Mary Portas targets London Estate Agent

This morning I attended an event jointly hosted by the British Property Federation (BPF) and the London Councils. The speakers included Alan Collett (BPF Residential Chairman and Chairman, Allsop Residential Investment Management) and Mayor Sir Steve Bullock (Executive Member of Housing, London Councils and Mayor of Lewisham). In the audience were representatives from some of the countries largest landlords, including Grosvenor, Grainger and Dorrington.

The session was entitled “Invest to Rent”, and it launched a guide to assist “developing partnership investment in new rented homes for Londoners”. I have mentioned in many blogs about the shortage of supply of new housing and how future population growth and demographic changes will put further pressure on housing stock. This morning was discussing the need for additional private rented sector (PRS) stock, to part assist in satisfying this demand.

One of the points that was mentioned by some who talk about PRS but have little hands on involvement was the high level of management/poor service of agents. This neatly links to last night’s Mary Portas’s programme.

Mary Portas

According to the show, 79% of people don’t trust estate/letting agents. They think they use unnecessary jargon, that they are manipulative and untrustworthy and are only bothered with a quick sell. In many cases this is true, and the stereotype of an agent with ‘funky’ hair and a flash suit getting out of a branded company car certainly seemed alive and kicking in last night’s show.

But how difficult is it to find bad service in any industry – I’ll leave you to answer that.

 This sounds defeatist, far from it. On the flip side there are many companies who realise that customer service is a differentiator. My oft quoted example of great customer service is John Lewis. Service there is usually excellent, they do not adopt a hard sell, infact I have had times where they discouraged me from buying, or suggested a cheaper product – because they are listening to me. However, they also get it wrong sometimes – consistency is very difficult.

We are in a position that we face a severe lack of housing in the UK, and we need to encourage investors, government, lenders etc. that putting money into housing is an attractive option. Part of this encouragement comes from improving the reputation of our industry. How about the BBC, our public broadcaster, showing how good the industry can be, giving people confidence to invest in housing?

This is not a rant from someone who as part of his property group owns a letting agency – Young London – and is upset by the programme, but rather someone who feels we need to show the importance of housing the next generations and encourage investment in it. This programme really was aiming at ‘low hanging fruit’.

Customer Service has always been key for us, and this opinion is growing within the property industry – clearly demonstrated at the BPF/London Councils event this morning. So let’s encourage the positives rather than taking the easy option and revert to the stereotypes. Let’s move the debate on.

Come and hear me speak . . .

The British Property Federation (BPF), Property Week and LD Events have all asked me to speak at events they have planned in February and March.

It is great being involved in these events, with these organisations. They are an opportunity for people to share views and learn from each other.

 

15th February –  BPF’s “Roaring Trade? Retail occupancy rates six months on.” Essentially the breakfast seminar is looking at current occupancy rates in retail. The panel is:

Matthew Hopkinson, Director of the Local Data Company

Tim Danaher, Editor, Retail Week

Barry Gilbertson, Partner, PwC

Hugh Pym, Chief Economics Correspondent, BBC

Mike Riley, Joint Chief Executive Officer, Local Shopping REIT

Neil Young, Chief Executive, Young Group

My role is to bring a residential perspective to retail occupancy. I often talk about the ’10 minute’ rule, where I believe residential property needs to be within 10 minutes of good transport, restaurants/bars and groceries. Property should not be looked at in isolation, the surrounding area is so important.

 

3rd March – LD Events Conference on “Where will the funding come from to unlock development?” This conference examines the availability of funding for residential development, who is lending and on what terms, the different funding options, and opportunities in the funding market. I have been asked to present on:

“Where is the Residential Investor Market, what can institutional and private investors offer to the market, what values will they invest at and where? The creativity required to make the deals and Joint Ventures happen.”

This is a lot to cover in twenty minutes!

Others speaking on the day are:

• Dominic Grace, Director, Head of Residential, Savills
• Scott Stuart, Regional Director for Real Estate, Santander Corporate Banking
• David Clark, Group Finance Director, Mount Anvil
• Rob Thomas, Senior Policy Adviser, Council of Mortgage Lenders
• Markus Reynolds, Structured Property Finance, Investec
• Rob Weaver, Head of Residential Funds, Invista Real Estate Investment Management
• Duncan Hughes, Managing Director, LRE Capital
• Robert Finch, Director, Sativa Finance
• Liz Peace CBE, Chief Executive, British Property Federation
• Chris Lacey, Executive Director, Head of Mixed Use and Funding, CB Richard Ellis
• Tom Nicholson, Group Special Projects Director, Galliford Try
• Jacob Kut, Director, GVA Grimley
• Neil Young, Chief Executive, Young Group
• William Newsom, Director and UK Head of Valuations, Savills
• Stephen Alston, Director, Generator Group

 

24th March – Property Week Conference on “Increasing returns for the housing sector“. The conference looks at how residential property management can improve returns from the Private Rented Sector. I have been asked to join the summary panel session at the end of the conference.

