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Why Aim For Red, When You Can Go For The Bull’s Eye

29th July 2017

Over the weekend, I met a very old client who had done some mortgages through Sow &Reap many years ago.  The properties were bought pre credit crunch, and they had matured in value very nicely.  There was plenty of equity on them.

This particular client had done what most people do, which is they tend to purchase in and around where they live.

There is comfort in knowing the streets and to keeping investments local, and if you’re Indian and if there’s a problem you probably know a relative who can fix it.

So, inevitably I get an email to ask my thoughts on a property in Neasden.  It was a house for half a million, not really discounted, and perhaps there was the possibility of an extension which could be done to add some value.

The reason for this decision was purely because the property was local, and perhaps freehold too, and nothing more.

The objective of an investment is to make as much money as possible within the shortest possible time.  This is driven by only two factors.

One is supply and the other is demand.  The demand for local properties tend to come from the local population, which in the North West London areas such as Brent and Harrow tend to be “Brown” people; and hence these areas have done very well, as they tend to be savvy with their money.

The supply of new properties can be increased, but only to a limited degree.  Offices can be converted, homes can be split into smaller units, and perhaps some brownfield land can be released to build new homes.  Fundamentally, the supply will not keep pace with the demand.

If we look at the same dynamics in Central London, the supply is almost fixed.  Meaning it is hard to find instances where extra square footage is actually added.  The majority of developments will be conversions from big houses to smaller units, and office to residential.  The scope to build extra square footage is very very tight, meaning the supply is choked.

This coupled with a demand, not from just the local population, but an international one, means there is a massive upward pressure on property prices.  Of course you will get fluctuations in the market.  However, these are relatively small, if you consider time frames of ten years.

Because of the varied nature of the demand, if demand from one segment drops another will pick up.

Speaking to an agent yesterday, he mentioned client registrations and offers had increased dramatically this month.  His take was the soft pound is attracting a lot of foreign interest. He has just done a deal for £1,450 per sq. ft., which is about to be topped by another buyer.  This is in a block where the prices only a couple of years ago were £930 per sq. ft.

In summary, the client who was looking at the property in Neasden, now for the first time is looking at a property in Notting Hill, for the same amount of money.

There is a shift in thinking required, which needs to get around the leasehold concept, and paying service charges, often for poor service.  However, the bottom line is the future growth; and the numbers speak for themselves.

Suresh Vagjiani

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