The UK and Brexit – a damp squib for the property market?

 At the time of the Brexit vote we commented that it would be the end of the year before there was an indication of its effect on property prices. The good news is that forecasts of the UK’s house price boom coming to an end have proved largely unfounded.  Ultra-low mortgage rates, record high employment and a lack of housing stock keep prices moving upwards. Figures compiled by the Office for National Statistics and the Land Registry for November show an annual increase of 6.7% and a jump of £2,000 from October. In England prices rose by 7.2%, but Wales and Scotland lagged behind with growth of 4.1% and 3.3% respectively.

The fall in the value of the pound has certainly helped to attract foreign buyers back into central London after they were put off by high stamp duty rates. House prices in London rose by 1.8 per cent on a monthly basis in November, reversing the 1.2 per cent drop in the previous month and undoing the dip in prices of £8,000 between July and October.  Nevertheless, annual house price growth is beginning to slow as property prices begin to reach a peak of affordability for many buyers. The average house price in London still remains significantly higher than anywhere else, however, reaching £482,000 in November, compared with £313,000 in the southeast and  £127,000 in the northeast.

However, while trends in house price growth have barely changed since the Brexit vote, the number of housing sales has slumped. There was a 22 per cent drop in property transactions in England during September compared with last year, according to the latest data available. Estate agents have reported a sharp fall in transactions as homeowners consider it too expensive to trade up owing to stamp duty costs or wait to see what happens to the economy. The number of buy-to-let investors is also falling amid the extra 3 per cent stamp duty surcharge on second homes. This is particularly evident in London where the number of completions in London fell by 39.5 per cent to 6,698, compared with 11,065 in September 2015.


A consistent approach to an attractive sector

We have long advocated the attraction of a secure income stream and smaller properties:

  • In December 2012 we sent out a property bulletin advocating HMOs (House in Multiple Occupation) which produce high rental returns
  • In May 2014 our property bulletin highlighted the demand for smaller centrally located properties and the value they offered compared to regional homes

Our long standing view is that the security and level of rental income should be of paramount importance to investors.  This is often over-looked by investors who focus almost exclusively on capital growth.  Both HMOs and studio units offer excellent rental returns and investors do not have to forsake capital growth simply because they want to maximize their ongoing income.
A typical HMO is a house which has been configured to provide individual rooms, which may or may not have en-suites, and which have shared communal facilities such as kitchens and lounges.  The prime advantage of a HMO is the increased rental return, which can be anything up to double that received from a standard home.   Importantly, the right house can easily be reconfigured back to a family home at nominal cost so at resale you can appeal to both investors and owner-occupiers.

A common perception among investors is that HMOs have lower quality tenants and they require a lot more work if they are to be managed effectively.   This is not necessarily the case as much depends on the individual property and the choice of tenants.  The right property manager will vet prospective tenants and minimize ongoing costs so that the rental return is maximized.   The owner should be no more involved than he would be for a standard home.  Remember though, you need to buy the whole property (whether it is four bedrooms or forty) and not individual rooms.

Twenty years ago (yes, we have been operating our business that long) studios and one bedroom apartments were not particularly popular with investors and tenants.  Over the years, as house prices have increased and demographics have changed, we have seen a noticeable change.   In virtually every city in the UK there is good rental demand for smaller properties from young people leaving home, students, professionals, divorcees etc.  People increasingly want to live close to their employment, shops and other amenities and are prepared to sacrifice space for convenience and affordability.  People need somewhere to live and with the ongoing shortage and limited number of new homes being built demand for self contained studio units and individual rooms in shared accommodation will continue to grow.  This means enhanced income streams and sound capital growth for astute investors who own such properties.

