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The Property Pyramid

In the current economic and political climate investors from many parts of the world are looking to the central London property market not just as a safe haven. Purchasing in London is often considered a means of keeping wealth safe in an asset which is tangible in a city in which investors can have faith in a robust legal system and relative political stability. For this and various other reasons London has more than once ranked top of the urban centres considered to be the most important by High Net Worth individuals. The last Olympics served to highlight London’s attractiveness on the world arena.

London also boasts some of the world’s best universities and some foreign High Net Worth Individuals are purchasing properties in London for children who are coming to study (presumably hoping to save on paying rent and make an investment at the same time).

London is no longer seen as just a place to keep wealth safe in times of uncertainty. Its appeal is widening beyond its safe haven status. Even whilst global threats such as the euro one and sovereign debt crisis recede, and the US begins tapering its stimulus programmer, transaction numbers have increased. There has been a surge of 37% in transactions since last year in prime central London.

However currently there does seem to be a mood of ‘let’s wait to see what happens’; the market seems to be slowing down, the average number of applicants registering with agents has decreased. And stock levels are increasing. The average viewings have increased by 70% before making an offer, from the same time last year. New mortgage approvals have also decreased for the last few months according to the British Banking Association.

The above is more applicable to properties priced at over £2m, this effect is yet to trickle down to lower levels, as prices are still currently rising in this segment.

There are clear signs that buyers are becoming more sensitive to higher priced properties in London. 

The general election in 2015 brings with it uncertainty, this serves to create uncertainty in the London property market.

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From a personal perspective things do seem to be cooling down, there are more good deals landing on my table than there were say six months ago. These tend to be higher value deals . Smaller stock is still selling for higher money than it should.

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A recent example was Lot 13 which sold in the Savills auction on Monday morning. The property was a one bedroom, 10th floor ex council property in a tower block in Maida Vale, requiring modernisation with a long lease. Similar properties are on the market from £450k. We were prepared to bid up to £370k on this property as a long term hold. The price through fierce bidding went way over the guide price of £290k, it went at £436k. This little litmus test shows the market for smaller value properties is still strong and selling for silly money.

Perhaps there is some reason as to why the market is behaving this way. The traders and heavy long term property veterans don’t tend to focus on the small BTL segment of the market. These are more for the ‘want to be’ landlords and novice investors, those who get inspired by the daily dosage of auction programmes.

The more sophisticated investors who have weathered through previous downturns are more able to detect and are more sensitive to signs of downturns in the property market. These are likely to have accumulated more wealth and therefore the sign of cooling will be seen higher up the property pyramid; and not in the lower ranks where most of the buyers reside. Here there exists a herd mentality where prices are driven often simply by the fact that other people are buying therefore I must also be buying.

It is prudent perhaps to pay attention to what is occurring in the higher echelons of the property market rather than how the common man is behaving. With elections looming next year this could be the start of a dampening of prices.

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However one must get things into perspective; this is property. A crash in the property market, is not actually a crash. It’s often a temporary softening of prices. What using words like this does is serve to keep most buyers and investors at bay at a time when they should be actually going into the market and not sitting on the side lines.

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Our strategy in the property market has been more of a hit and run type, where we are typically exposed to the market for two three months maximum, often selling on prior to completing the deal; this allows us to ‘ride’ the market.

In a rising market this is obviously a good thing because the prices have been increasing almost by the minute, so even if you negotiate a long completion this could be enough for you to have an increase in price by the time you complete.

The game is now changing, and this is perhaps not the best strategy any longer. In the lower rungs this may still be going on especially at the £1m and below level, but for how long is the question. Perhaps at this level the market will carry on rising after all the demand is not dependent on only one source, there is enough going on around the world for he London property market to still act as a magnet for inflow of funds.

Certainly when purchasing at higher levels, a greater sense of discernment is required which is no bad thing.

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This is actually the ideal back drop for picking up serious deals which are below market value. It is well known by behavioural psychologists that investors weigh the equivalent downside risk a lot more heavily than the potential upside risk.

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When there is a sentiment of pausing for breath in the market, this is when the deal flow increases and the takers become limited. The investors who made serious money in property are those who purchased in 2009 when most of the market was sitting on the fence. They have benefitted from the natural uplift in the market till now.

The Real Deal 

South Hampstead, London, NW6

Purchase Price: £2.5m

  • A spacious beautiful property in an excellent location
  • Very high ceilings
  • Communal gardens
  • Close to the leisure facilities of Finchley Road and Swiss Cottage
  • Planning permission in place to convert it into two flats
  • Expected resell value after conversion will be around £3.6m

Call us now to secure this deal!

Suresh Vagjaini

Sow & Reap

A Property Investment Company

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!Tips of the Week

If you find a really good investment property don’t rule out the opportunity to buy it before the auction. Many sellers will be happy to do a deal.

As with any business venture it is always wise to have multiple exit strategies; property has this naturally, instead of reselling you can refinance and rent.

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