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Mercury Homesearch - January 2020

The government’s latest English Housing Survey reveals private tenants fork out athird of their earnings to pay their landlords, while the majority have no savings at all.

Homeowners with mortgages pay just 17% of their household incomes on their mortgages, freeing up almost half of their earnings compared to renting privately. (Source lost, sorry)

-  The number of (foreign) students at UK universities has soared – rising by 34% in the last five years. It means that China now sends more students than any other country, inside or outside the EU, to the UK. This compares to 26,685 students from India. (BBC)

-  In 1820, London accounted for just 9% of the UK property market and yet 30% of the rent paid in the UK was in London. (A Step Back in History –http://faculty.econ.ucdavis.edu/faculty/gclark/papers/housecost.pdf - Editor’s Note:Anyone who thinks inequality in the housing market is a modern phenomenon is deluded)

-  Rents in the capital rose at 2.8 per cent in 2019 – the highest rate for almost four years– as the available supply of homes has plummeted 20 per cent over the last two years. (City AM)

-  A consortium led by Native Land has just put spades in the ground... It marks phase one of the project, which will eventually comprise 1.4 million square feet of new space.

Alasdair Nicholls said his firm has confidence in “London as a world-leading city for the long term, irrespective of short-term political uncertainty, currency movements orconditions in other markets”.

“We are closely connected to the Asian capital markets and the impression we getfrom investors generally is that the uncertainty around Brexit is seen as a short term risk and London development remains high on their agenda” (The Evening Standard)

-  Prosper, Funding Circle, and LendingTree are three examples of players in the (crowdfunding) market, a market expected to surge from $26.16 billion in 2015 to $897.85 billion by 2024. (Abundance Insider)

Jeremy Corbyn, Warren Buffet and Prime Central London

Corbyn, Corbyn, where art thou Corbyn?

Ahh, the epic Shakespearean romance of Romeo and Juliet echoes through the ages... and the (political) love affair between Diane Abbott and Jeremy (Corbyn, not me!) ended in tragedy...

... well, for them if not the rest of the UK which seems to be rejoicing at the fact that he will not be Prime Minister and she will not be Home Secretary – the latter arguably being the more frightening prospect.

Hopefully, Labour will now get their act together and become a more serious opposition party to keep the Conservatives on their toes. Time will tell.

Anyway, the scare stories in the press and all the mainstream “experts” who told us thatthe election was going to be close have been shown, once again, to have been clueless. As JFK said about the Bay of Pigs fiasco, ““All my life I’ve known better than to depend on the experts. How could I have been so stupid, to let them go ahead?”

Would it be a bad idea to keep this in mind when the same “experts” start prophesyingabout post Brexit Britain and Europe? Honestly, we will look back on 2016-2019 in a fewyears’ time and wonder what the blazes they were talking about...

But bad news sells. As a demonstration of this, think of all the disasters that have been headline news: Brexit, multiple elections, Coronavirus, Sars, Bitcoin crashes, the dotcom crash, 9/11, the Great Financial Crisis of 2008-2010, austerity, knife crime, Dianne Abbott, trade wars, real wars, etc., etc.

This is far from an exhaustive list. And if you came from Mars and just read the headlines, then life on planet Earth – even in the wealthiest countries – would seem pretty awful.

But in reality, life is pretty damn good especially compared to 100 years ago let alone further into history. And before you think I am ignoring injustice, poverty and so on, I am very aware that there are many people whose lives are appalling, but life is still a lot better for most people now than it was.

For example, in the last twenty years we have seen the fastest reduction of poverty theworld has ever seen. Of course, this doesn’t make the headlines and I am not saying that all is well. There is still much to be done but the progress is fantastic.

And in terms of recessions, life is also not as bad as we are led to believe:

According to David Rosenberg at Gluskin Sheff there have been 10 recessions sinceWorld War II and he reckons that “the reality is that we have been in recessions and bear markets for roughly 15% of the time in the past seven decades”.

In other words, despite the doom and gloom perpetuated in the press, which is unfortunately regurgitated as gospel truth at dinner parties, etc., things are good most of the time, which is why it does not pay to be bearish in the long term.

It is also important to note that while there have been numerous recessions during that 70 year period, there have only been three property crashes in the UK. A recession doesn’t marka property crash. Also recessions are not in themselves that serious. They may be dramatic moments for economists but for most people they are a sideshow.

However, the big depressions like 2008 and 1990 are horrific. This is when we see banks fail leading to liquidity crises. And what causes these? Land price crashes, which cause property markets to crash, which in turn hammers the banks who have helped fuel the house price boom with loose lending and are far more exposed to the land market than the stock markets (global stock markets are estimated to be worth c. $82 trillion while the global housing market is worth c. $230 trillion).

Meanwhile, those who have overstretched themselves and/or lose their jobs in the depression suffer greatly.

So, are we on the verge of a major property crash and depression?

