Colour Investments Property Investment

In very simple terms we are very positive about the long term prospects of buying in the UK for investment purposes. The key is “strategy” and making sure you can ride out any slowdown in growth in the UK and still rent your property out meaning you can leave your asset to sit there and make you money over the next 10 years. We are currently in a “buyers market” in the UK and as buyers we are seeing some fantastic deals coming to the table from developers which we are now able to offer you.

Here are some of the main factors to look at when considering UK property as a long term investment at the moment, I have listed some positives and some negatives to give as informed view as possible so you can make your own minds up:

Positives:
• Supply vs Demand imbalance (50,000-80,000 homes shortfall per year and the situation is worsening)
• Increasing population & increasing number of immigrants from new EU nations
• Reducing unemployment & Increasing employment
• Shortage of building – reduced building in 2008 exemplified by the difficulty for developers to raise finance
• Land shortage especially in city center locations, most noticeable in London
• Planning back-log, time taken and costs for planning consent
• GDP remains a healthy 2% (3+% in London)
• Interest rates coming down - I predict another .25% drop by May time due to remarkable low inflation.
• Aspirations for owning a home coupled with massive overseas investment from the likes of UAE, Dubai, Russia e.t.c.
• HIPs (Home Information Packs) discourage people from moving causing supply shortage
• High stamp duty discourages people from moving causing supply shortage
• Lots of people buying a second home to live in and letting out their old home, causing further supply shortages
• Buy to let investors show no signs of slowing up and in fact are buying now more than ever in this buyers market
• Revised 18% capital gains tax down from 40% improves the incentive to purchase property for investors
• Rents rising by 10% per annum – rental property market remains firm so buy to let investors are enjoying low risk investments

Negatives:
• Price to earnings high at ca. 10 (long term average 6)
• Inflation remains an unknown quantity as interest rates could rise in the long term if oil prices increase dramatically
• Credit crunch reduces borrowing for people with poor credit rating effectively making the rich even richer
• Average wage earner finds it hard to borrow enough to buy a house
• Increase difficulty in getting mortgages and banks holding higher rates because of credit crunch

Most of the above bullet points that I have mentioned are some of the reasons why we don’t expect a “property crash”. A slow down in growth is certainly on the cards and apparent in some areas already in the UK, but as we are buyers acting for our investors we actually see this as an opportunity to get some great bargains this year as every other less sophisticated investors panic over what they read in the papers. There are no headlines like “Long term property investment is stable” that are going to sell newspapers, whereas “Property Crash” will sell millions of papers. So we also feel the frustrations that Gordon Brown has with the current media situation and feel they are partly to blame for the current market sentiment by all of the un-balanced headlines they keep printing. And as we all know people (sadly) believe things that they read.

The credit crunch will certainly make it harder for “sub prime”/less creditworthy buyers to enter the market as the mortgage companies are tightening up their criteria for lending. I think this is a good thing and could have come sooner as the banks have been lending to anyone and everyone. Going forward I think the mortgage products will start coming back to the market more and more this year albeit more cautiously and the long term effects on property will be minimal when we look back in 10 years time.

Concluding comments:

All of that being said we need to be diligent when investing at the moment by considering the best mortgage product and gearing situation as well as buying smart and BMV (Below Market Value) to gain an extra buffer to the market. We are looking forward to the remainder of 2008 and the types of deal we will be able to offer you as well as other excellent property investment opportunities overseas to give you some fantastic diversification to your property investment portfolios.

Nick Wallwork
- MD Colour Group

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