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SHELTER NOT SPECULATION

4th August 2018

We have been researching an area in South East London, for which we have compiled an 18 page report.  In short, we think property in this area will grow massively over the next five years.  Crossrail is coming into the area in December this year, which will put Canary Wharf within 11 minutes and Bond Street within 25 minutes.

The town we are looking at is a sleepy place.  Having visited there several times, it seems that the place is completely oblivious to the impact the Crossrail will have on property prices.

Sure they know Crossrail is coming, and prices are set to increase, but it seems completely out of their radar as to the actual impact this will have; as they have never experienced it.

There is another big point to take note of.  The area we are looking at is the last borough in London where the average property price is below £300,000.  This is an important criteria for signalling growth, as this price point puts properties within reach of first time buyers.

The average income of the first time buyer is said to be £25k.  Therefore, a couple can qualify for a mortgage of £250k.  Combined with a deposit, this means properties below £300k are within the range of affordability.  This is the last of 33 boroughs in London, where the property prices are at this level.  All other areas which were below this threshold have experienced tremendous growth.

When we look at this sector, we are not dealing with investor speculation.  We are dealing with a fundamental need for shelter.

If we examine the supply of housing, in 2007 the Labour government set a target for 240,000 homes to be built a year by 2016.  We are nowhere near this target.

It is bizarre to note, that for decades after World War Two, the UK used to build more than 300,000 new homes a year.

Over a decade ago, the Barker Review of Housing Supply noted that about 250,000 homes needed to be built every year to prevent spiralling house prices and a shortage of affordable homes.

This target has been consistently missed, the closest the UK got was in 2006-07 when 219,000 homes were built.

The consequences are said to have been rocketing prices in London, the South East and some other parts of the country.

This assumption, however, is highly questionable.  Prices have gone up due to a more fundamental reason.  The issuance of fiat currency, where money has been printed without restriction or any backing, and released into the economy either through debt based instruments or equity.  This is the real reason why house prices have been rising on average at unreasonable levels.

It’s clear the supply is severely constrained, and even if it wasn’t, it’s highly doubtful and dubious that property prices would be in the realm of affordability for the average buyer.

This is why areas like the one we have been researching are going to be very lucrative in the coming years.  They deal with a need at the bottom of the pyramid.  This area just happens to be a recipient of one of the largest infrastructure investments the government has ever made.

Get in touch if you would like to find out more.

Suresh Vagjiani

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