Wednesday, Oct 25, 2006

The 'excitement' of the property market gamble

icNewcastle: Investors turn away from 'boring' cash

Millions of pounds of North-East property have changed hands in the biggest sale by a London auction house.
Auctioneer Mr Walker said the outlook for interest rates had failed to dent private investors, who were riding high as the stock market hit record levels.He said: "Investors have done well out of property in the last few years. They see cash as boring and are saying, `Why put money in the bank at 4% when I can get 5% or more in property'?".

Mr Walker said investors were "eliminating risk" as a consideration in the prices now being paid for commercial property at auction. He said: "People are buying on yields that are factoring in an expectation of further rental or capital growth. Four or five years ago, nobody would buy at yield equal to the borrowing rate, but people seem happy to buy and don't perceive the same risk as there has been in the past.
"Whether or not they are right to do that, I wouldn't like to say."

Posted by little professor @ 11:34 AM (495 views)
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1. tyrellcorporation said...

Idiots piling into a market right at the peak where returns are waifer thin and risk is huge - total madness!. It makes DotCom stock purchase decisions seem measured by comparison...

"Whether or not they are right to do that, I wouldn't like to say."

...I bet you wouldn't...

Wednesday, October 25, 2006 12:17PM Report Comment

2. kpjcomp said...

Investors are so predictable!!

And the DotCom seems measured, because the BOE debt mountain saved them, but like someone said before, whats going to save them this time.

"Why put money in the bank at 4%", erm. well don't put it in a bank that gives you 5.20%.

Wednesday, October 25, 2006 01:12PM Report Comment

3. Nohpc said...

I don't think two have very good understanding of the investor mentality. These are people with a lot of money to throw around and if there is a market crash they will not even blink an eye. They are holding onto the properties for longterm capitol growth and will even rent the properties out for sub par rentals. They will make lots of money in the long term and that's the name of the game. Of course they know they are not going to make money on a quick turn around they haven't made their millions by being numpties.

Wednesday, October 25, 2006 10:32PM Report Comment

4. indiablue19 said...

NoHpc.........Well if this constitutes a discernble investor mentality," then why wasn't it in the mentality four or five years ago? And why isn't Mr. Walker on the bandwagon that says this was a great idea?

I believe that the notion that "people don't perceive the same risk as there has been in the past" has a great deal to do with this transformation of the investing attitude. These so called professionals have fallen prey, as have average home buyers, to the idea that this purchasing climate is "normal" and the up and up trend will ultimately prevail, impervious to interest rates that must rise and unemployment on the way up and economy on the way down. All of these factors have consequences, including long term consequences -- please note a story on the blog today that says housing in the USA has taken an historic downturn, the most abrupt in forty years, a downturn expected to continue well into the future, and from which American housing will not recover any time soon. Doesn't sound like an astute investment, considering that those who want to bet on housing recuperating over years aren't necessarily assured of being in the black again in their lifetime.

And from what I've observed individuals who perceive that they have money to "throw around" have made it off dumb luck and through no brilliance of their own and will lose it just as quickly. No sensible business person ever considers having money to "throw around."

The number of millionaires in the UK has climbed rapidly in recent years, and many of these have done nothing but hold artificially appreciating property that they've proceeded to mortgage into the stratosphere for further investment, thereby pyramiding one debt off another. That's what was being done in Florida not so long ago, along with "flipping" contracts on new homes just prior to closing on them for massively inflated prices, then reinvesting those profits. Money was easy, many had already made an outstanding killing which they were spreading around. Then suddenly there was no demand. No one has even explained it. There is no apparent reason. But the house of cards has fallen and many "investors" and their artifical millions with it.

Thursday, October 26, 2006 01:16AM Report Comment

5. Nohpc said...

There are people in america who have made vast amounts of money on the property market. The only people likely to loose are those that bought within the last 2 years and if they hold onto their properties as homes rather than investments they too will make a lot of money. Stop thinking of property as a short term investment. It may have been a few years ago but is not at the moment.

Also property gives you approx 9% interest on your savings as you do not pay tax on any money you invest in it. This is the offsetting effect and if you have lots of money can save you 1000s in interest.

