinance the project at completion.  Buy to Let rates are floating at about the 4-5% mark at the moment; therefore, they may just about stack up if you manage to find a well yielding BTL deal.   

Although, I feel the interest rate is destined to rise, and in the short-term buying a BTL property as an investment may become unviable for many.  If you decide to keep the project due to being unable to sell, you may face the same issues in regards to refinancing; in fact, it may be a bigger problem, as the asset will be larger.  Therefore, the risk is higher and the Loan to Value lower.   

This means one is likely to be able to pick up good development deals, if they have the backing of a good builder and cash funds to weather any storm.  If this is your position it is time to go hunting; starting about now.   

The reason why I said earlier it will be interesting to see how certain pockets in the market behave, is I believe, there is a huge amount of confidence and appetite for property in the UK.  More so than the rest of Europe.  In bygone times during financial difficulty, prices in certain locations actually unintuitively increased.  Why? Because funds were better placed in a property asset in London rather than floating around in bank or any other investment.  In fact, these locations were seen as a very safe, safety deposit box, a viewpoint held not just in the UK but globally.    

Given the above, I have put an offer forward for a £4M development project, at £2.5M, after the agent was pressing me for one.  I smelt desperation, and therefore agreed to make the offer.  If he agrees, this will be a project which due to the buying price will be able to handle a few speed bumps along the way. 

Suresh Vagjiani
Suresh Vagjiani
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