Saturday, Mar 28, 2009
Buy to let deal son upswing - but at what price?
Financial Times: Buy to let deals on the upswing
Interesting article. Suggest serious investors are buying up to 150 1/2 bedroom new build flats at a time for up to 50% discount off 2007 prices. However,although this may feed through to official figures in terms of units sold it won't have any effect on the Nationwide and Halifax price indexes as these block purchase won't be paid with mortgage loans. Therefore in reality all three major indices are now under-reporting the drop in house prices, because the third, the Land Registry doesn't record repossessions. However, this may just have the effect of dragging out the reported falls over a number more years,, because if you are unlucky enough to have purchased a flat in 2007 in a block where they are selling for 50% discount no surveyor is going to value up when you come to sell.
9 Comments
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1. uncle tom said...
Yeh, sure. I get a bit of deja vu seeing pieces like this. I think Knight Frank keep dusting off the same press release and put it out again and again as if it were something new.
Whenever reference is made to these so-called 'professional investors', I smell a rat.
The real professionals sold out a couple of years ago, and won't be back for another year yet..
2. p. doff said...
A friend of mine has just put a deposit down on a BTL - after selling one last year at a loss.
Some people cannot be disuaded from repeatedly making the same mistake, as the British obsession with propeteeeeee is too strong.
3. quiet guy said...
"investors are buying up to 150 1/2 bedroom new build flats at a time"
Then presumably they trundle off to the next meeting of the Slow Learners Club? Like Uncle Tom, I am doubtful that these people exist in significant numbers.
4. Poacher said...
I work with about half a dozen small-time professional investors (say around a hundred or so properties) and one large scale investor (thousands of properties) and they are all buying a lot of property at the moment and chasing the kind of deal this article describes. I personally think they are buying for the wrong reasons: thinking the mortgage market will snap back over a 5-8 year period and they'll see huge capital gains, excited about the yields (8%+) and not giving sufficient thought to the implications of falling rents in the near term in combination with rising interest rates in the medium term. However, I have a funny feeling they will do all right anyway. I'm convinced the government is stoking inflation at the moment and residential rents track inflation much better than commercial rents (which lag massively); and their borrowings will be quickly eroded. Although I don't think the capital gains will be there in real terms, I think they will see their capital protected and even enhanced over the next ten years, while the rest of us are beggared by inflation.
I have explained this to one of them but he didn't get it. When it works out for him in a decade's time he will claim it was always part of his strategy - just like he's convinced he's a genius for making a killing out of the buy to let boom, even though he hasn't the faintest how it worked (cheap Asian money, selective inflation targeting, loan origination models, etc.)
5. gone-to-colombia said...
So............50% less than the 2007 price for 150 units?
Crappy deal, I'd expect a much lower price than that. Frankly, you can get 50% off just one flat!
BS
6. crunchy said...
The majority cannot have the bulk of the money. The shafting will continue untill total transfer.
Still waiting with my suitcase open!
7. mander said...
The homes are investments still. At least this is what banks are still doing after being bailed out. Unemployment is not a factor to consider for banks. There are no cash rich investors, all the cash comes from banks as nowadays credit worthy people are not intrested in their business so to who else to lend to?
8. Chf said...
This is true but a point not readily accepted byt the majority of HPC'ers. Im hugely bearish but know of groups of investors that are doing just this (Birmingham, Manc, Leeds etc) . My friend actually sources the mortgage for them, but theres so very few BTL lenders now its getting tough.
Others are buying for cash but either way 40-50% off 2007 peak is common.
Problem I have with them is its often off the builders 2007 peak price. I stil think theyre overpaying and the yields look pathetic but as someone said previously people think its a bargain and hell yeah! its bricks and mortar for half price (ish)
Only way i can see these guys winning is if inflation and the associated dash for assets comes off in a year or two and nominal values increase but for city centre falts and just houses in general there still seems to be far to many negaitives such as unemployment, higher essential costs , higher interest rates etc that im not yet convinced on that score.
9. Mr Rigsby said...
Come on down - The price ain't right yet!