Overseas buyers & London
What 2010 has in store for the
property market
The market ended 2009 surprisingly strongly. What do the experts predict for this year?
More important is to ask yourself why you might care. Honestly. Try and answer the question.
Now think for a few minutes. Does it really matter? For most people, with no plans to buy or sell, the discussion about house prices is nothing more than a way to pass the time in a lively debate with someone else. The actual direction of prices and the relative movement has so little impact on day to day life for most people it is almost funny that anyone spends the time to discuss the topic.
As this blog is mostly for the benefit of investors who seek wealth from real estate you might think there is some good reason for the debate. I speculate that while the topic hits closer to home most investors are also agnostic in terms of their day to day business. Let’s exclude traders and others who make money from services or from day to day buying and selling. Let’s further narrow the discussion to people who want to buy and hold for the long term capital gains. These investors will care deeply what is happening to house prices but they will do so over what might be a decade or longer. Up or down 10% in one year is not going to dramatically change the final outcome given the historical trend line for house prices. Over seven to fourteen years US or UK house prices will double on average. Many say the doubling happens over seven to ten years.
What matters greatly each year is the cash flow. Will the property continue to support itself and all of the costs (hidden or otherwise) so that the investors can afford to continue holding the property in their portfolio? In the US for single family residences (SFR) and apartments you should assume 50% of the gross scheduled rent will be spent on running costs, vacancies, minor capital improvements (replacing appliances) and other expenses. In the UK the figure is a bit lower because the taxes associated with the property (council tax in the UK, property taxes in the US) are born by the tenant rather than the property owner. There are some minor exceptions but we are talking about crude averages so just run with the percentages.
There is one great reason to know what the press is saying about house prices. When you are buying or selling you need to know what the public is being told so you can understand what they are thinking. The predictions impact the other party more than they impact the property’s value to you as an investor. Use the ‘public’s understanding of what prices will do’ as a tool when negotiating.
With that note we can get back to what the public is being told.
“...overseas purchasers, lured by the weak pound, have added to the competition. Italians, not traditionally a major force, have been a growing presence in Chelsea and other parts of southwest London.”
“Liam Bailey, head of residential research for Knight Frank, expects the Italians to be joined by increasing numbers from the Far East. “The biggest change will be the entry of Chinese investors,” he says.”
-John Corey
The market ended 2009 surprisingly strongly. What do the experts predict for this year?
More important is to ask yourself why you might care. Honestly. Try and answer the question.
Now think for a few minutes. Does it really matter? For most people, with no plans to buy or sell, the discussion about house prices is nothing more than a way to pass the time in a lively debate with someone else. The actual direction of prices and the relative movement has so little impact on day to day life for most people it is almost funny that anyone spends the time to discuss the topic.
As this blog is mostly for the benefit of investors who seek wealth from real estate you might think there is some good reason for the debate. I speculate that while the topic hits closer to home most investors are also agnostic in terms of their day to day business. Let’s exclude traders and others who make money from services or from day to day buying and selling. Let’s further narrow the discussion to people who want to buy and hold for the long term capital gains. These investors will care deeply what is happening to house prices but they will do so over what might be a decade or longer. Up or down 10% in one year is not going to dramatically change the final outcome given the historical trend line for house prices. Over seven to fourteen years US or UK house prices will double on average. Many say the doubling happens over seven to ten years.
What matters greatly each year is the cash flow. Will the property continue to support itself and all of the costs (hidden or otherwise) so that the investors can afford to continue holding the property in their portfolio? In the US for single family residences (SFR) and apartments you should assume 50% of the gross scheduled rent will be spent on running costs, vacancies, minor capital improvements (replacing appliances) and other expenses. In the UK the figure is a bit lower because the taxes associated with the property (council tax in the UK, property taxes in the US) are born by the tenant rather than the property owner. There are some minor exceptions but we are talking about crude averages so just run with the percentages.
There is one great reason to know what the press is saying about house prices. When you are buying or selling you need to know what the public is being told so you can understand what they are thinking. The predictions impact the other party more than they impact the property’s value to you as an investor. Use the ‘public’s understanding of what prices will do’ as a tool when negotiating.
With that note we can get back to what the public is being told.
“...overseas purchasers, lured by the weak pound, have added to the competition. Italians, not traditionally a major force, have been a growing presence in Chelsea and other parts of southwest London.”
“Liam Bailey, head of residential research for Knight Frank, expects the Italians to be joined by increasing numbers from the Far East. “The biggest change will be the entry of Chinese investors,” he says.”
-John Corey
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