Pete Wargent blogspot

Co-founder & CEO of AllenWargent property buyer's agents, offices in Brisbane (Riverside) & Sydney (Martin Place), and CEO of WargentAdvisory (providing subscription analysis, reports & services to institutional clients).

5 x finance/investment author - 'Get a Financial Grip: a simple plan for financial freedom’ (2012) rated Top 10 finance books by Money Magazine & Dymocks.

"Unfortunately so much commentary is self-serving or sensationalist. Pete Wargent shines through with his clear, sober & dispassionate analysis of the housing market, which is so valuable. Pete drills into the facts & unlocks the details that others gloss over in their rush to get a headline. On housing Pete is a must read, must follow - he is one of the finest property analysts in Australia" - Stephen Koukoulas, MD of Market Economics, former Senior Economics Adviser to Prime Minister Gillard.

"Pete is one of Australia's brightest financial minds - a must-follow for articulate, accurate & in-depth analysis." - David Scutt, Business Insider, leading Australian market analyst.

"I've been investing for over 40 years & read nearly every investment book ever written yet I still learned new concepts in his books. Pete Wargent is one of Australia's finest young financial commentators." - Michael Yardney, Australia's leading property expert, Amazon #1 best-selling author.

"The most knowledgeable person on Aussie real estate markets - Pete's work is great, loads of good data and charts, the most comprehensive analyst I follow in Australia. If you follow Australia, follow Pete Wargent" - Jonathan Tepper, Variant Perception, Global Macroeconomic Research, and author of the New York Times bestsellers 'End Game' and 'Code Red'.

"The level of detail in Pete's work is superlative across all of Australia's housing markets" - Grant Williams, co-founder RealVision - where world class experts share their thoughts on economics & finance - & author of Things That Make You Go of the world's most popular & widely-read financial publications.

"Wargent is a bald-faced realty foghorn" - David Llewellyn-Smith, MacroBusiness.

Monday, 1 December 2014

UK Housing Market Plateaus

Uni Days

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 stuff.

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 to mind.

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!

Grand Designs

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!

House 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 price.

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 ruin.

Real Estate investments

Returns from property as an investment come in two parts:

-rental income less costs, or "the cash flow"; and

-capital growth

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 sell quickly

-be volatile through the cycles

-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.