Doing more with less

By Martin Skinner,

"Martin Skinner"

Following on from my bright side article, I’m pleased to be able to report that the positive mental attitude approach appears to be working out rather well.  Investors (including my own little family office) have bought no less than 13 auction/receivership properties through Inspired Asset Management in the last month alone – with more sure to follow them.  That’s more than we transacted in the whole of the previous 12 months!

Dynamic duo

Dynamic duo | Inspiring interns

To achieve this we’ve been considering and discarding 1,000’s of other opportunities – more than ever before.  As you might imagine, organising, viewing and thoroughly appraising this volume of residential property is very labour intensive.  Like many other post credit-crunch businesses, we have far less resources at our disposal having dramatically reduced overheads and staffing in the wake of the squeeze.  So I would like to say a big thank you to the unsung (and unpaid) heroes of the City and the West End.  We have benefitted hugely from a series of very smart, diligent and hard working interns, most notably Louis, Kunal, Agne and Akvile who will all no doubt go on to achieve great things.  The help they have given us has been priceless.  Thank you!!

Our Joint Venture partners at Urban Share have also attracted a number of new equity investors and are close to securing their senior debt facility, so we’re clearly not the only ones making headway despite the choppy economic conditions.  Rather than blind optimism these developments are undoubtedly the result of the plain hard work and persistence that fuel most growing businesses these days; and a smile always helps.

On the macro-economic front there has been quite a lot of good news recently with employment up by 143,000 during the traditionally difficult Dec-Feb period and unemployment down by 17,000; the trade deficit reduced from £5.7bn in Dec to £2.4bn in Feb; and GDP growth again establishing itself despite the spending cuts. 0.5% growth has been initially reported for the first quarter and this is likely to be revised up, while 1.8% growth has been recorded for 2010/2011 as a whole despite an estimated 1.5% GDP fiscal tightening.

However, real incomes (i.e. after the effects of inflation) are still falling, retail spending is down and growth is likely to remain muted as public spending cuts take effect and the private sector continues to hoard its profits.  In general this should be good news as the government gets out the way and the economy rebalances from debt fuelled consumer spending and imports towards business investment and exports.

I believe this shows we are getting off our backsides and doing more with less.  The next couple of years are likely to remain tough as lower real incomes mean we feel poorer. But with this trend forecast to reverse in 2013/2014 and house prices, at least in London, expected to push beyond their previous peak, we will in due course start to feel wealthier again.

Meanwhile the North/South house price divide is continuing to widen dramatically as I and other Southerners forecast back in late 2009London is clearly driving this local growth on the back of global interest in our relative advantages, not least our discounted exchange rate and stable legal and political systems.  For example Galliard reportedly sold 80% of its new flats in the Strand for between £1,500 – 2,000 psf in just 8 weeks, with 90% going to overseas, typically Asian, investors.  Interestingly, the IPD’s recent annual results also highlighted the fact that Inner London (where we focus our activities) has outperformed all other areas on a total return basis over the last 10 years, including Prime Central London.  This is because Inner London yields are much higher than those in Prime Central London, while capital growth is only marginally lower.  And if you like London you’ll really like Jim O’Neill’s (Chairman of Goldman Sachs Asset Management) recent article entitled Brics herald a golden age for London.

IPD residential regional performance 10 year

IPD residential regional performance 10 year

George Osborne’s decision in the budget to finally link stamp duty land tax (SDLT) on bulk purchases to the average unit price, instead of the total transaction price, could actually make a real difference and eventually lead to a wholesale market developing.  And a barely reported amendment to housing benefits will mean more than 80,000 extra people need to rent rooms just as the unintended consequences of the House in Multiple Occupation (HMO) Licensing regulations start to bite and their supply is cut off.  We already expected rental growth in the young professional market to outstrip the rest of the market and issues like this will simply serve to push rents up further.

In conclusion it is my firm belief that investors should be planning their routes into the London residential property market right now, while the supply and demand imbalance is most acute, before the recovery becomes too established and opportunities for super profits dry up. Institutional investors may also start dipping their toes in the market, but are sure to lag behind the more entrepreneurial and often underestimated buy-to-let and private equity brigades.  So there’s still time for us to thrive.

Home Economics: Buy-to-let breathes again

By David Smith

In the darkest days of the credit crunch, one claim was made so regularly, you might have believed it.  This was that buy-to-let was dead, a victim of a housing boom that had turned to bust.  “Bye-bye, buy-to-let” was an irresistible headline.  We now know reports of its death were exaggerated.  Cluttons estate agency reports a 40% increase in demand for property – concentrated around the £500,000 mark – from professionals such as solicitors, accountants and doctors investing for the first time.

This will displease the moaners, but a functioning private rental sector is necessary for a healthy housing market.  Private landlords took a battering and faced funding difficulties as severe as anybody.  They appear to have weathered the storm.

Figures from the Council of Mortgage Lenders (CML) showed gross buy-to-let lending grew in the third quarter, its first rise for two years, with a rise from 21,600 to 23,700 in the number of loans and an increase to just over 1.2m in the number of outstanding mortgages.

Admittedly, the rise was from a low base, but this was a clear sign of life.  “The figures show buy-to-let is here to stay,” says Michael Coogan, director-general of the CML.  “Future demand for housing in all tenures supported by lenders will remain strong, despite mortgage funding constraints and low construction rates.  With funding for social housing under pressure, the private rented sector has a strong future.”

The other buy-to-let story – the expectation of a flood of arrears and repossessions as landlords faced grim reality – is not going according to plan either.  The number of buy-to-let mortgages with arrears of more than 1.5% of the balance has fallen for the third quarter in a row and stands at just 20,500.

As with other parts of the housing market, this is a slow climb back after the huge shock of an abrupt withdrawal of mortgage availability.  Moneyfacts.co.uk says the number of buy-to-let mortgage products has risen by more than a third from its September low, which sounds impressive – except that this is still 93% lower than its August 2007 peak.  Sensibly, deposits of at least 20% are required, which was not the case in the past.  Like it or not, buy-to-let is still alive.

Housing markets in the world’s leading economies are continuing to recover, although the majority are still lower than this time last year, says the Global Property Guide (globalpropertyguide.com).  Israel has been the strongest performer, with prices up by 13.7% in the year to the end of September.  The sharpest fall was in Latvia, down 59.1%. (David Smith, The Sunday Times).