Linda Yueh presents ‘Talking Business‘ on BBC World, the television version of the World Service. It plays to an audience of 263m people primarily across India, China and the Gulf and is aired five times with repeats on BBC News Channel and the iPlayer.
I’m with Merryn Somerset Webb, journalist and editor-in-chief of MoneyWeek and Niccolo Barattieri di San Pietro CEO of luxury developer Northacre discussing high end London property. Why does London appeal to international buyers and whilst it may seem like one to most Brits are London property prices now in a bubble?
Lots of chat especially in those hard-to-fill newspaper pages about what is driving up prices in those areas of the country that are seeing double-digit inflation. “There’re no homes for sale” say some pundits so I thought I’d check.
Using the data from HMRC on the number of sales each month across the UK and the number of new homes listed online and elsewhere it’s not that hard to check. The graph above shows what’s happening to both the number of homes for sale and the number selling – month by month. Whilst estate agents may not be as busy marketing as many homes or indeed selling as many properties as they were back in the boom of 2006/8 the numbers each month are exactly in line with the long-term average from 2003 at 100,000 sales a month. The average number each month between 2000 and 2008 was higher at 127,000 but then we know how that ended.
Online listings (those advertised on the internet is now about 200,000 less than there usually are but there are even more homes for sale than you can find advertised online as I pointed out last month. Roughly 40% more in fact.
Rising prices are down to the availability of credit. If you give people easier access to credit or make more credit available then they will take that money and give it to the owners of the finite number of homes that there are for sale. Add to that the rising number of cash buyers and one starts to see why prices are rising in some places but by no means all. Cash buyers and eager first time buyers are not interested in buying country houses in North Wales for example and here prices are about 50% of their value in 2007. In popular places prices are up 20% year on year but for how long can this continue?
Looking around there may seem to be fewer For Sale boards but that is partly because it’s not as easy to put one up as it once was and more sellers are refusing to have them outside their house. You only need to look at the results of quoted estate agents like Countrywide, Savills and Foxtons to see how well they are doing and Rightmove’s results published on Friday confirm that agents seem to be able to afford to pay enough for them to declare profits up 22% to a whopping 74% of turnover!
Those who suggest that there are too few homes for sale and few selling should look again.
If you’ve found a suitable property but would like someone to run a professional eye over it before you commit further then email a link to the property advert on the agent’s website or the property portal on which it appears.
For £180 I will;
- Check the history of the sale
- Look at the guide price and the underlying value
- Consider the strength/weakness of the local market, house prices, rents and yields
- Review the local area, crime statistics, schooling options, mobile reception, broadband & council services
- Recommend environmental search tools to check on flooding, mining or contaminated land
- Introduce experts where necessary for structural surveys, legal work or specialist finance
- Advise on bidding tactics, when and what to offer and on how to negotiate the best terms
- Suggest options to add value and improve the property in the future
Just copy the URL – the ‘www.address…’ bit highlighted in blue below and email it to “firstname.lastname@example.org” with your contact details and I’ll be in touch.
A trip to New Broadcasting house to chat to charming Ramzan Karmali about the state of the market, the threats and the impact of Government stimulants.
Latest market numbers;
N° of homes sold in Jan up 30% y-o-y says HMRC
Asking prices up +6.9% pa – says Rightmove
Sale prices up +4.3% pa – says Land Registry
Prices up 5.5% pa says ONS
Rents up +2.4% – says HomeLet or 1.4% according to LSL
House prices are complicated and their future direction is hard to predict. I’m often reminded that there are only two types of ‘expert’ when it comes to predicting house prices – those who don’t know & those who don’t know they don’t know. However the future direction of prices lies behind the question I am most frequently asked – “should I rent now or buy?” but having warned you that nobody knows here’s my best guess at what is going to happen and why.
The coalition Government seems determined to ramp house prices over the next 444 days ahead of the General Election next Spring. Voters are alarmingly forgiving of politicians financial mismanagement of the economy if you let them feel good about the value of their home. Of the nations 24m homes, one third own their property outright, one third own with a mortgage and the remaining third rent – half in social housing half in the Private Rented Sector. Make home owners feel wealthier and they may ignore the fact that the economy is still on the ropes surviving on the stimulant of quantative easing even if this means you have to inject similar support directly into the housing market to maintain artificial demand.
In the meantime two of the three main political parties have pledged to bring in a mansion tax, Capital Gains Tax will apply to overseas investors from April next year and at some point the Bank of England will wake up and realise that house price inflation in some parts of the country is in double digits as many predict the average for the whole of the UK will be close to 10% this year. When eventually they do they will ask the Chancellor to withdraw the intravenous drip that is Help To Buy – certainly the second version of it at any rate and all of a sudden people will be back to struggling to scrape together high deposits that lenders will once again demand. Finally, the much-trailed ‘Mortgage Market Review‘ will kick in in April this year which will make lenders more cautious about the loans they make – especially those more affordable but ultimately riskier ‘interest only’ mortgages.