UK houses

UK prices forecasted to rise, a shortage of homes and yes, you can invest outside London

The bears are certainly in retreat when it comes to the UK residential sector. Bullish reports from analysts and commentators now seem to be the norm, a different picture to the last couple of years. One such report has just been released by the Centre for Economics and Business Research. It advises that the average price of a home in Britain will jump by a quarter in five years, from a national average of £225,000 this year to £278,000. In London prices will rise even higher, from £395,000 today to £566,000 in 2018. As well as the capital, the regions will also benefit, with a predicted rise in the East of 27 per cent to an average of £311,000 and a jump of £20,000 in the North East to an average price of £160,000.

The favourable news is not just limited to house prices, mortgages are becoming more available, with the number of loans handed out to buy a home, rather than just to remortgage an existing loan, rocketing according to the Bank of England. In August, 62,226 house purchase loans were handed out, the largest number since February 2008 and a 30 per cent increase on August last year.

However, house prices rising over the medium is not good news for everyone. Many people are warning that a generation of young people are being frozen off the property ladder by the crippling cost of homeownership at a time when the average full-time salary is £26,500. Many people believe the answer lies in building more homes, but this clearly not happening. The Joseph Rowntree Foundation (JRF) advises that there will be a shortage of more than one million homes by 2022. According to JRF the impending housing crisis will hit hardest in London and the South. Although these regions contribute 70 per cent of the rising demand for new homes, only 50 per cent of new homes are currently being built there. Lord Best, Director of the Joseph Rowntree Foundation said: “We estimate that the difference between housing demand and supply will have widened into a yawning gap of 1.1 million homes in England alone by 2022: most of it in London and the South East. This genuinely shocking statistic shows why the time has come for policy makers to recognise that a plentiful supply of new and affordable homes is of the greatest importance the nation’s future health and prosperity.”

Demand for extra homes in England is now estimated at around 210,000 properties a year, compared with average output from housebuilders and social housing providers of 154,000 extra homes a year over the past five years. The accumulating gap between demand and output points to a shortfall of 1.1 million homes in 20 years’ time. Although all regions are expected to see growth in the number of households, JRF notes that the greatest pressure will continue to be felt in southern England. Lord Best said: “In our view, housing shortages are set to become one of the most significant social issues of the next 20 years. Unless we act now, shortages will lead to overcrowding and homelessness. But they will also have knock-on effects for the whole of society, driving up house prices in areas of high demand, inhibiting economic growth and making it harder for good quality public services to be delivered.” We have heard this argument for many years and whilst successive governments have acknowledged the problem, they are unable or unwilling to address the problem. With restrictive planning guidelines in place etc, the situation is only getting to get worse.

What does this mean for the overseas investor? The obvious answer is that they should buy property in the UK. The basic law of supply and demand means that with a limited supply and growing demand prices are bound to rise. Unfortunately, whilst a lot of people will agree they should buy property in the UK, many of them can’t buy in their preferred location of London. The cost of buying even a one bedroom apartment there is prohibitive and so they stay on the sidelines and don’t invest. Historically, buying in London has been a sound strategy and there is no reason to believe this will change. However, London does not have the sole rights to good property investment locations and other markets in the UK can be considered. It is all about the four ‘rights’ – The right property in the right location for the right price and at the right time. Rental demand in the more popular southern England locations is strong and if you follow the four ‘rights’ and have the property managed properly there should be attractive tax- free returns over the medium term.


The USA house market going from strength to strength

We have been saying it for some time now – the USA market is certainly recovering.

U.S. home prices rose in March, marking the biggest annual increase in seven years, in the latest sign of strength for the recovering housing market. CoreLogic’s home price index jumped 1.9 percent from the previous month and accelerated by 10.5 percent compared to March last year. That was the biggest year-over-year increase since March 2006.

Home prices have been rising since last year, helped by investor demand and tighter inventory. The recovery is also evidenced in the number of homes being constructed. Groundbreaking to build new U.S. homes rose in March to the highest level since 2008. The Commerce Department said on Tuesday that starts at building sites for homes rose 7.0 percent last month to a 1,036,000-unit annual rate. That was higher than analysts’ expectations of a 930,000-unit rate.

