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Smaller bites, easier to chew

23rd December 2019

Over the weekend I went to show a large stately home in the commuter belt countryside.  I have been aware of the property for a few years, but never had the need to see it as it’s not really our bag.

However, a chance meeting with some Mumbaikar Indians changed this.  They were interested in previewing properties for a wealthy family to view.

The property was as expected, plush.  It has even won awards.  It is set in 40 acres of green English countryside.  On the day we viewed it there were deer bouncing around the estate.

The inside of the property was stunning, as you would expect with a property with a price tag of £36M.

This property was developed originally as an investment.  It took many years to piece together all the various pieces of land and to obtain planning.

Going into large developments such as this is not for the faint hearted.  Your figures can be thrown out by years, things of this size rarely go to plan.  The larger the lot size the stronger the opposition to it.  And while it is not sold it is a drain on your cash flow and your money is buried, not doing very much.

This end of the market is first affected in the event of a downturn.  Hopefully given the recent election result, the backdrop is now secure to close a sale soon, perhaps even from our recent viewing.

The problem with taking a big bite from UK real estate is it may cause you indigestion.  Small bites which you can chew well on is a far better proposition.

This statement is of course relative to the location.  £750K is a lot of money in say Wembley.  You apply this amount to Bayswater and you’re close to the bottom of the pyramid.

This is where we are focusing on now.  Both small properties on the residential side which satisfy the need for housing, and very stable commercial deals which are in strong locations with good covenants.

There is one spot in South East London where we have done several small deals and will continue to do so.  The yields are circa 5% and we believe there is strong long-term growth in this location.  This is backed by our in house in depth report which goes into the fundamentals as to why this wave is just about to rise long term at a steady pace.

We will also be bringing out a development for sale shortly, close to the Crossrail in Slough.  These units will be priced at £250K – £300K.  There are two fundamental reasons why these properties will have good long term growth.  One is they are below the £300k threshold.  This means they are in the realm of affordability for a couple who are looking for somewhere to call home.  An average couple will earn £50K combined, this entitles them to borrow £250K from the bank, this together with a deposit means they can afford up to £300K.

This is one very strong reason.  The death of the £300K home in London has been written about in many news articles.

The other is the effect of Crossrail, when it finally opens, this will ensure connectivity into Central London is strong; this will drive property prices upwards in a sustained manner.

Suresh Vagjiani

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