1st February 2008
Property Week – Let’s not be too hasty in calling a recession
Reality may not reflect the doom and gloom in the press, argues Grant Bovey
Like many in our industry, I have been monitoring the financial comment over the past few weeks regarding the prognosis for the property sector.
Depending on which article you read, we are either in for a very rough time with capital value falls, or we will simply endure a mere blip. What continues to frustrate me is the fact that the vast majority of these articles are compiled by young analysts who are relying on data rather than experience. If such articles gain sufficient momentum, the combined negativity will eventually knock consumer and investor confidence, and it will become a self-fulfilling prophecy.
The reality is that things may not be nearly as bad as the analysts are forecasting. For example, since Christmas, and compared with the same period in 2007, sales of homes for the Imagine Group are up 25%, which makes nonsense of the predictions. While growth this year will undoubtedly not reach the heights of previous years, capital values over the following 12 months will increase as long as the market rides out the next few months.
There are opportunities too. If you are looking to invest in property, there are deals to be done now if you are well informed, well resourced and you can move quickly. However, this window will not be open for long. If interest rates continue to fall as expected, and the hard evidence of falling prices fails to materialise, the market will recover as quickly as rumours of its demise were circulated.
Rental yields up
The one area there seems to be no dispute on is rental yields. Recent surveys from the RICS, the Association of Residential Letting Agents and mortgage provider Paragon show that rents have already risen by as much as 15% in London over 2007 and are set to rise nationwide during 2008. This is certainly the case for the managed apartments in Imagine Homes’ portfolio, and further supports the notion that by the end of the year house prices will have risen and not fallen.
It’s also a fact that at times like this there is more pressure on the large housebuilders to become more creative to maintain the sales curve. If this means that they start to think outside the box, become more competitive and provide a better service, this can only be a good thing.
Potential pitfalls
Talking of better service, the property industry should prepare itself for another round of regulation. It can only be a matter of time before the government unifies the buy-to-let sector alongside financial services. How can it be right that a sales person with very little experience can be allowed to sell a £250,000 property as an investment opportunity without being legally obliged to detail the potential pitfalls?
How many unsuspecting people have invested their life savings without really understanding void periods, interest payments shortfalls, assured shorthold tenancies and all the other potential problem areas that face the inexperienced property investor? The customer has the absolute right to understand the potential upside, but also the potential downside of any transaction so that an informed commercial decision can be made. The sooner the government realises the need for regulation, the better.
Grant Bovey is CEO of Imagine Homes and Veritas Investments