The good news is that we are not. The bad news is that it will happen again because we have a very clear cycle of boom and bust. The better news is that there is a lot of money to be made between now and the next bust if you understand what is happening.

Right now, we are actually in a good position as UK & US banks are well capitalised. Indeed, they are awash with cash and are miles away from the recklessness we saw in 2006 and 2007. So, from a financial perspective we have a strong foundation. In addition, there is more money being made by more people in more jurisdictions than at any time in history.

Confidence is also beginning to return as the following information highlights:

-  Rents in London have risen at double the rate of the rest of Great Britain over the lastten years, according to Rightmove... Over the course of the last 12 months, askingrents in London have risen by 4.2%, compared to 2.4% outside the capital. Rightmove attributes the acceleration of London rental prices to the ongoing shortage of property for tenants.

-  Sales of prime central London property rose by a third in the last quarter of 2019, compared to the same period the year before. Prices also perked up by 2.4%... Deals for those going for 5 million pounds and above -- soared by 78% in the last three months of 2019 from the year-earlier period, according to LonRes. The number of sales was the highest in three years- Bloomberg

-  “Alongside an increase in transactions... new instructions were down 2% on Q4 2018and were 36% lower than five years ago.” Mansion Global

-  Knight Frank has reported that new buyer registrations in the second week of January are almost double the level of 2018 and 2019

-  In the 10 days following the 2nd January, Chestertons reports that sales enquiries were up on last year by an impressive 76%, while new buyer registrations and the

number of offers being made on properties were up 15.6% and 43.7% respectively. The number of new properties coming onto the market was also 20% higher than 2019 – Property Reporter

But despite this good news, the pessimists are still dominating. Positive articles often end with comments suggesting that what we are seeing is a dead cat bounce. A classic example was an article in the FT Weekend on 2nd February about Notting Hill and how it was outperforming. Yet, the final sentence read:

The recent end to price falls among London’s prime homes could yet feel like a shortinterlude in a long losing streak.”

Fortunately, this pessimism is great news for you and me as buyers, because it means that we are still a long way from the irrational exuberance which marks the peak of the market. Currently, the new influx of buyers is regarded with a subtle degree of scorn. The implication being that they are chasing the market and are ignorant of “the facts”.

Indeed, commentators are willing to totally ignore the facts to bend the story to their own beliefs. This is the end of an article telling us how property investors are in trouble:

The underlying proportion of landlords struggling to meet their mortgage payments is still just a quarter of 1 per cent. Among owner occupiers the proportion rises to just over three-quarters of 1 per cent.

Meanwhile, the number of buy-to-let mortgages in arrears, including those at risk of repossession, is actually down 5 per cent compared with this time last year.

Estate agents, not unsurprisingly, seem unwilling to acknowledge any kind of blip in demand from landlords at all.“ (Independent 1/12/2019)

This is frankly idiotic. The full article talks about how the buy to let market is in danger and yet it finishes with figures showing that the number of repossessions is tiny and falling.

The conclusion? Estate agents “seem unwilling to acknowledge any kind of blip”. Well rents are going up and repossessions are negligible as the journalist has pointed out... what did she expect? And yet it is the estate agents who are portrayed as ignoring the facts (to be fair they often do! But not in this instance).

As I say this is great news for you and me, because as long as there is this underlying cynicism and disbelief, a huge amount of money will remain on the side lines, i.e. there are still astonishingly huge sums of cash and credit in reserve which will fuel significantly higher prices in the coming months and years.

It will only be when the last bear has capitulated and everyone is buying in the fear of missing out on further gains/never being able to afford a property in London again that we will see another massive crash.

But that is years away.

Consequently, we have taken advantage of the current nervousness/pessimism for our members at Mercury Homesearch. Highlights have included acquiring a fantastic property in Knightsbridge overlooking a garden square for 25% less than the seller bought it for two years ago.

Meanwhile, we negotiated a significant discount (our member would have happily paid £250,000 more for the property) on an apartment with a 1500 sq.ft. roof terrace and some of the most stunning views in London.

We have also seen a surge in applications to become members of Mercury Homesearch, because there are several reasons to be positive and take action now rather than later:

Bank lending is still highly regulated – this will change as it always does in the second half of the cycle. The following is a typical example of what you can expect to read over the coming months and years:

Suren Thiru, head of economics at the British Chambers of Commerce, was more forthright. He said the result "masks an alarming loss of momentum through the quarter from a relatively strong July outturn and therefore does little to suggest anymeaningful improvement in UK’s underlying growth.

Against this backdrop, more must be done to boost the UK’s economic growthprospects. With interest rates already close to historical lows, the extent to which further rate cuts are able to significantly stimulate the economy is limited. It is vitalthat any incoming government drives the UK’s growth trajectory forward by investingin infrastructure and incentivising greater business investment.” BBC NewsNovember 2019

This is typical of the sort of mainstream economic thinking which will become more prevalent. And politicians will be delighted to comply as they will want to keep the party going to increase their chances of being re-elected! Creating looser credit conditions will also seem like a sensible policy as the banks are well capitalised and“the lessons have been learnt”.

