The Good, The Bad And The Ugly
As 2010 rapidly draws towards its end it’s becoming increasingly clear that this downturn is radically different from previous recessions in terms of its symptoms and impact. Ireland is a prime example of this, a country which had taken early and responsible austerity measures to rebalance its economy is still suffering from a crisis in its banking system. For the Irish the "Celtic Tiger" seems like a distant memory.
Ireland’s huge deficit has meant that Irish banks have been finding it impossible to raise money on international money markets meaning that they have been forced reluctantly to accept an EU backed bail out to enable them to repay the money they have borrowed in emergency liquidity funds from the European Central Bank. Here in the UK we are much better placed (thankfully) and have been able to devalue our currency to encourage exports and print more money, options that are not open to Eurozone members.
Looking first at the UK residential property market overall average growth for the year is likely to be around 5% which, to be frank, is good given the circumstances. Strong growth in the housing market would not be helpful now and a period of flat prices is healthy in the short term as inflation will start to erode the value of existing debt. What is important is that stability in the property market is here and prices are not tumbling as many commentators predicted.
The wider UK economy has continued to perform better than most predictions with 0.8% growth in the third quarter. Unemployment has recently fallen slightly to 2.45 million leaving the overall percentage of those out of work virtually unchanged at 7.7% (according to the Office of National Statistics). This compares favourably with the 9.6% rate in America for example.
Part time jobs are increasing in the UK and its flexible workforce has led many influential economists to argue that the private sector is more than capable of filling the increasing gap left by the Public Sector. According to James Knightly of ING, “the recent data has been good” and “(it) offers support to the view that public sector job losses can be more than offset by increases in private sector employment”.
Some of our companies are also performing extremely well- organisations such as easyJet which has recently seen its profits triple and have posted results that show that for them at least business is growing and recovery is well underway. Retail figures also rose by 0.5% in October.
The UK property market remains slow mainly because of a lack of bank lending. It remains difficult for first time buyers to get on the ladder, although there are some excellent re-mortgage rates if you have equity in your property.
For an investor looking at residential property I think that there are two particularly attractive opportunities. One is for those lucky enough to already own their own home to use this opportunity to buy a previously unaffordable property and benefit from lower mortgage rates and fragile sentiment.
The second and continuing opportunity is for the purchase of distressed assets in the UK. Repossession rates have dropped which shows that economic stability is returning but banks are still sitting on billions of pounds of residential and commercial property taken back at the depth of the recession.
Banks are very keen to keep their balance sheets looking as healthy as possible so they can raise funding more easily. As long as these assets are not sold and any losses crystallised banks can disguise losses or hide these properties by moving them off their balance sheets.
Banks will have to start selling these properties at some point, however, and in my view this is likely to be next year. This is going to be one of the main opportunities for the investor in 2011. Bold Spirit is perfectly positioned to be able to act swiftly on these opportunities as banks feel increasingly confident of disposing of these assets without losing market confidence.
If you would like to attend our last FREE Distressed Assets Seminar of the year and listen to more detail on the above as well as finding out about existing investment opportunities please register your interest here. To register your interest in distressed properties in general please fill in your details here.
Article Courtesy of Dominic Farrell @ Bold Spirit
