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The North South Divide

24th February 2018

My trip to Birmingham last week proved unsuccessful, as far as the auction goes.  I chose to not attend for various reasons, just as well, as the prices went way above the guide price.  For example, one property which was guided at £55k went for £134k.  A local agent said the price will go through the roof and predicted it will sell for £80k, however, the price went for two and a half times the guide price.  This sale has raised the ceiling on the street for prices sold.

The reason why we did not go for this property was not driven by the price, but because we would have been unable to accommodate enough rooms in the property to push the yield up.  The council has a policy in place for a minimum size, which they enforce with vigour.

The second property we had earmarked, was a large house with six flats within it.  Generating £28k per annum, and guided at £250k, it went for £424k.  We ended up rejecting this one due to its grading on the EPC.  Any property which has a rating below an E standard on the EPC report will need to be upgraded.  You will not even be able to renew a tenancy until this has been complied with.  This property had F and G ratings on its flats.  Judging from the owner who was present at the viewing, it seemed he had run out of money which perhaps prompted him to put the property in auction and secure a sale in a timely manner.  It seemed the property was due to suck up a large amount of cash very shortly.

It’s clear there is a lot of buoyancy in the Birmingham market, and the yields currently seem to make more sense here.  We still intend to close a few deals here, as there is both yield and future capital growth potential in this location.  We are working away to make this happen, and I am sure in time we will close; however, it needs to be the right deal, without any future surprises.  Hence the trepidation, and perhaps a little procrastination.

Closer to home, we are looking to close three deals in tomorrow’s auction.  The lots are all short lease properties in prime central London.  One is 14 years, another is 16 years, and the third is 68 years.  The price for the 14 year lease property has been guided at £190k.  You can look at this deal and say this is not a property, it’s a tenancy for 14 years; and you would be right.  However, there is one important point which changes this perspective, and this is the Leasehold Reform Act, which allows one to extend the lease after it has been owned for 2 years.  This right can also be applied for and passed onto an incoming buyer.

It is almost hard to believe two hours north and you can buy a whole freehold house for the same price as buying a short lease flat.

The dampened environment means you can put a good case together for a low extension of the lease.  The client we have lined up for all three properties is in the process of completing a couple of lease extensions already, and so is very comfortable with the process and the lucrative nature of lease extensions in the current environment.

The lawyers are checking through the paperwork, with a view of reporting back later today, and hopefully bidding on all three properties tomorrow.

Suresh Vagjiani

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