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Chrippie

How far do peeps think PCL will fall

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Been lurking here for a while and thought I'd access the HPC brain.

Bit of background, I sold a terraced house in Notting Hill in 2012 and have been renting since. With hindsight I got out too early, but interestingly even then it took close to 12 months to find a buyer. I know a few people in the area who tell me it is terrible, eg one buying agent currently has no clients at all and hasnt for 3 months. My view is we are already down around 30% on a mark to market basis from the peak for this sort of property.

Just wondering how far people think that sort of property will fall peak to trough. My own view is terraced houses in PCL drop 50-60% with the bottom coming in something like 2018/19, new build flats drop more like 70-75%. I think there is a real prospect that it is worse than that.

Reasons for such a dramatic drop:

Almost no one I know who currently owns property in that area could afford to buy it today. Even senior bankers couldn't afford to buy the property they are currently living in. I think when we sold house price to average income ratio on our street was c. thirty to one. Even a halving still leaves this ratio massively stretched. I estimate that from an average of highly paid bankers, but also neighbours on both sides were NHS doctors who bought a long time ago, opposite was a retired couple etc.

Huge increase in supply. Every where you go in PCL there are new developments. I believe something like 36000 properties over £1m coming to market in next few years. I worked out if you built all this in Hyde Park it would cover it to 12 stories, based on normal London density.

Foreigners are also exiting. I was in Singapore on Brexit day. I had a meeting with a Singaporean who owned 5 flats in PCL, leveraged in Sing $. He was virtually in tears. He is a forced seller. There have never really been forced sellers in PCL apart from the odd divorce/death.

So supply has massively increased and demand is dramatically down

Stamp duty. To buy the house I sold today would involve stamp duty well into 6 figures. Even for a hedgie or Russian oligarch that is a stupid amount of money to burn.

All the other tax changes/cut back on owning property through companies etc. On average I would assume a house in PCL should change hands around every 15-20 years, but we are currently seeing almost no transactions at the moment eg W8 (Kensington) is currently seeing around 3 terraced houses sell every month. Assuming even only 3-4,000 terraced houses in the area which I think is a conservative figure (population in the whole of K&C is 150,000) this implies houses only turning over every 100 years roughly, ie there is almost zero demand at these prices.

The financial sector is now in long term decline in my view. Not so much due to Brexit, although partly that, but more just natural cycles. Financial sector share of GDP is inversely correlated to interest rates. ie we've been in a 30 year cycle of declining interest rates and the financial sector share of GDP has gone from 5-6% to 13-14% of GDP over this time. But we now face a long cycle of the reverse. Everything that London prices depend on (hedge funds, investment bankers, lawyers, research analysts, fund managers and everybody who feeds into them  (interior designers, swanky restaurants, sports car showrooms, Russian hookers, property developers, estate agents) has benefited from this cycle and are in my view now going to get squeezed. Essentially its easy to pay 2 and 20 to a hedge fund when everything is going up. Not when its not going up any more.

Anyway those are my thoughts be interested in others.

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Thanks - no don't work in property, but read about central London market a lot hence use that acronym.

Hyde Park is 350 acres, = c. 15m sq feet. Normal density of London is around 1/5 (my assumption), ie 1/5 of land is actually built on for residential property, leaving the rest for streets, gardens, playgrounds, schools, hospitals, shops, offices, car parks etc., ie if they built over Hyde Park there's around 3m sq feet they could actually build residential on allowing for all those other amenities that are needed. There's 36000 properties in PCL coming. Assume average size is c. 1,000 sq feet and you get Hyde Park to 12 stories. Even if its 10 stories If you look at a map of London and think about how big Hyde Park is and the fact that most of PCL is to roughly 3 or 4 stories and its a good way of thinking about the ridiculous scale of the overbuilding that is going on here.

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1 hour ago, hotairmail said:

Very good first post. Welcome.

I had to work out what 'PCL' was....Prime Central London? Initially made me think you must work in property.

 

 

Clearly not Printer Command Language then which was my first thought.

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4 hours ago, Chrippie said:

Been lurking here for a while and thought I'd access the HPC brain.

 

Welcome! I reckon 60% drops on average in PCL. The main factor, following on from your "bankers cant afford the property they live in" is that the asking price only becomes a sale price once a buyer is found. The amount of people able to afford the asking prices and willing to pay them, is heading toward zero fast.

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1 hour ago, Fairyland said:

How far will PCL fall?

It depends on how far the glubbermint is prepared to prop the property market.

Yep, reasoning and logic just don't come into it, the government and boe are capable of anything.

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1 hour ago, Fairyland said:

How far will PCL fall?

