Norman Bartholomew’s Property, Business And Life Blog

More on the Property Cycle

Six months ago, I started planning for worse case scenario’s, yet hoping for better, but as I continue to watch the markets I can’t help feeling the self-fulfilling prophecy of a UK property market meltdown is inevitable. I ask myself if I could see this coming so long ago, why couldn’t the banks and the government?

A couple of days ago Mortgage Express pulled it’s same day remortgage product, currently the most important tool for BMVer’s (below market buyers) like myself to purchase property below market value in an efficient manner. Now I know the credit crunch has caused reduced liquidity, but with the government putting another £50bn into the system now is the time that lenders should be easing the squeeze not increasing it. If serious investors like myself can’t buy these properties, which people in trouble are desperate to sell, then surely it’s only going to perpetuate the problem, surely in the long-term this will create more insolvency’s, more repossessions, which in turn causes more bad debt for banks and deeper recession.

For sure the market needs a couple of years or more of zero growth (and this would be a best case scenario) the reality of which is, a 20% fall seems likely and if the lenders don’t start acting more responsibly the real danger is a fall more like 40%!

Fred Harrison, economist and author of Boom and Bust: House Prices and the Depression of 2010, has analysed the last 232 years of business cycle statistics, Harrison demonstrates housing bubbles start and end on an 18-year sequence which we can track back from 1992, 1974, 1956, 1938, 1920, 1902 and so on. They occur with 14 years of growth followed by 4 years of recession. Now although he likes to demonstrate predictable numbers the real picture is always more fluid, however fundamentals shouldn’t be ignored as the signs are everywhere that we are heading for a property crash and recession, and as spending dries up, company profits will be hit, leading to rising unemployment, more repossessions and further falls in property prices and so on…

Only the lenders and government have the power to ease and manage the situation. The serious property investor is the one tool in the governments armoury that can help avert disaster, lenders must start improving and increasing the availability of mortgage products, especially the BTL sector, because when the serious investors stop buying an all out catastrophe will be inevitable.

Darling of a budget for property investors?

One would have thought that yesterday’s Budget should have been the defining moment in Alistair Darling’s political career – a chance to firmly stamp his own mark on the UK economy in his role as Chancellor by doing the right thing for the economy and in particular the property market, but sadly it was not to be. Predictably, he centered on tweaking existing policies relating to cigarettes, alcohol and the environment rather than focusing on the credit crunch crisis, consequent property market slowdown and the confusion over forthcoming Capital Gains Tax changes, factors that are ultimately driving us towards a recession.The Northern Rock fiasco has severely knocked public confidence in what until recently had been thought of as safe and reliable financial institutions.

It’s difficult to know if the government really has got its finger on the pulse after taking so long to realise the scale of the Rock’s problems. The whole thing could possibly have been avoided if government action had been taken much earlier.It seems as though the government is still living by its ‘Things Can Only Get Better’ mantra, although after a decade of power this is starting to wear a little thin. Had the nation’s economy been in better shape and Darling been given more leeway this Budget could have brought hints of the brighter future that has always been promised. Unfortunately this wasn’t the case, in fact with house sales and share prices taking a tumble 2009 could potentially be worse for the economy than 2008 as the expected Stamp Duty changes don’t look likely for some time yet. According to the Halifax, the average stamp duty bill is now £1,751, which is up 82% on 2002. In fact, there was no mention of Stamp Duty thresholds and no new measures introduced. This lack of action is likely to provoke a severe reaction from the property industry.

That said, there are many ways to avoid tax under current legislation, especially Capital Gains Tax. To get the full details I thoroughly recommend Tax Cafe and their book “How to Avoid Paying Capital Gains Tax”, this book and all their other property related tax books are a “must-have” for any serious property investor and I can vouch for this 110% as I have bought and read them all and regularly refer back to them during the course of my daily business.

Fraudulent Flipping in the USA

With the pound currently so strong against the dollar and the prolific amount of seemingly bargain property to be found across the US it’s definitely worth considering looking across the pond for investment property. However, it’s obviously best to be wary of possible scams and we recently published an article on the Buy To Let Investors website containing a list of current cons being used to trick investors, click here to read it. Bearing this in mind I thought it necessary to draw your attention to a new ‘property flipping’ craze that’s currently rife in certain parts of New York State.

