30/05/2008 - Bad news is good news
by HO
Lending down, borrowing down....at last good sense returns!
KINDLY SEE MARKET COMMENT AND MARKET OPPORTUNITY UPDATE BELOW
A lead article in The Times business section on Wednesday 28th May reported ‘more misery’. This included mortgage lending down 40% on last year, number of property sales down 30% on last year and credit card lending down by £300m. Following on from this, on the Thursday the Nationwide reported the sharpest monthly fall in UK house prices since 1992. Left towards the end of The Times article was a report that personal deposits had risen sharply to £5.8 billion in April, up from £2.8 billion in March and well above the six month average of £2.4 billion.
Everything in the above can only be seen as positive. Overly lax mortgage lending was the root cause of the credit crisis, property speculation had ramped up prices to unsustainable levels and whilst all this was going on people simply borrowed more on credit cards and ignored the need to save for the future and inevitable rainy days.
Articles such as the one above show that the market is adjusting and doing so in a meaningful manner. More adjustment is needed and there is clearly momentum carrying us that way. We have made the point repeatedly that, in terms of statistical evidence, property news is generally old news. The sharpest monthly fall reported by Nationwide will in effect relate to transactions having been agreed in the early part of 2008. I fully expect their next quarterly report to show that prices have continued this sharp fall. Based on the Nationwide’s current average, UK house prices are still 5% higher than a year ago, many would argue that they would be lucky if that were truly the case.
Approaching one year on from the market high of Summer 2007, we have entered the period where price adjustments are at their most pronounced. We are not quite seeing the fear that sharply rising interest rates created in the early 1990’s, but there is plenty of uncertainty and shaken confidence. We are already seeing opportunities emerge where cash backed investors can snap up good deals. Asking prices are often to be ignored and aggressive offers used to sound out those in genuine need of a sale. The coming months are likely to offer up some of the best buying opportunities. Although the market is pretty certain to remain weak next year, there is likely to come a time when there is talk of ‘recovery ahead’ and by then the buyer’s initiative will have gone.
Chapel Street, Belgravia, SW1
A Grade II listed Freehold house to the east of Belgrave Square. Currently offering 3,262 sq ft with the potential to upgrade and add an additional floor.
The house came on the market at £5.5m and has been significantly reduced to £4.75m to achieve a sale. We believe there is scope to make an aggressive offer and at £4.25m this would represent an excellent buy.
Beaufort Gardens, Knightsbridge, SW3
An excellent penthouse with stunning terrace offering views over Knightsbridge. The property offers 3 bedrooms and 2 bathrooms and extends to approx. £1,442 sq ft (plus terrace) and has share of Freehold.
This month we sold a smaller version in the adjacent building that we had acquired in 2002. Although our flat was in very good condition, the refurbishment was some 6 years old. We achieved £1,650,000 for 991 sq ft (1,665 psf).
The penthouse is asking £2.425m and our target acquisition price is around £2.15m. Due to the very steady demand for Knightsbridge, this may not be achievable but we certainly feel there might be an opportunity.
Campden Hill Gate, Kensington, W8
An elegant 3 bed apartment (approx. 1,652 sq ft) in a prestigious portered block adjacent to Holland Park with share of Freehold. The flat needs minor reconfiguration and a cosmetic upgrade.
A sale at £1.85m has fallen through and this could potentially be acquired for £1.75m. Requiring around £200,000 to refurbish, the flat has a refurbished end value of £2.25m (the original asking price).
Palace Court, Bayswater, W2
An excellent London base in a gated development with off street parking close to Notting Hill and Kensington Gardens. Approx 1,150 sq ft, this two bedroom apartment needs minor reconfiguration. Original asking price was £1.295m, this is now £1.15m and an aggressive bid just in excess of £1m is worth trying.
Chelsea Riverside, SW10
A completed apartment block of 12 units completed to the highest specification. The building has direct river frontage with far reaching views down the Thames and towards the City.
The area is undergoing a major change as the development of the nearby Lots Road power station in to prime residential apartments is now underway. This apartment block can potentially be acquired at a significant discount to the guide price, the strategy would then to hold them (approx 5% gross yield but possibly as high as 6% net on short lets) and then sell on a market up turn at a discount to the prices being quoted at the power station.
The owners are believed to be struggling financially. The quoted guide price for all the units is £44m, we belive an offer around £34m might be considered.
Suffolk Lane, The City, EC4
A Freehold Grade II listed building in a quiet street close to Cannon Street station in the heart of the city. Currently let as offices until 1st September 2009 plus a basement wine bar until April 2017. Current net yield is 6.15% with a reversionary yield of 7.02%.
The property offers tremendous scope as a commercial headquarters, office investment or conversion to residential units, potentially for short term rental. The guide price of £4.15m equates to a capital value of £431 psf.
Old Queen Street, St James’s, SW1
An impressive office building in a quiet street just off St James’s Park. The property extends to approx. 13,874 sq ft and is suited to a minor refurbishment to achieve an annual income in the order of £695,000 pa (6.75% yield) or could suit conversion to residential.
A sale at £10.4m has just fallen through due to the buyer’s funding problems and a bid below the guide price of £10m is worth pursuing.
Buckingham Gate, SW1
Located within sight of Buckingham Palace, this 10,000 sq ft period building is suitable for refurbishment as existing office space or residential conversion. The greater financial benefit lies in conversion (subject to planning) and in reconfiguring and extending the property to rectify the poor gross to net floor areas.
The current owners acquired the building a few years ago and have certain issues requiring them to dispose of the property. It is due to come to the open market quoting £7m but we are led to believe that a direct approach for a private deal could be agreed around £5m.
The following is an update on a number of the properties mentioned in previous bulletins;
Address Asking Price Target Price Status
South Audley St £2.75m £2.2m Under offer @ £2.5m
Riverside One £4.25m £4m Under offer @ £3.9m
Newton Road £6m £4.8m Under offer @ £5m
Draycott Place £13m £10.75m Available
Chepstow Villas £2.75m £2.575m Sold @ £2.65m
Palace Court £1.495m £1.25m Under offer @ £1.16m
Chepstow Place £2.495m £2.2m (revised) Available
Putney £7.3m £7m Sold (figure unknown)
Barkston Gardens £1.325m £1.2m Sold @ £1.19m
Chase Court £1.65m £1.5m Sold @ £1.65m
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