Thursday, October 26, 2006 08:54AM Report Comment

6. indiablue19 said...


Now is it owner-occupied homes we are speaking of, or professional investments? People investing in their own homes may have no choice but to sell up for any number of reasons, in which case property must continue to be thought of as potentially short term. That segment of the population aren't part of this type of investment strategy.

Where longterm property is concerned against the calculation you have made of 9% nontaxable gain you must apply repair and maintenance expense, utilities, taxes and insurance, plus any assessments, as costs which, one and all, have been upwardly volatile over any long term; as well as a vacancy factor where rentals are expected to account for debt service. If you are "in" entirely on cash, as a professional investor, especially one forfeiting large amounts of capital to a long term, you will undoubtedly factor in loss of liquidity [i.e., against other possible gains in currency, stock and derivatives markets] and the probability in a property market that has seen inexplicable rise of a similar inexplicable fall. I don't think it's so straightforward as Kirstie and Phil, et al., would have us believe.

"and if you have lots of money can save you 1000s in interest"? Interest on what?

Friday, October 27, 2006 08:00AM Report Comment

7. Nohpc said...

Putting 100000 into your mortgage saves you 5% on the interest on that money. However to make that much with savings it would have to be 5% after 40% tax for a higher rate tax payer. Therefore a mortgage is an excellent tax free savings vehicle and will give a hugely better rate than even the best bank. Icesave is 5.2% which is still pathetic compared to what you save on your mortgage with an overpayment.

Investing short term in the property market is always risky. And whats her name that does the property development show and is preggers. She always says prices can go down as well as up so you can't accuse her of peddling to the masses. I think Kirstie has said it as well.

Maintenance on a new build flat is very low. There are no taxes once bought. No capitol gains if it is your only property. No utilities as the renters pay it. Insurance is 20 pounds a month. Could possibly lie vacant if you buy in a stupid area but make the right choice and people will fight hand over foot for it.

There is no way you can argue that property is not the best long term investment. Look at the returns and show me any other way to make more money over a 20 year period.

Friday, October 27, 2006 12:15PM Report Comment

8. indiablue19 said...

Maintenance is a variable since not all investment property is new, one may or may not be in 40% tax bracket, you may or may not have rental vacancies and still need to heat the building, assessments are unpredictable and blocks of flats often realize costs from the co-op, and now you are adding in the factor of mortgaging rather than buying outright. Most people don't want to hold property, or much else, for twenty years. If you get to dictate all the terms for the exact scenario you would like to buy into, including the future of housing prices, maybe you "couldn't lose," but that's not the way of the world. If it were so air tight as you explain, everyone would be in it and Mr. Walker, of the article we began with, would be applauding these investors rather than "not wanting to say."

Friday, October 27, 2006 09:55PM Report Comment

9. Nohpc said...

I admit it's not airtight but at least I am open to saying my logic may be flawed. Can you not for once do the same? Please.. it's driving me crazy that your opinions are so unshakeable. God knows I have been trying!

Saturday, October 28, 2006 05:49AM Report Comment

10. indiablue19 said...


My opinions aren't necessarily unshakeable, but they are formed from many years of executive business experience, including purchasing, strategic development, risk and asset management, and the owning of homes and living through varied economic crises on several continents. So far, I've either been lucky or made decisions that work at home and on the job. But right now for me, as for many others I see commenting here who have in the past calculated the odds and taken their bets with a firm thought what to do, the future looks murky.

Concurrently, at this moment in time the decisions I make in relation to finance and property ownership have implications for four generations of my family, all at varied stages of life from student days to extreme old age. I know that I'm only human; but this discussion is no game for me and I have to emerge from it on a regular basis with some idea where to lead my family. Like many others on this site, I have to try to find the closest thing to the "truth" realizing that falling for further lies and distortions from the media and the vested interests could sink the economic ship for many I hold dear. I know that any large mistakes may be unrecouped in my lifetime. And what I wouldn't recommend for myself I can not in good conscience recommend to others. I may disagree with what you say but you have the undisputed right to say it. That is the nature of debate.

Saturday, October 28, 2006 06:18PM Report Comment

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