You may think of ‘flipping’ as a perfectly normal practice where a property is bought Below Market Value, has value added and is then sold on for a profit, however there has been a spate of unethical property flips happening across western parts of New York State, and the city of Buffalo in particular. Some large UK property clubs are offering deals in this area, and on paper they certainly do look enticing: yields of 25 – 40%, low headline prices compared with the UK, good capital growth prospects, easy to understand buying process, no language barrier, I could go on… So why wouldn’t you jump at the chance to invest there? Well, you need to be extremely careful that the deal you’re interested in isn’t associated with ‘fraudulent flipping’.

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Amazing Malaysia

We’ve just launched a new luxury overseas property deal in Port Dickson, a sought-after area of Kuala Lumpur in Malaysia. The development comprises of Water and Garden Chalets and is fully managed by the award winning Legend Hotel Group and the attention to detail is just incredible. Each of these designer residences sits just four metres above sea-level in the Malacca Straits and comes with its own swimming pool and open air garden. They are elegantly furnished with granite, parlimanan stone, hardwood timbers and teak furniture with Balinese stone carvings and pottery. The impeccable design and high quality finish combine to create a style and standard of living that’s truly hard to beat!

Phase One has already been completed and has an occupancy rate of more than 35%, despite being completed just a year ago. This is great news indeed as the resort is already getting a great name for itself that can only improve over time. In my opinion this makes a superb investment proposition, initially aimed at the growing tourist market from Hong Kong, China, the Philippines and Singapore, however the Malaysian Government is working hard to attract tourists from around the world.

Malaysia is a former British Colony so has a familiar feel for UK visitors, with English being almost universally spoken and understood. Property laws and banking systems are also based on the UK model.

Main Benefits: -

* Prices from just £81,751

* 100% Finance Scheme Available

* 8.7% Below Market Value

* Guaranteed Rental Scheme and ongoing Profit Share

* Full Luxury Furniture Pack

* 15%+ Annual Capital Growth

* No Capital Gains Tax

* Fully Managed Luxury Resort by Award Winning Hotel Group

* 20 Minutes from the Sepang F1 Circuit

* Winner of CNBC 2007 International Property Awards for ‘Best Architecture’ and
‘Best Development’

To find out more please log into our main site Buy To Let Investors

More on BMV

We’ve had a huge response from people signing up for our “ready made BMV deals” and many people are calling for advice on how to start finding their own, inparticular I had a call this week asking about how to handle the negotiation process. No doubt many of you have read the “textbook theories” knocking about on negotiating deals, however we must remember we’re dealing with ordinary people, many of whom are facing grim times and perhaps will be suspicious of “Cash Buyers”. I mean, I hear horror stories from vendors about other “BMV buyers” with their high and mighty attitudes who pull up in their signed up 4×4’s with “We Buy Property For Cash” plastered all over the side! Most of the vendors I speak to are looking for discretion and tact, they certainly don’t want all the neighbours knowing what’s going on.

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Repossessions

I don’t know about you but I’m reading more and more about repossessions in the media, last week there was an interesting article in the Times indicating that many more repossessions are making it to auctions rather than being sold through estate agents, giving me a clear indicator that my theory about the market is correct. A few months back most repossessions would have been snapped up at around 15% below market value and now we see auctions houses placing them with guide prices of 20% BMV and then failing to sell them.

All this suggests that confidence is still in decline with even experienced BMV investors looking for 25% BMV +, at auctions. In reality, provided the rentals stack up nicely and there is enough cash-back to cover any remedial works, then fears of further market downturn should not be an issue as ultimately property investment is still a longterm strategy. That said I tend to agree with The Times and would expect to see a 5-10% drop in prices this year, but no all out crash and especially no recession.

We’ve recently launched a new “Ready Made Deals” service, many of which are repossessions which have failed to sell and there is a link on this site to the page where you can register your details and area of interest as these deals will be very limited.