 

Any thoughts on what I should say would be welcome!

 

 

 

 

 

Readying ourselves for 2011

I am just about to clock off for the year, our offices are closed over the festive period, so a time to reflect and recharge for 2011 and beyond.

I am pleased to say 2010 has been kind to us at Young Group. We had our focus for the year and have grown well. We are all in a different business environment, I like to think we spotted the changes that were required early, and have positioned ourselves well.

Our monthly London Update usually features a guest author, however, in December I commandeer the spot. Have a read of it – London Update (issue 59) – to see how 2010 has been for Young Group.

Our focus continues to be the Private Rented Sector, falling into 4 areas:

RESEARCH

2011 will see Young Group continue to share our PRS knowledge and expertise; regularly providing research, commentary, analysis and opinion not only to clients, but also to the BBC, The Times, The Financial Times, Investors Chronicle, Estates Gazette and Property Week.

INVESTMENT

Young Group continues to seek PRS investment opportunities. We are looking for land or a development opportunity to bring to market and looking for joint venture development opportunities.

FINANCE

During 2011, Young Group will continue to develop innovative new development finance models to unlock additional PRS stock. If you are an equity investor or provide debt finance for development, I’d love to hear from you.

ASSET MANAGEMENT

Young Group’s asset management service, delivered through our Young London brand, has ambitious growth aspirations for 2011. We believe that our focus on customer service and investment in training and systems – together with approaching the tenanting and property management aspect of holding investment property with fresh eyes – will form the backbone of successful growth.

If any of the above interests you please do feel free to contact me.

This is my last blog of the year, have a fun festive break, and here’s to 2011.

 

Playing Junior Monopoly

Junior Monopoly

Yesterday, Sylvana and I played Junior Monopoly with our 7 year old son.

Monopoly’s strapline is “Property Trading Game”. So I suppose there is no surprise the game interests me. Although the rules are simplified as it is the ‘junior’ version we played, the principles are true to the orignal game I used to play as a child all those years ago.

What was interesting was our son initially got very excited at the act of accumulating cash – by passing go, etc. However, he was less willing to ‘invest’ his money to buy property.  We pointed out that although he had cash, he needed ‘assets’ to make money.

This I guess is the way many (may be most) people think. Having all your assets in cash is good. Currently, in the real world, cash earns a very small return, not materially different to the game where you make no return by holding your Monopoly money.

There are people who extol the virtues of playing Monopoly to learn about investing in property in the real world. I am not going to do that (although I think it does teach you some lessons), however, it is worth noting that the only way to make a return in Monopoly is by buying property and ultimately you cannot win without doing this. In the real world there are clearly a multitude of ways to invest your money. It is interesting that over the last few years those of us who have held ‘boring residential’ property assets have received a good income from them.

Back to our game last night, our son did start buying property, and enjoyed receiving cash from it. But did he win?

Unfortunately, time got the better of us, and bedtime beat us!

But then again property is a 24 hour business, and in the real world his property assets would have been producing an income while he was in the land of nod!

Property Trends for 2011

This is always  a hot topic at this time of year.

The PR agencies and marketing departments are keen for clients to send press releases around to try to capture the imagination of the media. Will it be a 3% rise or a 5% fall? Do you go against the consensus, or fall in line with the crowd? Have you covered yourself enough so when you are wrong – which invariably you are – you have wriggle room, as any good politician would? What makes predictions additionally difficult is there are so many micro markets within the overall UK market.

At Young Group we tend to talk trends rather than trying to pin the tail on the pony (so to speak). We had  an internal conversation about this earlier, here’s a sneak preview of what we think:

Property Prices – will continue in a similar vein to the last six months. Not a very exciting market, led by lack of mortgage finance – see below – and a nervousness / uncertainty amongst both buyers and sellers.

Rental Prices – up, up and up – this does not necessarily mean double-digit growth, but the private rented sector will grow in importance as a tenure of choice as will rental levels.

Financing – whether this is for mortgages or development financing this will continue to be tight. The property sector is where many banks feel they are ‘overweight’ in lending and therefore to lend more in this sector is not that appealing.

Base rate – about 6 months ago I had a small wager (proceeds to charity) that the base rate would still be 0.5% at the end of 2010, with one MPC meeting to go but I am feeling confident. I have to say I cannot see the base rate going up for a while, I would not be surprised to see the base rate at 0.5% in at the end of 2011.

So, I have been a bit non-committal, although given my thoughts on what direction things will go. Having said that, I have been specific re the base rate!

What are your predictions?