A recovery in housing, driven by growing demand and record-low mortgage rates, is boosting other sectors of the economy Home building added to national economic growth last year for the first time since 2005 and is expected to provide support this year.

Even the Fed agrees – “A sustained recovery in the housing market appears to be under way,” Elizabeth Duke, a board member at the Fed, said in a speech last week.

Warren Buffett said ‘I’d buy up a couple hundred thousand single family homes if I could.’ (see page 3 of our News Archive) It is hard to disagree with the greatest investor of our time.

chelsea general  4

London market enjoys rising prices

The central London market continues to show why it is regarded as one of best property investment locations in the world. According to CBRE, prices for houses has risen by 6% over the last quarter and by 18% over the past year. The gap between Prime Central London and Greater London is expanding; average prices across the whole of London rose by only 2% over the last quarter and 5% over the course of the year.

A lot of this growth has been fueled by demand from Asia, particularly at exhibitions in Hong Kong, Singapore and Kuala Lumpur. Interestingly, demand is also growing from investors in countries such as Thailand, Indonesia and Vietnam. With the problems of the Euro, many European investors are also entering the market and there has been an increase in buyers from Spain and Greece. London’s reputation as a ‘safe haven’ is likely to continue to attract overseas investors for some time and with limited supply this will inevitably force prices up even further.

It is worth noting that across Greater London new builds are selling with a 5% premium and in the boroughs of Kensington and Chelsea, and Westminster over the last quarter, they are, on average, double the value of their second hand counter parts.

Whilst the sentiment is the same, according to Knight Frank the growth rate over the past has not been quite so impressive. According to the agent, the annual increase was a mere 10.1 percent with demand for apartments outstripping that for houses. Prices are now 52% higher than in March 2009, so investors who bought at that time should certainly be happy.

No property market is immune from a correction and eventually central London prices will fall. Many investors feel this will not happen in the short to medium term and in the meantime there are some healthy profits to be made. It is hard to disagree with this point of view. It is pretty safe bet that London will continue to be a sound property investment location for the foreseeable future.

33C View South

Manhattan confirms its appeal as a property investment market

The supply of new apartments for sale in Manhattan supports the fact it is a sound property investment market. Supply fell significantly last month, slipping 17.2% to 1,185 from August of last year. The result reinforces the belief that a lack of inventory will force prices higher across all segments of the market.

“New development inventory has continued to decline, year over year’ said Sofia Song Vice President of who commented on the market there. She added that declines have now occurred for twelve consecutive months.

The median price in Manhattan has certainly shown improvement rising 11.1% to US$1.45m. ‘With tight inventory, sponsors have been standing firm on prices’ said Ms Song. This is supported by the fact there were only 128 price cuts on listings in August, 28% fewer than a year ago.

Buyers do not seem deterred by the firmer prices with signed contracts up 26.3%. ‘With inventory being tight everywhere and as pent up demand grows, the new development projects currently in the pipe line are becoming more and more highly anticipated’ she said.

Whilst the above comments refer to new developments, it echoes what is happening in the larger established homes market. Manhattan did not experience the crash markets such as Orlando experienced and has maintained its status as a ‘safe haven’ location. With strong rental demand and prices forcasted to rise it should also be considered as a sound property investment location which will show good returns over the medium term.

Single family homes

Major players enter the USA single family home market

The following article in its extended version was published by Bloomberg on the 3rd July. It highlights the fact that major institutional investors are now entering the single family home market. For more information on how to access this market please contact us.

Blackstone Group LP, the biggest buyer of U.S. commercial real estate since prices bottomed, is jumping into residential property as housing recovers.

The private-equity firm has spent more than $250 million this year buying foreclosed single-family houses with the intention of renting them out, said two people with knowledge of the effort. The goal is to acquire enough assets to potentially take public as a real estate investment trust, or sell to another company or even to tenants, said the people, who asked not to be identified because the plans are private.

Blackstone Group LP has acquired more than 1,500 houses around Phoenix and Southern California.

