Recent press cuttings
19th December 2007Is a UK property market collapse underway?
Public sentiment suggests we are already witnessing the collapse of the UK residential property market in late 2007. The daily media blizzard of housing affordability “evidence”, bearish “expert” economic opinion and the latest negative property market statistics is so overwhelming that it is hard not to fear the worst. Nick Hopkinson, Director of Fruitful, a specialist off plan investment firm asks: “Is a property market collapse really underway?”
The monthly housing market data has always been very volatile and somewhat misleading. The seasonal activity lull before Christmas has exacerbated the impact of Home Information Packs (HIPs) as they were rolled out over the last couple of months to all houses; leading to some freakish figures lately. All the main property indexes still show annual growth of 7-9% to December 07. Even the latest monthly figures show an annualised 4-5% growth. However, the national figures hide some major differences in growth with some areas in London and South East growing strongly whilst other (mainly Northern) areas are dropping. As always, “the devil is in the detail”.
If overall prices are still growing, why do the media headlines have such a negative housing outlook? “Basically it’s because scary stories and bad news sells” says, Hopkinson. “Commentators get more attention by being controversial so that’s what they go with…”
Successful investors, such as Warren Buffet (regarded as the most successful investor of modern times) rely on fundamental values rather than public and media perception when making financial decisions. Monthly UK housing trend data has always been volatile. Fundamentally, property investment should be viewed with a 10 to 15 year outlook. Trying to guess the next 3-6 month market trend is almost impossible and statistically irrelevant when viewed in this bigger context. A look at the macro-economic and property fundamental questions of demand, supply, buying below market value and of course “location” may give some insight.
Is demand for housing growing?
Britain’s birth rate is rising at its fastest pace for more than 25 years according to latest analysis by the Office of National Statistics (ONS). The UK population is currently growing at over 1,000 people per day and is forecast to grow to 65million by 2016. That’s over 4.0million more permanent UK residents than in 2007 in the next 9 years alone. The weakened European border controls (following recent EU expansion to the East) and global attractiveness of London and South East England mean there is no realistic likelihood of these government growth figures being revised downwards in the foreseeable future…in fact, successive official reports continue to show ever spiralling population growth.
Is there undersupply of property or oversupply of new residential property?
Clearly it can't be both yet press headlines talk about both daily. The real answer is that there are local variations. At a national level, the government believes we are massively undersupplied with only 180,000 houses a year approximately being delivered against a target of 240,000 a year for the next decade. An influential lobby group is trying to get this target raised to 270,000 a year. These national targets have almost no realistic chance of being achieved due to a mix of suffocating plutocracy and the not in my back yard (NIMBY) driven planning approval process.
At a regional level, the supply imbalance varies greatly with a short term oversupply in many Northern City centres and a chronic shortage of property in parts of London and South East. According to Association of Residential Letting Agents (ARLA) latest survey, rents are rising at the fastest rates since 2000 at the moment in certain parts of the Country; further evidence of a property shortage. Fruitful are strategically focused on buying off plan property in the right locations across the South East and London. Off plan and newly built properties are very low maintenance and attractive to professional tenants if sourced in the right areas.
Is UK PLC heading for a recession?
Whilst there is a consensus that economic growth will slow in 2008, none of the ingredients for a recession are in place. According to the ONS, Unemployment figures remain stubbornly at historic lows (lowest in G7) and show little sign of growing. Latest Bank of England inflation figures at 2.1% Consumer Price Index (CPI) is in line with Government targets. Also, the economic growth forecast from The Confederation of British Industry (CBI) which represents Britain’s major employers is for a healthy +2.0% Gross Domestic Product (GPD) growth in 2008.
Is affordability being hit by the Credit crunch?
Interest rates are now at 5.5% and on a downward trend according to the overwhelming consensus of opinion. This means that mortgage costs are actually likely to come down over the next year which will drive pent up demand for houses even higher in the mid term. Also, despite much hysteria over the US led Credit crunch, the banking system has not collapsed. In fact, the major balance sheet lenders are already offering increasingly competitive mortgages to purchasers with “A1” credit status and adequate funds for deposits. Funds will become increasingly available as the credit crunch unwinds over the next few months but only to creditworthy purchasers which will reduce further risk of future repossessions. Fruitful only source property for “A1” creditworthy clients and help ensure they have properly budgeted investment plans for the long term.
What are leading “fundamentals” investors doing today?
One of the UK’s most successful private property investors recently gave the market a huge vote of confidence that should inspire faith amongst other investors as he has invested more than his current net worth. Nick Leslau has just struck a deal with Swiss Re, one of the world’s largest reinsurance companies to invest £234million in UK houses. Through this investment he will gain exposure to house-price inflation on a portfolio of 3,400 homes mainly in South East.
Having considered the fundamentals, Leslau is reported as saying “despite ample recent press coverage about a gloomy outlook for house prices in the short term, I am confident that the outlook for house price inflation in the UK over the 10 years or so will underpin excellent returns”.
“It’s a bad time to have to sell but an exciting time to buy!"
This is the main point of the current buyers market that most people miss” Says Nick Hopkinson. The property market has always been cyclical and delivered sustained growth in the long term. Many people still have urgent needs to sell their property, regardless of current market sentiment. As a result, specialist firms like Fruitful with long term strategic relationships and a reliable track record are negotiating some very exciting deals currently.
We are experiencing a short term buyers market, as a result of the current volatility and media “bad news” perception. Longer term, It’s hard to imagine anything other than strong, sustained price growth over the next decade if you are careful about where you invest and do proper due diligence. Especially when you appreciate that the property shortage is largely concentrated in the South East and London areas of the country where Fruitful Property focus.
For further detail on Fruitful’s fundamental investor “Golden Rules” for achieving capital growth through property investing go to: www.fruitfulproperty.com/Why_choose_us/Market_Beating_Growth.html
The current buyers market will be over by The Spring and many people will regret that they didn’t take advantage of investing now (in the style of Warren Buffett & Nick Leslau) based on the Fundamentals rather than following the herd! Fruitful’s clients are investing based on fundamentals and getting return on investments (ROI) of 1,000 percent + over the next 10 years. Not many other investments can match that without a very high risk of losing your whole fund…something that’s very unlikely in property.
In conclusion, “Actually, we are seeing a very short term buyers market, not a property collapse” says Fruitful’s Hopkinson. “Fruitful are all set to complete on a record number of properties this December – these deals will not be around long for investors”. Today’s time poor busy professionals can still make serious capital growth in property by working with carefully selected specialists like Fruitful.
Our straight-up and hassle-free approach means that you can even make money in strategic locations in London and the South East while doing your last minute Christmas preparations! If you have £30,000+ investment funds available and are serious about exploiting the year end buyers market deals please call our office on 020 7409 1055 (office hours 9am to 6pm) or send an email to info@fruitfulproperty.com with your name and daytime phone number.
For more information got to www.fruitfulproperty.com