Demographic Data Supporting Residential Property Investment

Young Group has recently published its latest private rented sector report: 

http://www.younggroup.co.uk/research/reports.htm

 Below are the key findings:

1. The number of UK single person households is set to reach 10.9million by 2031 (up by 60% from Dec 2009). (Source: ONS)
2. London is forecast to swell to 4.4million households by 2031 (up from 3.2million in 2006). (source: Experian)
3. In 2008/09, each region in England missed its housebuilding target, by an average of 38%. (source: NHF)
4. Just 5,500 new homes are expected to be built in London during 2012. (source: Drivers Jonas Deloitte)
5. From 2007 to 2009, net mortgage lending fell by 88%. (source: Council of Mortgage Lenders)
6. Mortgage approvals for H1 2010 were 10.8% lower than H2 2009. (source: Bank of England)
7. In 2009, 49% of under 30’s were housed by the Private Rented Sector. (source: Key Note market assessment)
8. At December 2009, annualised returns for residential property were 11%; commercial property stood at 3.5% (source: IPD)

To access the report by click here – it is fascinating and compelling.

Property Bank lending

I am afraid it is not looking positive.

Yes, off course banks are lending, but do they really want to expand lending to the property sector? Often a simplistic response to the credit crunch of the last few years is that too much money was loaned to the property sector to fuel the greed of developers. However, I feel it is safe to say many sectors were borrowing when money was relatively easy to obtain – a very good example is all the leveraged buyouts, incidently not all of these were by private equity firms.

Property though is now a large proportion of the loan book that many lenders are sitting on. I have heard the comment that why if they are sitting on property loans that banks are struggling to know what to do with would they lend to another property scheme? I understand bank HQs have revisited what proportion of their loan book they want on property and have set targets to manage DOWN to this level. I read in the press that in the last week or some lenders are increasing interest rates on loans as a way of reducing applications. I remember having a discussion with a mortgage lender in the recent past that they were horrified to being in the top ten of best mortgages – bottom ten they would have been happy with.

So whether you are looking for a mortgage or to fund a development money is scarce and will continue to be for some time. I have said in other blogs that money is out there  – this is the case – but you are battling against lenders looking to rebalance their lending books.

Pensions the next credit crunch?

When I first started writing these blogs I mainly wrote about property related topics but did write on other topics, such as credit rating agencies.

A few months ago I decided that I would limit all my blogs to property. However, this blog is going to break that rule because I feel there is a lot of comment about pensions at the moment and wanted to add my bit.

The government last week were commenting on pensions – to be more specific private pensions. Many people were up in arms about this, they were saying that the government should not meddle and they have enough of their own problems with public sector and state pensions.

However, many future pensioners who are today paying into their private/company pension schemes are planning on the basis that they will be ok when they retire as they are contributing regularly. However, when you look at private pension funds the picture is not so rosy. Look at British Airways with a large pension deficit – many billions of pounds, and the recent events at BP – a company they seemed so solid is having major difficulties – how will this effect their employees pensions?

Yes there are actuaries who carry out complicated calculations which assist with valuations, and there are accounting standards (FRSs) which give guidance – in the same way as there are credit rating agencies that were meant to give confidence on investments pre credit crunch?

So I think it is good that the government are looking at this. I am not saying whether their current thinking is right or wrong, but it is an area that needs controls.

Years ago when Equitable policyholders found our their retirement income was reduced who did they expect to fill the hole – the government via the taxpayer – as happened recently with the banks . . .see the similarities?

ROC not ROI

So what are ROC and ROI?

ROC stands for Return on Cash and ROI stands for Return on Investment. But what’s the difference?

You often read at the end of a year about the comparison between the stock market and property prices. It may say that the stock market has increased 7% and property prices have increased by 5% therefore the stock market has outperformed property prices. This is your return on investment.

On the face of it this may be true. However, with property there is the ability to have bank financing whereas the thought of asking your bank manager (or whatever they call them these days) for a loan so you can buy and sell shares is quite laughable. Borrowing to invest in property has received bad press over the last few years, however, sensible borrowing (otherwise known as gearing) is an option most property investors adopt.

Therefore, if you bought a property for £100k, and borrowed 50% of the value of the property, a 5% increase in investment (£100k) will have increased to £105k – a 5% return on investment. However, the return on cash is 10% ie £5k increase as a percentage of cash invested (£50k). 

In my opinion ROC is far more important than ROI.

What do you think?

What does a good property investment look like?

My view is it is very much back to basics.

Infact, basic rules should always be adhered to, may be too many people did not follow them and that in part is why we have had the downturn of the last few years. Location, location, location is the property mantra, but I think research, research, research is also up there. A great location is paramount, but if you build/buy the wrong property in what is a great location then your investment will not perform as well as it could do. You need to look at the plans for an area over the next 5 to 10 years, are new/improved transport links coming to the area, who will want to live there, what is the current property stock like?

When you look at the financials, how do the capital values compare, what will the income look like? These are important questions, research these numbers.

In London, I always use the ’10 minute rule’, this means the property should be near good transport, restaurants/bars and groceries.

So do your research, be critical with the financials, test the ’10 minute rule’ and ensure the type of property is appropriate for the area.

Good luck.