Bulk Portfolio Disposals
January is always a depressing month and this January in particular has been gloom laden with the press falling over themselves to depress us all. The recently released fourth quarter growth figures from last year showed an unexpected contraction in UK GDP which hasn't helped the general mood and many people are now questioning the coalition's deficit reduction strategy. As Ed Balls has now replaced Alan Johnston as Shadow Chancellor the debate is going to get more heated than ever over the speed and range of the cuts.
Whatever your opinion on the deficit the fact is that 2011 is another year of opportunity for the property investor with access to capital but looking at the widespread negativity in the market and with house prices broadly stagnant and inflation on the rise surely this an odd thing to say?
The market in the UK is polarised with the cash and equity rich at one end and the indebted and equity poor at the other. Bank lending remains at low levels and this is likely to continue throughout 2011 even more so now that the publicly owned banks must start repaying the £120 Billion pounds they owe the tax payer. Banks logically will continue to lend to the most attractive borrowers and avoid those they categorise as higher risk. This is common sense if frustrating.
There has been much talk in the press about how the Bank of England's Monetary Policy Committee (MPC) is on the cusp of raising UK interest rates from their current historically low levels. My opinion is that this is unlikely to happen until the end of the year, especially given the recent growth figures. Many commentators are arguing that the Bank of England is losing credibility with inflation now well over 3% but many of the inflationary pressures we are feeling at the moment come from sources outside of our control such as crude oil and wholesale gas prices.
Raising UK interest rates won't affect petrol prices for example but what it will do is stifle growth which is the last thing the government or the Bank want to do. What isn't always appreciated is that the same inflationary pressures everyone is worried about will eat away at the value of the debt but we do need salaries to keep pace. Many governments throughout history have chosen this strategy ie. accepting higher inflation which, when compounded, can eat away debt levels with surprising speed. I believe that interest rates will only go up significantly when the Bank of England is more confident on economic growth which won't be until next year at the earliest.
So where is the opportunity I mentioned at the beginning? Firstly 2011 is likely to be a stagnant year for prices which should help the investor, particularly when negotiating with banks as he or she could justifiably argue that the market is weak and that they would expect a more robust level of discount. Secondly as the banks return to profitability and start to repay their debt to the tax payer there will be increasing pressure on them to sell some of the properties they have been sitting on since the crisis began. Usually these properties take the form of large portfolios as individual repossessions tend to be sold via auction houses and estate agents. For those with capital one opportunity is in the form of some excellent property portfolios that are already coming to market this year.
Finally rents are also on the up and more landlords are returning to the market as a result. In a recent survey conducted by the Buy-to-Let specialist Paragon 71% of landlords said they are optimistic about prospects for 2011. This isn't surprising as prices have come down and rents are going up which means higher yields. The availability of rental accommodation is also currently 20% lower than in 2009 according to Knight Frank, this is all good news for investors. While the less well informed panic there are many opportunistic funds and investors actively looking to acquire new properties.
This week my desk is covered with print outs of portfolios from banks, Receivers and private individuals. On examination much of it will turn out to be poor investment stock but a percentage will be very attractive. For example I have seen a large portfolio of apartments in west London, and a high yielding portfolio in the North East of England. If you are interested in purchasing portfolios of distressed properties please get in touch here and we can keep you updated on what we come across. We can never market portfolios openly for reasons of confidentiality.
We are changing the format of our distressed assets seminar to reflect the changing market and the details of our next event will be published soon. In the meantime if you would like meet to discuss your requirements or to arrange a private portfolio review session please click here.
Article Courtesy of Henry Powell-Jones @ Bold Spirit
