Monday, 7 November 2016
What is Really Happening in the Local Property Market
Well it has been a few months since Brexit and as we settle into the Autumn with X factor, Strictly and the Football season ... the newspapers are returning to their mixed messages of good news, bad news and indifferent news about the property market.
The thing is the UK does not have one housing market. Instead, it is a patchwork of mini property markets all performing in a different way. At one end of scale is Kensington and Chelsea, which has seen average prices drop in the last twelve months by 6.2% whilst in our South-East region, house prices are 12.3% higher. But what about Mole Valley?
Property prices in Mole Valley are 4.3% higher than a year ago and 0.6% lower than last month.
So what does this mean for local landlords and homeowners? Not that much unless you are buying or selling in reality. Most sellers are buyers anyway, so if the one you are buying has gone down, yours has gone down. Everything is relative and what I would say is, if you look hard enough, there are even in this market, there are still some bargains to be had in the local area.
However, the most important question you should be asking though is not only is what happening to property prices, but exactly which price band is selling? I like to keep an eye on the property market in Mole Valley on a daily basis because it enables me to give the best advice and opinion on what (or not) to buy in the local area.
If you look at Dorking and split the property market into four price bands.
• Nil to £300k 45 properties for sale and 21 sold (stc) i.e. 31% sold
• £300k to £450k 32 properties for sale and 41 sold (stc) i.e. 56% sold
• £450k to £7000k 37 properties for sale and 32 sold (stc) i.e. 46% sold
• £700 + 36 properties for sale and 32 sold (stc) i.e. 47% sold
Fascinating don’t you think that it is the whole Dorking market that is doing well?
The next nine months’ activity will be crucial in understanding which way the market will go this year after Brexit ... but, Brexit or no Brexit, people will always need a roof over their head and that is why the property market has ridden the storms of oil crisis’ in the 1970’s, the 1980’s depression, Black Monday in the 1990’s, and latterly the credit crunch together with the various house price crashes of 1973, 1987 and 2008.
And why? Because of Britain’s chronic lack of housing will prop up house prices and prevent a post spike crash. ... there is always a silver lining when it comes to the property market!
Yield Versus Capital AppreciationYou are ready to buy a house to let out and make your fortune - but what kind of fortune do you want?
Are you looking for hard cash now or a nice nest egg for the future? Naturally most people would like both but one will outweigh the other according to your business plan.
This is where you need to consider what your goals are as an investor - and ask some shrewd questions of estate agents and letting agents in your target area.
For those landlords looking for a good monthly return now, the rental yield is the all-important economic term.
Simply put, what percentage of the property price you will make in rent each year? You can work this out as a gross figure excluding your costs of business such as insurance and maintenance - or as a net figure, where you have included these costs.
Yield is usually most important where the landlord is interested in maximising the income received every month, so they tend towards smaller properties and put down high deposits or even buy for cash. Landlords looking for large portfolios of property for multiple income streams will focus on the yield more than the appreciation.
In contrast, landlords looking for a good nest egg to perhaps provide in retirement are less concerned with making their profit now and instead are looking for the property to increase substantially in value over the long term.
This means they can cash out in 10, 20 or even 30 years time by selling the property and taking their capital gains (minus tax alas).
With a bit of careful research and a splash of luck on picking such a long term investment there can be big profits ahead.
These landlords are more likely to choose properties they could imagine themselves living in, higher priced in more desirable areas.
If this is you, you should be looking for areas you think will gentrify over the coming decades, where there are good schools and infrastructure, where development is likely to add amenity to the neighbourhood. It is noted property prices increase markedly in town where Waitrose build new stores.