There is an air of nervousness in the property market. This is evidenced measurably in the share market for property companies. Developers who have a sizeable London exposure such as St Modwen, Capital & Counties and Berkley Group have had the price of their stock drop by more than 20%.
The same can be said of property agencies, those with large residential arms have been affected, both Foxtons and Savills have had their prices drop.
Where is this nervousness coming from? It stems predominantly from whether or not Britain will leave the EU.
If we look at a report carried out by Knight Frank in 2013, 49 per cent of all prime central London buyers were non-British citizens, while 28 per cent did not even live in the UK: their purchases were for occasional use or investment.
But it’s unclear what role, if any at all, the EU has played in attracting this money to London; in this report only 16.5 per cent of buyers were from other EU countries.
Therefore, would there necessarily be any reduction in prices if Britain was to leave the EU?
Only time will tell for sure.
The highest number of foreign buyers came from the Middle East and Russia, followed by North America and India. Will this demand subside if Britain leaves? It’s doubtful in my opinion.
I have observed that crises around the world has always brought more money into the London property market. When there was a crisis in Greece, I remember an agent telling me he had an instruction from a wealthy businessman to purchase four properties at £500k each within a week. This instruction was given blind, meaning he was not planning on seeing the properties bought.
When there is risk and uncertainty in a country, funds seek a flight for safety. The London market has a transparent system, it’s easy to see from the Land Registry much of the information regarding a property. Some may say too much information is made public.
No one is concerned about whether a property bought in London has a clean title or whether the title has actually been transferred in their names or not. They have confidence in the system. The same cannot be said for all countries in the EU, or around the world.
A lot of the money which comes into London does not do so to make money, but rather to keep some of it safe. If it goes up in price it is a bonus. Many people doing the same thing means the price inevitably goes up as a by product of the flight to safety rather than the principal aim.
One other reason is London will always be a favourite for foreign buyers, it has some of the best universities in the world, and so even though money can be made overseas, the off spring of the wealthy business people cannot be educated in the same country as the wealth is made. London is a front runner to absorb this demand. Purchasing property is seen as getting a foot hold in the city, and the property can be used as a base, or a place to live when the time for further education comes.
The vibrancy and fluidity of London is not something which can be replicated. It has taken centuries to evolve and develop and mature.
Humans have a tendency to over panic in the face of uncertainty. There are some variables in the horizon for sure. There is also the seemingly over supply of new build property within London. Higher value proprieties have dropped in price. The higher they are the harder they have dropped.
Despite the above, this however is the ideal time to purchase.
Those who invested in 2009, when most were sitting on the fence profited handsomely in the following years.
In the words of Warren Buffet ‘Be fearful when others are greedy, and be greedy when others are fearful.’
This statement must be tapered with some intelligence, to be truly successful in your greed you need to be intelligent too. Now is not the time to purchase a £5m flat, however it is the time to purchase 10 flats worth £500k each.
Emotion is a greatly underestimated investment factor, behind the numbers and the economics of any market. There are only humans behind it who drive the market; and a human is controlled by emotions, therefore fundamentally the prices in a market are actually controlled by only two emotions of fear and greed.
Fear is the more dominating emotion, meaning it weighs more heavily than greed. A minus one loss feels more like a minus ten loss.
Greed is largely what makes prices rise, while fear is mostly what drives a market down.
Given that the two emotions are such important market drivers it is important to have some understanding of them.
In a rising property market even rubbish gets sold, often dumped in auctions to unsuspecting buyers who become afraid of missing the boat. Common sense often departs in this market.
The second half of Warren Buffett’s quote is the one that’s generally more difficult to master.
But when everyone else is running scared, that’s the time to be an optimist or realist, to exploit the market sentiment.
Bear in mind this will be when general investor confidence is tanking, and even the talking head experts are having difficulty finding anything good to say about the market.
But the reason so few people are successful and wealthy is because of this very reason, the inability to cast out fear and move forward, at a time when everyone else is panicking.
Typical investors are sheep like, they buy heavily as the market is rising, and then hang on as the market flattens waiting for the property prices to rise again.
Following the trend is not actually wise investing. If it was then the masses would be wealthy. The media also supports and fuels this herd mentality.
The current market is precisely the kind of market you can be choosy in and pick the best of the crop. A good time to purchase small units. I would suggest anything below £1m is fair game.
You still have the inevitable three D’s, meaning divorce, distress and death. There are forced sellers in the market, they need to sell. It’s not a choice for them, it’s a need, at a time when buyers have declined in number.
Invest, but do so wisely, it always pays to have local knowledge on your side, and to work with someone who knows the pitfalls of the market and can guide you along the way.
