The collapse that didn’t happen
The mainstream media got it so wrong, didn’t they? In 2016, they would have had you believe that Donald Trump becoming the next US president and the UK voting to leave the EU would likely have a devastating effect on world markets and business sentiment. They threw lots of predictions around, a 4500 FTSE (currently 7192) was mentioned, also a 1250 S&P (closed at 2267 last night) and of course a property crash was a near certainty.
The ‘experts’ in the media were completely wrong on nearly every prediction they made. Brexit happened, Cameron left, Trump won and the economy hasn’t imploded and stock markets have pushed to new highs.
I believe that the negativity in the media is wonderful news for those that have the courage to act now. The majority of buyers are waiting on the side-lines and waiting for the crash they keep reading about to occur. I believe there is a huge amount of money waiting to be deployed and huge potential for prices to push higher. Please allow me explain why I am so confident.
Banks are not lending anywhere near as much as they were in the mid 2000’s. Citigroup currently has a Tier 1 capital ratio of just 10, in 2008, this was 36. The cycle always repeats itself, banks lend too much, asset prices go too high as credit becomes too widely available, everyone piles into a red hot market and there is no money remaining on the side-lines i.e. there are no more buyers lined up. The market then crashes, banks and lenders are fined and hit with punitive new regulations. This time is no different.
Finding new ways of making the same old mistakes – why prices will climb
The modest price falls in London have been due to an increase in SDLT levels and have little to do with Brexit. There have been very low transaction levels across the market as you may have read and this has made the price data far less reliable as it covers so few transactions. Frustratingly, property is still coming to market having been over valued by estate agents desperate for new instructions.
Most owners have huge cushions of equity and can afford to sit tight. It is the owners that need to sell that provide the very best opportunities. Once you know which properties simply have to be sold by their owners, you have a huge advantage over others in the market. We have used this ‘edge’ to secure some exceptional properties on very good terms in recent weeks.
Buyers of prime London property are still there, waiting. They have not disappeared or become poorer as was the case in 2008. The UK economy is doing far better than predicted and those that are buying in dollars or euros are actually 20% and 16% richer in sterling terms. London is not only a magnificent city, it is also a tax haven. I believe that corporation tax rates will be slashed further to encourage investment and we will continue to print huge amounts of money and make huge infrastructure investments which can only feed into higher property prices. I also believe there will be a huge increase in the availability of credit over the next few years which will push prices higher, indeed, we are already seeing the signs of the next great credit surge:
Mortgage backed securities are making a reappearance but the creators of these ‘instruments’ are thinking up new names for them. Mr Trump is suggesting he will repeal the Dodd Frank Act which will give US banks far more freedom to lend. In the UK, banks are finding ever new ways to create credit, witness the 25 year mortgage for 60 year olds – the next step is the 50 year mortgage for 30 year olds. Articles are already appearing that bemoan the lack of 100% mortgages and how unfair it is on first time buyers, it’s the same old cycle yet again..
Have you noticed how popular property crowd funding is getting? Although in its infancy, I believe it will be a key driver for the next boom in prices as these funds allow you to invest in property from only £50. Money that has previously been locked out of the market will now have access and London will be the main recipient. These changes are not necessarily prudent or sensible but they are happening anyway.
In 1998, the same ‘experts’ predicted that London property would fall sharply, citing that LTCM had collapsed, Russia had defaulted on its bonds and the Asian Tiger economies were imploding. Prices did the opposite and simply surged for 9 years until 2007. Think back to those heady days of 2007, the mood was completely different to today, everyone was a property or share trading genius. Hubris ruled and everyone was invested. Chuck Prince, the CEO of Citigroup said to the FT in July 2007:
‘When the music stops, in terms of liquidity, things will be complicated. As long as the music is playing, you’ve got to get up there and dance. We’re still dancing’.
Today, the dance floor is virtually empty, many are nervous and there are many trillions sitting on the side lines waiting to invest in London property. Apple alone has $230bn in cash. This is not a liquidity crisis. If you feel that prices will not go any higher, then you need to ask yourself why you think this is the case. I believe that many are merely following the consensus who are simply following press opinion. There are always reasons to be fearful, but the time to be wary is when everything is rosy.
How NOT to buy a property
Just because now is a good time to buy, you should not rush out and commit without doing the necessary due diligence. It still amazes me that so many foreign buyers treat acquiring a property as a glorified shopping trip. Some fly into London for a few days, look at a handful of properties chosen by an estate agent that represents the seller and make an acquisition based on the assumption that the best opportunities happened to be available during those few days through that sole estate agent.
Others attend shows put on by developers which are packed with salespeople dressed up as ‘property advisers’. Some merely look at websites and shortlist a few properties to view and choose one based on nothing more than a few hours of online searching. Madness.
My predictions for the market in general are of limited use though, you really need to know what is happening in your target area and price range. If you have a specific question about the market or would like to acquire your perfect home or investment on the best possible terms, simply email me at firstname.lastname@example.org
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