UK Landlord Forum / Life

U.K. [commercial] property values set to rebound in second half

Commercial property prices could fall by a further 15%

London property remains attractive

London property prices are 'exceptionally expensive'


Hmm...who to believe, who to believe, that is the question...

One thing is for sure- nothing is certain.

One thing is certain, eventually (long term) it will all go up

Sorry just posted a rant about this on other thread

Quote from: hopson on March 27, 2008, 04:46:24 PM
One thing is certain, eventually (long term) it will all go up

In nominal terms, yes. In real terms, not necessarily.

Are you a pessimist PG?

Or are you like me, in denial and a realist? 

I'm pessimistic about the property market in the short to medium term.

The question is whether my pessimism is justified or not.

At presant, but always, its good to go into any deal with caution,  to be honest i would never let what others say effect what i do , as i trust my judgment to well,  But the world needs people like me out there so others can profit from me lol.

Quote from: Property Guru on April 01, 2008, 12:11:34 PM

Quote from: hopson on March 27, 2008, 04:46:24 PM
One thing is certain, eventually (long term) it will all go up

In nominal terms, yes. In real terms, not necessarily.

?? a bit of an ambiguous statement, Lets set our diaries for 10 years time and revisit this link, and see if your portfolio is worth more than 10 years ago, nominal, real terms or otherwise? The UK market is unique re supply and demand, you seem a clued up type of person, and I respect caution but cant understand negativity. If I had funds there are 3 or 4 projects I would jump on now, what I would (and am) staying away from is developers offering 25% ( have to ask myself why so much- either over priced or in a crap area so wont sell) I also stay away from the get rich quick property clubs -IT and the likes, who are not interested in making me rich , only interested in making themselves rich regardelss of what they sell

I see little chance of real capital appreciation in the near future, and more chance that we will follow the US into capital depreciation. Why?

The credit crunch. Banks can no longer rely on securitization to offload mortgages. Hence they have far fewer resources to lend out, and it's clear that they're choosing to avoid risky deals, high LTVs, etc. Without available finance, affordability is hit. With a shortage of mortgage finance, the banks can pick and choose, and that is what's happening. Also, new buyers will compete for mortgage finance with those who are refinancing, including people who have been paying off their mortgage for a while, bought cheaper, and hence have a lower LTV, and are less risky for the banks. This will put severe affordability constraints on new buyers, particularly FTBs, which I believe will lead to lower house prices.

Poor value by historical standards. It used to be the case that BTL would be seen as reasonable if a good return such as 8%, could be obtained from the rent alone, then this would justify the purchase. If you look at how much houses should be based on this measure, they should be worth a lot less than now. It could be that we've reached a "permanently high plateau" in terms of rental yield, but I noticed that where I live, commercial property has returned to a only selling at auction for prices that allow a sizeable yield. That television program about rental flats in Nottingham showed similar. The flat was sold at auction to someone who could make a reasonable rental return. If this requirement for reasonable rental return spreads, then BTL investor demand will reduce at current pricing levels. With FTBs having trouble with mortgages, that raises the possibility that demand could fall sharply.

Bubble thinking. Too much emphasis has been placed on high price rises, and the speculative demand this has added to the market is in my mind a key factor supporting current high house prices. A mortgage advisor I talked to last year told me that most people buying houses were asking how much they would make on this property. This positive sentiment will, in my opinion, not survive any lengthy stagnation in prices. Let alone even moderate falls. As in bubbles from the time of tulips, gains beget an expectation of further gains, which can go to ridiculous heights. For example in the tulip bubble, and tulip bulb might end up selling for an average year's salary. But when bubbles burst, negative sentiment, falls begetting expectations of further falls, then reinforces the depth and length of the slump.

Looking at nominal prices, it's always going to be the case that some commodity will be worth more in the distant future. But that doesn't mean that it's a good investment. In the 70s post the approximately 1973 boom, house prices didn't fall, but the value of money did fall. It was possible to get 15% return on an investment, while house prices stood still during the correction. While someone who held onto an investment property in those days would have not "lost" anything obvious, this is an example of "the money illusion". That is, comparing two amounts at different time in history, without considering that the value of money is different. Look at Jane Austin's time, when a yearly income of £500 would enable a good lifestyle. Clearly not today. So someone who held onto the property would have lost the opportunity cost of the value of the house (what could have been gained by investment), which in days of high inflation is a lot. If it takes ten years for the housing market to recover, then even if I only get 5% on my money in the meantime, that's a 62% rise in its nominal value that I've missed out on.

I didn't intend to come here as a "doom and gloom" merchant. But as you can see I'm quite negative about the short to medium term future of the housing market.

You make an interesting point about the value of money, here.

While house prices are stabilising, its also the case that interest rates are dropping as is consumer confidence and spending ... and wage increases are also on the decline. So while the houses are worth less "numbers", are they worth less in proportion with other factors such as income or grocery shopping costs?

I still think prices won't drop anywhere near as dramatically as the media are currently scaremongering ... people will get far too hacked off with the idea of negative equity to allow that to happen.


V