Blackstone, which has loaded up on strip malls, warehouses and suburban office buildings in the past two years, is turning to residential real estate after a 34 percent plunge in prices since the 2006 peak.

The New York-based company is the biggest investor seeking to enter the single-family leasing market as rents climb and the U.S. homeownership sits at a 15-year low, joining rivals including KKR and Colony Capital LLC.

“It’s turning into a $10 billion industry,” said Colin Wiel, managing director and co-founder of Waypoint Homes, an Oakland, California-based company that has bought about 1,800 distressed homes for rent with backing from investors including GI Partners and Columbia University. “There’s a lot of competition.”

Blackstone’s real estate group has teamed with principals of Treehouse Group LLC of Temp e, Arizona and Dallas-based Riverstone Residential Group to buy and fix up the homes, find tenants and maintain the rentals, said the people familiar with its strategy. Riverstone is an apartment-management company founded by brothers Nick and Peter Gould, owners of U.K. property-investment firm Regis Group Plc.

The venture marks Blackstone’s first major foray into the U.S. residential market. The company was the top buyer of commercial real estate in 2010 and 2011, spending about $16.7 billion, according to Real Capital Analytics Inc. in New York. Deals included the $9 billion purchase of more than 500 shopping centers from Centro Properties Group and industrial properties valued at $1 billion from Prologis.

U.S. commercial-property prices have gained about 26 percent from a post-crash low in January 2010, according to an index compiled by Moody’s Investors Service and Real Capital.

In the housing market, price declines are easing. The S&P/Case-Shiller index of values in 20 U.S. cities fell 1.9 percent in April from a year earlier, the slowest pace since 2010.

While mortgage rates are at record lows, rental demand has climbed because many Americans can’t buy homes because of insufficient income or bad credit, or because they prefer the flexibility of renting. Monthly apartment rents in the U.S. have jumped almost 6 percent since the end of 2009, to an average $1,018 in the first quarter, according to Reis Inc.

Blackstone has an advantage over competitors in the housing rental market in terms of readily available capital. The firm is raising $13 billion for what will be the largest-ever private equity real estate fund.

Others are using a series of small private funds. KKR is working with Atlanta-based homebuilder Beazer Homes to raise money by selling shares for a non-public REIT.

Buyers of foreclosed houses face the challenge of managing properties scattered among different neighborhoods and states, compared with managing an apartment building with hundreds of units within one property. Bargain-seeking investors also are finding that home prices have begun to rebound in many markets, making it harder to accumulate homes at deep discounts.

For Sale

Has The Housing Market Hit Its Bottom?

We have recently come across the following article which was written by Morgan Brennan of Forbes business news and financial information. It makes interesting reading, especially her comments on the Orlando and Miami markets.

Has the U.S. housing market hit a bottom? Do we have further to go? When will a recovery start? These are the questions every homeowner and real estate investor are currently asking themselves — or should be.

Wall Street firms have optimistically been betting that the bottom’s here. Research firms like Zelman & Associates predict the sector will pick up this year and hedge funds have been jumping into real estate-related investments from brick and mortar building purchases to shares of home builders stocks. In December Goldman Sachs Group released a report stating that “The home price bottom [is] in sight,” according to my colleague Agustino Fontevecchia.

Indeed national home price data indicates that the worst of the catastrophic home price implosion is behind us. Clear Capital, a Truckee, Calif.-based real estate research firm, reports that 2011 saw a national decrease of 2.1% in home prices when compared to 2010. While still a loss, it’s measly drop compared to the double-digit plunges felt in the years before. For 2012, the firm’s Home Data Index (HDI) Market Report also predicts a humble 0.2% gain across all markets. “Overall, 2011 was a relatively quiet year for U.S. home prices compared to the last five years,” said Dr. Alex Villacorta, Clear Capital’s director of research and analytics, in the report. He further notes that “the current balance the market has found will continue through 2012.”

What does all of this mean? Housing from a national standpoint is flattening out; the macro level data suggests we could possibly be at the bottom or near to it.