It depends on how far the glubbermint is prepared to prop the property market.

Going by the National debt (http://www.nationaldebtclock.co.uk/), when is it time to ask, who's gonna prop the glubbermint?

If PCL falls 60%+ just imagine what north of M25 will fall by.  I see all those helpful polish builders returning home.

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32 minutes ago, Habeas Domus said:

+1 also you are giving me nightmare flashbacks of invalid form feed charcters

That should of been +12, eh?  My google not so good since cookies set from another search, Posterior Cruciate Ligament.  Must hurt if that falls?

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Hedge funds are having a hard time with low interest rates, yields are down for everything and all it takes is one or two bad days and the fund is bust. Company I work for had a pretty successful fund running for 9 years, a bit of bad luck and the whole desk were out of a job. Not much fun in anymore.

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The property market will correct to historic norms for price:income, but the mechanism that this will take isn't clear.  There are still many people with lots of money and who believe in the property market, so IMO any falls will be bought into.

As for timescales, I'd suggest a long slow decline, mainly hidden by inflation, with the low around 2028 or so, but who knows.

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24 minutes ago, hotairmail said:

I like to keep a weather eye on this site. Struck me that hedge funds had a very poor 2016.

 

http://www.automated-trading-system.com/resources/trend-following-wizards-fund-performance/

IIRC they had an ugly 2015 too.

Great find btw. The hedgetarians were the first to blow up in 2007. Their super-leveraged stochastic trades are flaky enough at the best of times but when liquidity starts to dry up they fail catastrophically.

Canaries in the coalmine.

 

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Surely the solution is to raise rates to help the banksters\hedge funds, force some sellers(who prolly don't live there anyway, is landlords), drop the prices and bring back transactions.

Whose daft idea was all the QE ZIRP BS anyway.  It helps no one. 

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I was looking at prices paid data on some older sw1 1 and 2 bed flats, with decent history. I think they were posted on the 'is prime London crashing' thread. Back in 2002 these were going for 150k - 200k, and now going for 10 times that... Quite some rate of inflation! 

I can't see them going back to 2002 prices unless rents fall drastically. 

Personally, I reckon london as a whole will probably fall 40-50% in the next 5 years, with the later risers (barking, Daren ham, etc) probably lying hit harder. It still won't be priced keenly - that would take 75% falls - but I just don't see it getting to that point without a genuine worldwide depression

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Just found that prices paid data link... Not sure how to quote from another thread but the link is here http://www.rightmove.co.uk/house-prices/SW1E-6PB.html?backListLink=%2Fnew-homes-for-sale%2Ffind.html%3FlocationIdentifier%3DPOSTCODE%5E837435%26minPrice%3D4000000%26maxPrice%3D7500000%26minBedrooms%3D3%26radius%3D0.5. 

Thanks to untakenname for the original post. Buckingham gate... Lovely flats. Not affordable, even for a banker with a million pound bonus 

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5 hours ago, Peter Hun said:

Hedge funds are having a hard time with low interest rates, yields are down for everything and all it takes is one or two bad days and the fund is bust. Company I work for had a pretty successful fund running for 9 years, a bit of bad luck and the whole desk were out of a job. Not much fun in anymore.

I've just come down from the tiny violin shop, they've run out, soz.

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2 hours ago, GreenDevil said:

Surely the solution is to raise rates to help the banksters\hedge funds, force some sellers(who prolly don't live there anyway, is landlords), drop the prices and bring back transactions.

Whose daft idea was all the QE ZIRP BS anyway.  It helps no one. 

Gordon "I saved the world" Brown.

 

When I go for a sh#t I say...I'm off for a Gordon.

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4 hours ago, interestrateripoff said:

London needs a massive correction for local people to afford. Still property only goes up!!!

Pcl Down 12% from 2014 peak...just saying like.

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6 hours ago, dgul said:

The property market will correct to historic norms for price:income, but the mechanism that this will take isn't clear.  There are still many people with lots of money and who believe in the property market, so IMO any falls will be bought into.

As for timescales, I'd suggest a long slow decline, mainly hidden by inflation, with the low around 2028 or so, but who knows.

I think negative sentiment will affect all sorts of buyers....

1. FTB - heavily affected by sentiment, once drops consistent and going on for a few months, will be reluctant to step in and buy

2. FTB with offer of BOMAD loan/gift - both parties affected by sentiment, so ditto.

3. Wealthy buyers - wont want to lose money on a bad deal, ditto

4. Largescale investors/developers - if still iquid, will tread carefully as afraid of being burnt

5. Foreign investors - unlkely to invest in a falling market.

I can see many people, no matter how much money they have, buying in a falling market

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