Michael Ferris Quoted in The Times Newspaper Property Article – Is now a good time to invest?
There are bargains but where should you buy and when? Carol Lewis and Emanuele Midolo report
The traditional housing market has been on pause for more than a month. However, in the past week, property professionals report that buyers are on the hunt for bargains.
“We have clients with cash ready to strike. There is a strong appetite for a good opportunity,” says Jamie Johnson of FJP Investment, a property investment company.
So where should you splash the cash? Unlike previous downturns and recessions, there are not so many easy pickings due to six-month extensions on loans to developers and mortgage holidays to owner-occupiers. There are still deals to be done, but most commentators agree you will need cash at the ready and be able to afford to invest in multiple new-build flats.
Tim Hyatt, the head of UK residential sales at Knight Frank, says “it’s down to the size and scale of the developer. All developers, irrespective of their size, live and breathe on cash flow, and in order to keep their cash flows ticking over, greater discounts might be offered.”
However, Michael Ferris, the head of property investment at JR Capital, a multi-family office, points out that many housebuilders are in a solid position. “The larger housebuilders are well capitalised following five years of strong performance and on the back of Help to Buy, and they are less exposed to high-value central London than they were in 2008 financial crisis. The smaller London-focused developers won’t be as well-protected. IT’s too soon for them to feel the pain, but it will come,” he says.
This is leading to a stand-off between bargain hunters and developers. Jeremy Gee, the managing director of Beauchamp Estates, an upmarket estate agency, says “we’ve had some inquiries from buyers looking for discounts on bulk buys, but the discounts some people are seeking are not the kind of cuts our clients are prepared to accept.”
Stuart Law, the chief executive of Assetz, a property services group that lends to developers, believes there are bargains to be had. “Some of the smaller developers may not be with reputable lenders or may have alienates their lenders so they may be forced into sales, but most are not distressed,” he says adding that some developers “might dump the last few houses for a 10 or 20 per cent discount so they can bid on the land”.
David Galman, the sales director at Galliard Homes, one of the UK’s largest property developers, says there are many family offices – which provide private banking and investment services for wealthy families – buying apartments in bulk to let. A Chinese family office recently bought three flats in Galliiard’s Triliogy scheme in borough, south London. “I would have expected to sell each unit for £1.1 million, but I was happy to settle for £1 million each, so they’ve got a descent 10 per cent discount,” he says.
However, Galman adds that he has heard of other developers receiving “silly offers” that they are declining. “I’ve received a cheeky offer that was, in my opinion, relatively derisory. I don’t blame them for making it, but I just said ’We’re not ready, thank you very much.’ ”
Many of these prospective purchasers are looking to add to their rental portfolio, despite a recent increase in costs (chiefly from the loss of mortgage tax relief), an increase in regulations for landlords, and tenants unable to pay rent in lockdown.
Oliver Spriggs, the director of CBRE’s residential private office, says “Investors are encourages by the resilience of the rental market; large landlords have still been able to collect more than 90 per cent of rents in recent months, which compares favourably to most other sectors at this time.”
Chris Horler, the managing director of real estate at Sandaire, a multi-family office, suspects that the best discounts for those seeking to add to their rental portfolio will be offered in locations with an oversupply of new-build flats, such as central Manchester, Salford Quays, central Leeds and possibly parts of Edinburgh and Glasgow.
Jennifer Goldie, a senior sales manager at Savills in Glasgow, confirms that her office has had “two off-plan sales since lockdown started from Chinese buyers” off the back of virtual viewings.
The largest discounts are definitely available to international buyers – from China, Hong Kong and the Middle East – with much of the discount coming from the continuing poor performance of sterling. Many of these buyers are keen to secure second homes or accommodation for student children before the introduction of an extra 2 per cent stamp duty surcharge for non-resident buyers from April 2021.
Ed Lewis, the head of residential development sales in Savills, says: “Our Asian buyers are happy to buy off-plan and remotely from six-thousand miles away. That appetite hasn’t diminished. They now get a heavy discount from the currency. London is pretty good value for them.”
For the rest of us, though, big bargains are still few and far between. Lewis says “Our average discount is 5.8 per cent, while before the lockdown it was 4.8 per cent. That’s a dealing margin rather than a discount – although the biggest discount doesn’t necessarily represent the best deal. Some assets are overpriced. And just because you’ve got a 25 per cent discount it doesn’t mean you’ve done the best deal.”
Katherine O’Shea, a director at Coutts bank, says that in the first three months of this year the difference between the original asking price and the selling price the selling price was at an all time low in prime central London, at 9 per cent. “this could increase again, but I think there is so much unsatisfied demand and severe lack of stock in some areas, which could help hold up prices.”
With so much uncertainty, Horler urges caution to those tempted to search for bargains right now. “sit on your hands and wait because the first mover is not necessarily the smartest mover.”
To see the full features article in The Times, please click here.