A Tuesday report from Zillow, a publicly-listed Seattle, Wash.-based real estate data and listing site, shows that November home values “remained essentially flat” from October of 2011 through November, falling only 0.1%. The Zillow Real Estate Market Report, which analyzes home values in 165 metro areas, notes that the addition of 200,000 jobs in December, improving consumer confidence and stronger retail sales indicate that home sales may be more consistent and more frequent in 2012. “With stronger home sales, we’ll see a reduction in the amount of vacant housing inventory and an improved ability to absorb foreclosed homes. This increased demand will eventually start to put a floor under home values later this year,” the report says.

It sounds rather promising, doesn’t it? For Wall Street firms snapping up stocks and/or using the market as an indicator for economic activity, it is. For homeowners, however, a different story prevails.

If you are a prospective home buyer or seller wondering if now is the time to make a play, the decision should come down to something much more tangible than a “flat” national market number. It should come down to location.

Clear Capital warns that the relatively flat national average is comprised of metro markets that have been anything but: “Individual markets reacting to their local economic conditions continued to exhibit a wide range of performance levels in 2011, with only 12 of the top 50 metro markets (24%), returning year-over-year price movement that can be considered stable,” the HDI report cautions. ‘Stable price movement’ means price swings of less than 2.5%. The company believes only 40% of the country’s largest metro areas will be stable in 2012. Among them: Denver, Colo., San Jose, Calif., Boston, Mass., Oklahoma City, Okla., and San Francisco, Calif.

As for the areas where prices may actually appreciate the most this year, the firm expects Orlando, Fla. home prices to rise 11.7%, hard-hit Bakersfield, Calif. 11.1%, government jobs-driven Washington, D.C. 9.3%, foreclosure-riddled Phoenix, Ariz. 8.9%, and sales-heavy Miami, Fla. 8.8%.

Markets that will experience further price drops this year include Atlanta, Ga. (14.4% anticipated loss), Los Angeles, Calif. (10.3% anticipated loss), Seattle, Wash. (7.5% anticipated loss), Oxnard, Calif. (6.7% anticipated loss), and foreclosure capital Las Vegas, Nev. (6.4% anticipated loss).

Zillow’s November data shows price fluctuations from metro area to metro area, as well. It clocks 66 markets where home values depreciated in November, 66 markets where values rose and 33 where values simply remained flat. Zillow’s economists caution that elevated foreclosure rates and negative equity will continue to impact local markets in 2012, meaning still lower values yet-to-come in some markets. For that reason, the company doesn’t expect a true stabilization in home values to occur until the end of this year or early 2013.

I think they are right. Even if the worst of the price depreciation hemorrhage is over, we still face a wave of distressed inventory undergoing the tedious foreclosure process and an estimated shadow inventory of 1.6 million bank-owned or distressed homes that have not yet hit the sale block, according to CoreLogic. It will mean millions of discounted units flooding markets already saturated with more units than buyers, dragging overall home prices down in terms of both listing prices and property appraisals.

So whether a bottom in housing is here or not depends on the local market. Most foreclosure-riddled markets will likely have years to go before values meaningfully move upwards. Markets where employment is plodding back and/or where overbuilding didn’t occur in the mid-2000s will and are showing more promising, more stable prices. ”It will be very important for consumers to draw a distinction between the end of sustained home values declines, which are maybe a year away, and the return to normal market conditions with historically normal appreciation rates,” Zillow notes.

London Big Ben

UK Budget – major implications for some buyers

The UK government’s budget announcement last week has caused concern for both existing and prospective property owners. A lot of media comment was subsequently made on how high value properties would be severely affected. Unfortunately, a lot of Asian based buyers may also be affected by the announcement, in some cases quite dramatically.

The UK government has certainly decided to get tough when it comes to stamp duty on expensive properties with the rate of Stamp Duty Land Tax on purchases of residential property over £2 million increasing from 5% to 7% from 22 March 2012. The rate for properties below this level remains the same.

