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Co-founder & CEO of AllenWargent property market & hedge fund advisory.
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Pete Wargent blogspot
Co-founder & CEO of AllenWargent property advisory, offices in Brisbane (Riverside) & Sydney (Martin Place) - clients include hedge funds, resi funds, & private investors.
4 x finance/investment author - 'Get a Financial Grip: a simple plan for financial freedom’ (2012) rated Top 10 finance books by Money Magazine & Dymocks.
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Monday, 1 December 2014
UK Housing Market Plateaus
Genius comes in many forms,
and the oldest of my three flatmates at Sheffield Uni in the late 1990s,
Richard, was a certified genius and ideas man. Indeed, he still is!
He’s the kind of chap who
will do and has done anything and everything from charity work to journalism, from
interviewing New Zealand's Prime Minister on his own radio show to public speaking and stand-up
comedy. He pops up on Kiwi TV from time to time these days.
My other flatmates were
Andy, who never actually finished his Software Engineering degree (alas, we were not always
the most diligent of students) but went on to become very wealthy through
owning a series of IT businesses, and Nick, who was a Mechanical Engineer and thus the practical one of us four flatmates.
It was a fantastic to live
with someone like Richard for a few years, because he had a great eye for a
bargain and he always made us do
Travelling on a shoestring student
budget was one of his many specialities, and we had some riotous trips to places like Dublin, Belfast and, as he memorably promised us “Amsterdam for £10 a night” (in case you’re
wondering, he engineered this through booking a group of a dozen of us into what
was technically speaking a Turkish youth hostel,
but in reality was more akin to a prison, with 12 to a room in bunk beds).
Some of his ideas were a
little more off-beam - “we should buy a second hand hearse for £400” being just one such example that springs
Another time he argued vehemently that we would could save handsomely by
sub-letting our flat and instead going to live on a barge. Luckily the more practically-minded Nick talked him out of
that particular hare-brained scheme by pointing out the logistical difficulties (not to mention safety issues) of housing four unruly lads on an inner city canal.
On another occasion Rich somehow negotiated for us to buy
a boy-racer’s dream Mazda 323 1.5GT for £200, which had £30 of petrol in the
tank. I loved that car!
I was reminded this week of
another of Rich’s great wheezes from 1998, when he came back home to the flat one day to find us
watching Neighbours/Countdown/Fifteen-to-One (as noted, we didn’t always study overly hard...) and announced that he had concocted a great plan.
Unfurling the broadsheet of
the day he showed as a panoramic photo on the front page of the paper depicting Britain’s largest
house which was for sale at just £1.5 million, and only a short drive from Sheffield
in rural South Yorkshire.
All we would have to do, explained Rich, was to raise £100,000 each upon graduating (or just "leaving Uni" in Andy's case), and between a baker’s dozen of us, we’d
have a shot at owning the biggest house in Britain.
It was left for Nick the
Engineer as the practical one to point out the solitary yet fundamental flaw in
Rich’s undeniably brilliant suggestion.
That being, Britain’s
largest house has 365 bedrooms – a different bedroom for each and every day of the year
if that’s what floats your boat – and each and every one of them needed
renovating and furnishing.
Rich was forced to concede
that this could be a minor cash flow issue, and he went back to thinking about the hearse (or whatever, it was never entirely clear).
I'd love to say that I have carefully garnered Richard's aptitude for ideas and taking action, Andy's business acumen and Nick's solutions-focused practicality, which would make for a grand story, if only it were true!
for Sale at £5 million
I was reminded of all this last
week when it came to light some 16 years on that Britain’s largest house, the Wentworth Woodhouse, is again
set to hit the market, with Savill’s hinting at a likely £7 million asking
The property comes with an
impressive 100 hectares of land, but also with a fairly hefty repair bill of a reported £42 million. Ouch.
The current owner Clifford
Newbold bought the Wentworth Woodhouse in 1999 for the £1.5 million which we didn't have, and has spent
£5 million on renovations and upkeep over the past 15 years.
In essence you’d be buying
one enormous liability, and in any case Britain’s punitive inheritance tax
laws have long worked as a huge disincentive to take custodianship of a stately
home (40 percent tax on the estate unless it qualifies as agricultural), hence why so many have been lost or have fallen into
Returns from property as an
investment come in two parts:
-rental income less costs, or "the cash flow"; and
Premium property by
definition tends to be highly sought after, but is also only affordable to a small
percentage of the population. Rental yields tend to be low. Thus as an investment asset,
premium property tends to:
-be illiquid and not easy to
-be volatile through the
-incur heavy holding costs
In short, premium property is rarely ideal for
the average investor, who would normally be better served to find an investment which:
-is somewhere close to the median
price for the suburb and property type
-is affordable to a large
proportion of the demographic of that suburb
-will be in continual high
demand through any cycle (close to key transport links can help, for example) and
will experience strong long-term capital growth
-generates a reasonably good
yield and cash flow, in a suburbs with capped supply and low vacancy rates.
Usually this would mean
finding a land-locked capital city location, in a city with consistent and guaranteed population
growth and strong, diversified economic prospects. If income is your primary immediate goal, then residential property is unlikely to be the right asset class for
you, and you might instead consider bonds, equities or commercial property.
Residential property is, however, an outstanding investment if you can use leverage (debt) sensibly and find areas which will experience strong capital growth.
UK House Prices +1.5 percent q/q
The UK housing market recovery seems to be running out of puff with average prices up by 0.3 percent in November to be 1.5 percent higher over the quarter and 8.5 percent over the last year.
London prices continued to rise, but less quickly than previously, with the south-east continuing to lead price growth and much of regional Britain continuing to tread water.
Unsurprisingly returns from London property have continue to crucify those from elsewhere in Britain over the past decade.
As always, it's at the micro level that the true story is to be found.
Note how capital growth in our favoured London boroughs such as Croydon, Greenwich and Ealing has accelerated to an annualised 23-26 percent this quarter. Booming growth and amazing returns.