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The Brown Pound

11th August 2021

A property in the Auction, which I had my eye on for a client, went for a tidy sum of £331K.  It was a site in Harrow Wealdstone, with planning permission in place for a commercial on the ground floor and two residential flats in the above two floors.

There exists a direct comparable for about £675K; therefore, you take off your expenses, build cost being the largest, and you’re left with your profit margin plus the price you will pay.  We had a builder visit the site and give us a rough quote of £300-350K.

Without even considering stamp duty, cost of funds, and professional fees etc., it is difficult to see how the price paid can be justified.

This site is not just the plot of land for the proposed building, but also attached is a crescent shaped piece of land which sits on a parallel road to the building.  There may be planning opportunity on this piece of land too, but this is speculative.

In order to scarper this sale, the neighbour (who also, it transpired, wanted to purchase this plot, but for dirt cheap) tried to disrupt the sale by claiming they had a right of way on the land. There are legal documents in the auction pack alluding to this.

After speaking to the seller’s solicitor and another one just for good measure it was obvious there was no substance to this claim, and it should not pose a problem going forward.

As part of our due diligence involved in this potential transaction, I spoke to the architect who drew up the scheme, the lawyer, and attempted to speak to the planner.

Due diligence is a little like being a detective, one needs to build up a picture as to who the current sellers are, why they are selling, what was the reason they bought this site 18 years ago yet didn’t do anything with it.

This then alerts one if there are any issues which raise alarm bells.  No alarm bells were raised, the picture made sense in my mind, hence we decided to bid.

So, the question arises, why did someone seemingly over pay for this?  Is it that we had missed an angle?  Perhaps in relation to the crescent part to the rear?

Perhaps the buyer was a builder, and simply wanted to keep his builders busy; as if you do not you lose them.

Harrow has the highest concentration of Gujaratis in the UK.  Many like to purchase in their locality simply because they live there.  Perhaps this was the likely motivation for the buyer.

This would not be the first time this has occurred.  Back in late 2018, we sourced a site in Harrow on the Hill, on behalf of a client.  The price paid was £705K.  Our target was a lot lower than this price, and in truth if we were bidding on behalf of the client we would not have paid this much for the property.  However, the client (who is a seasoned investor) attended the auction by himself.  He was a Gujarati and the chances are he was bidding against other Gujjus, and therefore the price ended up being over inflated.  There is a saying ‘one should grow your flowers where you can water them’ but this is taking it to the extreme; it doesn’t mean you must only invest on your doorstep.

In this instance we managed to find a planning angle which has now been obtained, despite being in a conservation area, and despite local opposition.

We will be keeping an eye on the Harrow Wealdstone site purely for R&D purposes.

Suresh Vagjiani

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