Of interest to some overseas buyers is that if any ‘non-natural’ person, which includes a company, partnership etc., purchases a property for more than £2 million the stamp duty rate will be 15%. In the past investors have used companies to own property and have sold the company’s shares when disposing of the property. Under these circumstances Stamp Duty was only be charged at 0.5% and 0% if an offshore company had been used. The new rate means a minimum tax of £300,000, making it prohibitive to use such a structure.

Existing owners of such properties who are using a corporate structure may also be affected. The Government is talking about an annual Stamp Duty Land Tax for high value residential properties owned by non-natural person and this may come into effect from April 2013.

Whilst most Asian based buyers have not spent £2m on a property, it is worth noting the Government is considering imposing Capital Gains Tax on non-resident companies (BVI companies for example) that dispose of UK residential property. This potentially applies to all non-resident companies that own a residential property, not just those owning high value properties. The government wants to go through a period of consultation before committing to this, but if it is introduced it is likely to be in April 2013.

Of course, the devil is always in the detail. For example, no-one knows whether current values will be re-assessed prior to its introduction. What is certain is that if all non resident companies are taxed, a large number of Asian based investors will be severely affected. Advisers who advocated their clients use such an entity to own a relatively inexpensive London property as a means of avoiding inheritance tax will now need to identify what is now best for their clients. Of course, hindsight is always 20/20 vision and they will rightly argue that governments can change legislation at any time. Nevertheless, in these difficult economic times measures to curb tax avoidance were always going to be popular. Taking steps to discourage non-resident companies avoiding stamp duty and including them in the Capital Gains Tax net seems a logical step and one that could have been foreseen, with hindsight of course.

The good news is that there is no talk of offshore ‘natural persons’ being affected by the changes. London remains a safe and profitable haven in troubled times – just make sure you get the right structure in place at the outset.

Statue of Liberty

Growing US confidence in housing recovery

The following article appeared in the South China Morning Post today and confirms the change in sentiment in the US towards the real estate market there.

‘Potential homebuyers and sellers are growing more confident that the US real estate market will begin to recover as soon as next year according to a Prudential Real Estate survey. Sixty per cent of 1,251 people surveyed last month had positive views about the housing market and 70% expected property values to improve over the next two years. About 63% said they considered real estate a good investment, the US broker reported. Survey respondents were 25 to 64 years old with a household income of at least US$50,000 and either recently bought or sold a home or were considering a purchase or sale’ Bloomberg


US renters are losing their leverage

Florida Realtors recently released the following which makes interesting reading;

During the boom years of homebuying, property manager Charlie Biter used to offer new apartment tenants one or two months’ free rent as a lease enticement. Now, as rental demand continues to surge, no such offers are necessary. “Back then, everybody was being creative to bring renters in,” said Biter, who oversees 2,000 apartment units in the Nashville area for Continental Property Management. “But now I’m not aware of any units offering concessions.”

Across the country, as more people compete for apartments in the wake of the housing collapse, the market has swung in favor of landlords. For tenants, that means saying goodbye to move-in incentives and watching rents edge higher. About a quarter of all apartments nationwide offered some type of concession in last year’s fourth quarter. By comparison, 53 percent of apartments offered concessions in the first quarter of 2010, according to data tracker MPF Research’s latest report. “The industry moves in cycles, and right now not a lot of apartments are available,” said Jay Parsons, an analyst at MPF Research. Until apartment construction catches up to demand, landlords will maintain their control of the market, he said.

The vacancy rate in Pittsburgh, at 2.2 percent, is among the lowest in the country, according to MPF’s fourth-quarter data from 2011. University of Pittsburgh master’s student Harrison Murphy knows the difficulty first-hand. Four years ago, he found an apartment within an hour of searching, he said. Now, not only are rentals harder to come by, but many landlords require stricter background checks. “I have been unable to find a single place that doesn’t require a recommendation from your previous landlord, with some even asking for recommendations from teachers,” Murphy, 24, said.

