Wrapping up one for Christmas


This week we are trying to conclude a deal I mentioned a few weeks back, one where we have two Lots at £1.25m worth £1.8m. It wasn’t easy to choose the right solicitor for this, as this is crucial in making sure there are no hiccups.

The blocks are currently two freehold titles, but we want them chopped into seven re-assignable leases, so we have the option of selling them on. The properties are currently rented and so the other issue is we must serve notice for the tenants to vacate as having them occupied would reduce the price we can fetch for them. The rent currently being achieved is below the market level.

Notice would be served to the tenants and we would have to agree to cover any rental during any void periods which the current landlord would have got prior to completion.

In choosing a solicitor I didn’t want one who doesn’t speak to me directly or one who doesn’t return calls until days after, also I wanted one who understands what we are trying to do and has all the bases covered, without further input from our side. Someone who focuses solely on property.

There was only one man who ticked all the boxes, a Jewish fellow – naturally. Expensive, but he is thorough and came to us through recommendation. He is the kind of guy who knows every little thing on the case himself and will directly speak to you. He even takes the file with him on holiday so he can arrange exchange from wherever he is! He charges well over the odds, but in fairness it’s horses for courses. And this deal demanded this level of thoroughness and on the ball attitude.

The other issue was all this needs to be done on the seller’s side not ours. Therefore this will be his instruction to the solicitor we have chosen.

I needed to brief the solicitor, then convince the sellers to use my recommended solicitor not theirs, not always an easy task. Also we wanted the solicitor’s partner firm to act for the buyer – us, so everyone is singing in tune nicely from the same hymn sheet.

In all fairness plain vanilla conveyancing isn’t rocket science, this is why you have firms doing it at £299. This is done factory style mostly by administrators who don’t know what they are doing, the services standards tend to be poor and they cannot answer any questions. One of the most dangerous aspects is they do not take a holistic view, and so important considerations can be missed which may not be realised until a while after the transaction has been finished.

So in short – if you pay peanuts you get monkeys!

A tale of two cities

This is now the end of the year and traditionally the quietest time for property. Valuers, solicitors, and agents are either having their Christmas parties or attending someone else’s and recovering from the hangover the following day, so in short little gets done.

It’s a good time to recap what’s gone on in the year and look at which direction to focus in the coming year.

One thing is very clear, we are operating as two very separate housing markets in the UK. One is the Central London Market and the other is the rest of the UK.

Let’s look at the latter:

Index – Annual Change

Halifax -2.3%

Nationwide +0.8%

Land Registry -2.6%

Hometrack -2.8%

Rightmove +1.2%

Department of Communities -1.5%

LSL Acadametrics -2.3%

Now here are predictions of what will happen in the future in this market:

CEBR forecast prices rising from 2011 to 2016 by 15%. The NIESR says house prices will fall 10.5 per cent in real terms overfive years, down 4.5 per cent this year and 1.5 per cent in each subsequent year.

The factors dampening the future price growth are pretty clear. loans harder to obtain lenders still have limited funds to give out austerity measures in the UK Eurozone crises

The criteria for obtaining loans is far more stringent these days, gone are the self certification mortgages. These have disappeared totally, so you can only borrow based on exactly what you earn or rather declare to the Inland revenue, problematic for self employed works as usually there’s a disparity between what’s declared and what’s earned. Even for Buy to Let mortgages they have started requesting income proofs and stringent money laundering requirements, when the actual situation is you do not even need to be alive to pay the mortgage as the rental will cover the mortgage payments and other costs.

The other issue is lenders are still cash strapped. The Special Liquidity Scheme (SLS) was introduced in April 2008 to improve the liquidity position of the banking system by allowing banks and building societies to swap their high quality mortgage-backed and other securities for UK Treasury Bills for up to three years. The Scheme was designed to finance part of the overhang of illiquid assets on banks’ balance sheets by exchanging them temporarily for more easily tradable assets. This scheme is now being unwound.

Government cuts will be filtering down through the economy – this will result in Public sector job cuts and higher taxes.

The Eurozone crisis has said to have impacted heavily on the swap rate money market costs as these influence fixed rate mortgages which will lead to them eventually being increased.

Gloomy right? But contrasting this is the profile for central London, where prices have increased by 12.6% in 2011. This means that if you had bought a property for £1m, if purchased in November 2010 it will have increased in price by around £395 per day. A £5m property will have seen price growth equivalent to £2,205 per day.

Prime central London residential prices are nearly 40% above their post- Lehman low of March 2009, and are now more than 6% higher than their March 2008 pre-Lehman peak. Prices are now at a record high, which many will find hard to believe.

Average prices for prime central London properties have hit £3.19m, meaning that a typical prime London property has risen in value by more than £1,202 per day over the past year.

Point of note is this growth has taken place against the backdrop of ever-worsening global economic news and rising threats of a second credit crunch.

Despite the dire economic predictions most analysts agree central London prices will carry on rising throughout 2012. In fact it seems the weakening of the pound encourages foreigners to invest giving them a window of opportunity which will not stay open for ever.

Suresh Vagjiani

Managing Director

Sow & Reap

A Property Investment & Financing company.

Suresh Vagjiani
Suresh Vagjiani
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