I have been receiving emails in which agents are offering a discount to the list prices of property. This is unusual, the market is in a bit of a flux, some agents are saying we are in a buyers’ market where all the offers tend to be just below the asking price. This view however is not shared by all agents. An agent in Notting Hill says they cannot get enough stock, there is a shortage; one property they were selling had over 30 offers on it, and this was an ‘off market’ deal.
This however is often caused by the way properties are marketed, in order to attract interest and whip buyers into a frenzy a property is advertised as ‘offers in the region of or in excess of’ an absurdly low price. This then draws developers and investors to start circling the deal. You then engage more of their senses into the deal, they then start to get emotional, and some even start to fall in love with the deal. This can mean hard figures, views of where the market is going become no longer as relevant as they were pre getting involved with the deal emotionally. And you also succeed in creating an environment, where there’s a herd mentality. Conversely such a mentality can have the effect of no one wanting a property which no one else wants. For example if a property which is perfectly good and proper has a couple of failed sales on it and so stays on the market for an extended length of time, then it tends to get stale, and no one wants to purchase it because they think there must be something wrong with it otherwise someone else would have taken it. I have seen properties going cheap for this sole reason.
These marketing tactics work. They work ultimately because humans are emotional creatures not logical ones, they are not governed by common sense. Therefore they can also be manipulated by those who know how to play on this level.
There are those who think the market is over heated, I have heard from a few contacts that ‘the Jews are not buying’ this means they are waiting for a dampening of the market before they dive in again, until this point they sit on their war chest and wait.
There are family wealth offices who manage large wealth for rich families, hundreds of millions of pounds. They do this on a global level, they enter property markets - or any other market for that matter, only in the event of a downturn. They would not touch London property at the moment. A good example of this is to look at the graph of London property over the credit crunch. Those who went against the herd and purchased in late 2008 and 2009 are sitting on the biggest gains at the moment. These types of investors ride the wave of the market.
On the flip side of this view point is much of the press describe the property market as a bubble. This puts the wrong picture in the mind of the reader. The property market cannot be compared to a bubble, as a bubble bursts and disappears - properties do not. They merely decrease in price for a relatively short period of time, and then they keep rising as history has shown. Especially in London.
Furthermore people like broad statistics which paint everything with one brush. During the credit crunch, as the name suggests only those who had credit felt the crunch. Many properties in Central London are purchased with cash or very little mortgage. These owners do not need to sell, what happens during a period of crisis is that the owners simply hold on to their property, this then chokes the supply of property. Of course you still have the standard reasons of forced sales which are death, divorce and distress, but this is in the minority.
Riding the wave of the market means they use this wave, which means the emphasis is not on localised knowledge, which is not as relevant if you get the timing right.
Notably Jon Hunt, the former owner of the Foxtons chain, timed his exit superbly.
Someone else who saw that the market was about to take a dive was Andreas Panayiotou. He claims to have predicted the success of Shoreditch, Clerkenwell and Hackney before anyone else but sold £750million worth of flats at the end of 2006 when he believed the market would collapse.
In August 2006 he said: "We are reaching the height of the market. . . Property values are still increasing but rental income is not catching up, so the yield - your return - is being depressed.”
There is a difference in the numbers these players are playing with compared with the average off the street Buy to Let Investor. When you are involved in the hundreds of millions you have to ride the market. On an individual level, if you’re getting a discount coming in you have an insulation, and therefore some form of insurance, against a dampening of price.
The average price of a house in 2007 in London according to a survey done by Winkworths was £310,000, at its lowest point in early 2009 the price dropped to £250,000. So even if you assume you purchased at the worst time and sold at the worst time you would have made about a 20% loss, which in the scheme of things is not terrible.
Good properties in prime parts of London are hard to come by. Period. So if you get one which is cheap, by that I mean 10-15% dependent up on location, type, aspect etc. it is still worth investing in. But now is not the time to be purchasing at market levels, only with a discount. The key is buying well.