In New York, too, as rental demand swells in some of the most desirable neighborhoods, rates are reaching new highs. In 2011, average rents across all apartment categories rose 8.4 percent compared with the year-ago levels, according to the Citi Habitats annual report.

In Chelsea and the East Village, average monthly rent in January for a one-bedroom apartment hit $3,218 and $2,616 respectively. Both neighborhoods have vacancy rates below 1.5 percent. Furthermore, landlord concessions in New York plunged 68 percent from 2010, according to the report. “With high demand in the marketplace, landlords were not likely to negotiate with potential renters, and needed to do little to attract clientele to their available apartments,” said Citi Habitats President Gary Malin.

In Portland, Ore., one of the country’s tightest markets, the year-end vacancy rate was 3.1 percent, according to the Barry Apartment Report, a local data tracker. “Nobody’s giving concessions. That’s history,” said Joe Weston of Weston Investment, which owns 3,000 apartments in the Portland area.

In April, his firm plans to raise rental rates about 5 percent. “People living in suburbia are moving to the city center,” he said. “And some of those people were foreclosed on and are now renting.”

Warren Buffett

Warren Buffett : I’d buy up a couple hundred thousand single family homes if I could

When probably the greatest investor of our time makes a statement like the above then it is time to site up and take notice. Warren Buffett says along with equities, single-family homes are a very attractive investment right now. Appearing live on CNBC’s Squawk Box ( – 5.10 minutes in) Buffett says he’d buy up “a couple hundred thousand” single family homes if it were practical to do so. If held for a long period of time and purchased at low rates, Buffett says houses are even better than stocks.

All property markets recover and the USA will be no different. Markets such as Florida offer superb opportunities to buy single family homes at below replacement cost and with strong net rental yields of 5% plus. If Warren Buffet thinks now is the time to invest in this sector, then it is definitely time to do so.


Optimism is building that the US housing industry is nearing a bottom — finally.

USA Today seems to sum up the position of a number of independent commentators. According to this source:

Home sales and home building are forecast to rise this year after sliding steeply the past five years in housing’s worst downturn since the Great Depression. Recovery is expected to be slow, and home prices are widely expected to fall this year. But investors are betting on the start of an upturn, bidding up home builder stocks and causing them to outperform the broader stock market.

Chief executives are more positive. JPMorgan Chase’s Jamie Dimon said last week that housing is near its bottom but could stay there a year. Stuart Miller, CEO of home builder Lennar, said the market has started to stabilize because of low prices and record-low interest rates. Market researcher RBC Capital Markets has also turned from a “bearish” view on housing to saying that 2012 “will mark a step in the right direction.

More improvement is expected for: ‘•Sales. Existing home sales will rise 12% this year after a 2% increase last year, and new home sales, coming off a horrid year, will jump 74% this year, Moody’s Analytics predicts. November’s existing home sales hit their highest mark in 10 months, and new home sales were the year’s second best, IHS Global Insight says.
•Construction. Single-family housing starts will rise 37% this year, Moody’s predicts, after falling 9% last year. Home builder stocks are on a run. The S&P 1500 homebuilding index is up 38% since mid October, vs. 7% for the S&P 500.

We have often been told that if you can buy within 10% of the bottom of the market you are an investment guru. You can become one by buying the right USA property now.


London update

UK house prices are continuing to fall with few if any signs of the market improving. Hometrack has advised that the average cost of a home was down by over 2% over the previous year. Demand remains weak with mortgages difficult to obtain. The likelihood is that prices will be even lower next year and it will be some time before the situation improves.

The good news for most overseas buyers is that agents will tell you that London is a very different market to the rest of the UK. To some extent this is true. The zone 1 and 2 central London market is being propped up by overseas buyers who are not experiencing the same difficulties in securing mortgages as their UK based counterparts are. Nevertheless, in many people’s opinion the London market cannot indefinitely avoid what is happening with the UK economy. In their opinion it is inevitable that given the severity of the problems the UK is going through this market will be affected.