Some estate agents are suggesting that property isn’t over-valued, they maintain that there has been a re-rating and in fact today’s prices are the new norm. Perhaps they are right but they don’t seem to be suggesting that prices will continue to rise as they have of late. Some other selling agents in fact predict prices doing little better than keeping up with inflation. Rents seem to have plateaued in many places which to me usually provides a much more immediate indication that we may have got to the peak of ‘affordability’ than sale prices will eventually do. Sales take longer to process, from saving a deposit to finding a loan, sourcing property, agreeing a deal and finally moving in provides an indication of the market 3-6 months earlier. With no wage inflation it would seem that tenants have finally found that they are now spending as much as they can afford on rent and I expect those buying to demonstrate that the feel the same way by the end of the summer.
Yields of 4% (gross) won’t be acceptable for much longer and many investors will wake up and realise that buying for capital gain is actually speculation, not investment. When that happens the adjustment will be quick and most people will only appreciate it after it’s happened.
London is being presented to some international buyers as a black jack table. Many new-build properties aren’t investments at all – they are bets. Some will win but we all know that most will loose. £1m flats in the wilder parts of East London as an investment is like mistaking Presecco for Champagne!
39,000 new flats are to be built in the so-called ‘Embassy quarter’ south of the river in London, many will be shrink-wrapped and left empty while their owners 6000 miles away wait for the roulette wheel to stop spinning.
I think the two biggest threats to house prices remain political interference (the introduction of rapacious taxes as mentioned above) and public disorder. We saw in the riots of two summers ago that the gap between those who own property and those who don’t is now much more than just financial. In pubs outside the M25 and in many within I hear serious resentment at the perceived inequity of housing in this country. Hopefully people will solve this politically but you’ve got to admit that there is little evidence of this being a viable solution so far.
Continuing to rise through 2014.
Plateauing in 2015.
Falling back in 2016 – perhaps by as much as 25% as the stimulants are removed and buyers hit ‘cold-turkey’.
As I have said, your view is just as relevant as mine. What do you think?
A trip to the Gherkin to chat to Joel Hills about asking prices, sale prices and the market in general.
Asking prices up +6.9% pa – says Rightmove
Sale prices up +4.3% pa – says Land Registry
Rents up +2.4% – says HomeLet.
I suspect that the low growth in rents coupled with no wage inflation may indicate that housing costs are peaking. It feels very much like 2007 which could mean that in the next few months we will see house price inflation fall back.
- Leave something on the table for the next guy. It’s often tempting to try and squeeze the deal till the pips squeak and whilst many (men) will see it a matter of pride to have negotiated down to the light fittings most successful deals work because both sides can view the deal as being worthwhile for them. Leave the other party with some pride and dignity and you will then have their help when you need to ring to ask where the stop cock is!
- Keep it simple. It’s tempting to try and include the dishwasher, the mower and the cat basket but by and large you can negotiate for the smaller items once you have agreed terms for the biggest. In reality most sellers will find that they don’t need some items or that its a good time to upgrade the washing machine but I’ve witnessed people taking light fittings – leaving bare wires just because they felt they’d been ‘legged-over’ on the deal.
- Keep it legal. Remember that any offer you make should be made ‘subject to contract’ and if you intend to have one ‘subject to survey’ as well. By ensuring that you include these three words you are then free to vary these terms should the need arise. The deal is only legal and enforceable once contracts are exchanged (in England & Wales).
- Be prepared – Like the boy scouts it can pay to have done your homework before you start to negotiate. Makes sure you solicitor isn’t on holiday and is happy to act for you. Try to get a mortgage offer in principle so that you can prove how you will fund the purchase. Speak to a surveyor if you might want a structural survey. If you can confirm all these are in place your slightly lower offer may well trump a higher more carelessly crafted bid as happened to me just this past week.
- Keep your promises. Remember that if you promise to do something it’s important to keep to it. If your bid unravels and you find another house then the estate agents may remember that you are not the most reliable buyer. Your reputation matters so guard it.
- Be professional. Having made sure that you have everything in place remember that you will most likely be negotiating with an agent for the seller or landlord. He is a professional and will prefer you to be too. Don’t be hysterical about how much you love the place, make it clear why accepting your bid seems like the best way he can earn his commission.
- Follow up. Confirm what you say in writing (or by email these days) so there is a paper trail if and when a misunderstanding occurs. It may also be useful if you ever needed to show a copy of what was said to the seller, to the Property Ombudsman or to a lawyer if things went seriously wrong!
- Ignore the guide price. The value of a property is what the buyer and seller agree, not what the selling agent advertises it at. I regard a guide price as an indication of the sellers greed or of the enthusiasm the estate agent had to get the business in the first place. Don’t be afraid to make an offer but when you do back it up with examples of what else has sold, what else is still for sale and ensure you stress why even though it may seem low, your offer is worth taking.
- Be nice. Not to the selling/letting agent (says the buying agent!) but to the seller. I have often bought homes for clients whom the seller felt would continue their love of the house. Living in it in the same way, getting stuck into the local community and the schools. Ask if there are local clubs they can recommend. Don’t spend time discussing how you plan to pull apart the home that has taken years to build up. Wait until you own it before you rip out the botched repairs/extension!
- Don’t be afraid to walk away. The selling agent is going to push you, it’s his job. He’s not there to broker a fair deal between the two parties – or he’d be called a broker. He wants as much as he can for his client and you need to remain professional and cold hearted. Remember that in most parts of the country the majority of homes in fact don’t sell. If your bid is reasonable, well crafter, presented properly and leaves the seller with some degree of satisfaction then you may have yourself a deal. The agent only gets paid when he can get both you and his client to accept the deal so make him earn his fee!