As we have commented before, reputable parties disagree with the above view and are much more bullish about prospects for the central London market. However, it is worth noting there are rumors of falling sales rates at exhibitions in Hong Kong over the last couple of months. No-one wants to admit the Hong Kong buyer is losing his appetite for London apartments and it is fair to say some buyer fatigue was inevitable after the flurry of sales in the first half of the year. Given that demand from Asian buyers, principally in Hong Kong and Singapore, will be soft now until after Chinese New Year the real test will come in February/March when the London agents return in force and the exhibition circuit starts again. What happens at the exhibitions may have a profound bearing on what happens to the market next year. We will keep you posted.


USA Update

A well respected, internationally known newspaper’s blog has just run the headline

Housing Inventories Fall to New Four-Year Low in October

The supporting article states;

‘The 2.12 million homes listed for sale in October was down by 3.5% from September and down by 21% from one year ago, according to data compiled by’ The figures include sale listings from more than 900 multiple-listing services across the country. They don’t include all homes for sale, including those that are “for sale by owner” and other properties that aren’t marketed through multiple-listing services.

Inventories typically rise by around 0.8% in October from September, according to Zelman & Associates, a research firm. But they have been falling for several months amid a slowdown in foreclosures by banks and as home sellers, frustrated by low-ball offers, hold their properties from the market.

The National Association of Realtors also reported a decline in the number of homes on the market. At the end of October, total housing inventory fell 2.2% to 3.33 million homes, the lowest level of the year.’

You would assume from this for this that the over supply of unsold homes in the US is showing signs of dissipating. However, as several commentators to the blog commented;

• Take NAR’s figures with a grain of salt…and a beer and aspirin
• Is anyone counting the number of homes “FOR SALE BY OWNER”? Does this include homes taken off the market after long-term rides on the home selling merry-go-round?
• Does this include homes taken off the market after long-term rides on the home selling merry-go-round?
• And now, the rest of the story: the numbers of buyers also fell to its lowest level in four years. And that’s why prices keep falling. 9% unemployment will do that.
• Article doesn’t mention shadow inventory still on banks books

Agents and optimists (usually the same thing) will jump on any piece of good news that encourages people to buy. The fact is, there is little if any real evidence to support the fact the market has bottomed out. Nevertheless, if we are not there yet it is a reasonable bet we are not far off.


Student accommodation in Perth

We have had a number of enquiries recently asking us about opportunities to invest in the Australian residential market. Apparently the strong Australian dollar is not deterring many of our investors who are taking the view the currency will remain strong for the foreseeable future and it is great market to invest in for the future.

We have historically focused on the Perth market and whilst the residential sector there is in the doldrums at the moment due to soft demand, the prospects over the medium to long term remain sound. The Western Australian economy is driven by the resources sector and this should remain strong for the foreseeable future.

Student accommodation is a popular niche sector in the UK and whilst it has never enjoyed the same exposure in Australia, that doesn’t mean it isn’t an attractive option for overseas investors. Curtain University in Perth has over 10,000 overseas students studying there and there is a shortage of suitable accommodation for them. Four bedroom properties only ten minutes from the university and ideally suitable for students are available from only A$459,000. Now may be the time to buy when the market is down and rental demand is strong – the market there will recover in time and there will always be students looking for the right accommodation in the right location.

London bridge

Growth prospects for the London market

There are many reputable agents operating in the London market and Savills certainly qualifies as one of the better ones. Over the years I have been particularly impressed by the standard of its research. The company doesn’t always say the market is perfect and now is the time to buy. In the past it has forecasted prices to drop, which must have made its research department very unpopular in the eyes of its sales teams. So when it comments positively on the prospects for the market it is time to sit up and take notice. The company’s research department is forecasting a 6.5% growth rate for London in 2012 and whilst some would see this as optimistic, it is not a back street, one man operation making that claim. Sit up and take notice – it is probably right!