Infrastructure spending – it is quite hard to find a government that isn’t promisinghuge infrastructure investment. This is certainly true in the UK and it is a simple fact that such spending boosts the economy and also increases land prices. This has to increase house prices.

QE – we will see more of this. Indeed, it is noticeable that Modern Monetary Theory (MMT) is also gaining popularity in the U.S. While its proponents suggest that this is not inflationary, it will be because the excess value created by the infrastructure improvements it funds, will inflate property prices. Even if MMT is not implemented, it shows the changing attitude to debt/money printing – again this is typical of the second half of the property cycle and will fuel land prices.

We are miles away from irrational exuberance. Despite painful chat of a “Boris Bounce”, the underlying emotion is still one of caution. Yes, there is definitely more confidence in the market and the best properties are receiving multiple offers. However, there is no panic buying like we saw in 2006 and 2007 when the belief wasthat if you didn’t buy then, you would be priced out of the London market forever.Indeed, the term bounce implies that this is a short-term move rather than the start of a bull run.

But then this is how bull runs start. Think back to 2009. If someone had told you in 2009 that property prices would be where they are today, would you have believed them?

And yet here we are.

And it is the same in every cycle. Prices go up in the face of a “wall of worry” as thepessimists and experts prophesy doom from their desks. Meanwhile, in the real world, confidence continues to grow as prices increase.

At the same time, the money supply will also expand and the velocity of money will speed up. Finally, we will have the final capitulation of the bears and prices will go up like a rocket just as we saw in 1988/89 and 2006 & 2007 when prices were increasing 25%+ per annum.

It is during this final “crack up boom” that you want to be wary, i.e. when the press and conventional wisdom is telling you that prices only go up, that we have a “new paradigm”and the masses are buying with wanton abandon.

Does this sound like what is happening now?

Would it be unreasonable to suggest that what we are seeing now is similar to what we saw in 2002?

Was it a bad idea to be buying property in London in 2002?

Don’t get me wrong. Going against conventional wisdom can feel uncomfortable. After allif you are truly contrarian, you are saying that you are right while the vast majority are wrong, which is not always a comfortable position.

Even the greats are treated with derision: Warren Buffett was ridiculed in the late 1990’sfor not jumping on the Dotcom boom. Apparently, he was “past it” and didn’t understand thebrave new world. Likewise, he avoided the frenzy of 2006 and 2007 despite popular opinion telling him he was missing out on the start of one of the great bull runs.

I may be mistaken, but he seems to have done reasonably well by ignoring conventional wisdom and buying when the masses weren’t, e.g. 2001-2005. Of course, he was buying companies, but would it be absurd to suggest that the same strategy works in property or any other asset class for that matter?

Markets are merely a reflection of human nature and human nature hasn’t changed inmillennia, which is why it will not be different this time.

So, if you, your friends or clients are interested in acquiring a property in London but:

Don’t have time to find and inspect all the potential opportunities

Don’t trust estate agents

Don’t have access to accurate data so that you can make an intelligent decision

Want to avoid having your time wasted by estate agents inundating you with

unsuitable properties

Are worried about making an expensive mistake and losing money

Would like advice on negotiations to help you achieve the lowest price/best terms

possible

Would like to avoid all the painful bureaucracy, wasted time and stress suffered by

the typical buyer

Or if you need advice on any other aspect of acquiring a home in price central London, you can enquire about membership to Mercury Homesearch and discover how I can help you, just as I have helped some of the world’s most successful families, businesspeople and celebrities acquire their ideal homes and investment properties.

Simply email, jeremy@mercuryhomesearch.com or call 02034578855 (+442034578855 from outside the UK) for more information.

Finally, I just want to say that I hope you have had a fantastic start to the year and that 2020 is a huge success. I would also like to thank all of you who have kindly referred new members to us. You have received letters from me, but I would just like to thank you again for your support, which is always hugely appreciated.

Best regards, Jeremy

“My main concern about choosing an expert to help me find a home in London was finding someone who would have my best interests at heart rather than just focussing on the transaction.

I undertook a lot of research but they were all ex-estate agents who just wanted to ensure a sale was done to get their commission. However, Mercury Homesearch seemed to have acompletely different ethos with the focus very much on protecting their members’ bestinterests, so we asked them to represent us.

Fortunately they more than lived up to their reputation. From the outset, they fullyunderstood our reservations about the typical London house and didn’t waste our time withunsuitable homes.

After a few months, a house became of interest as Mercury were aware it could now be negotiated to a good price which would bring it within our budget. We were keen to progress the negotiations quickly.

However, they devised a negotiation strategy which they felt would give us the highest probability of achieving the lowest price possible. This involved moving more slowly than we would have liked but they managed to secure a significant reduction of £500,000 from the asking price which in hindsight we would not have achieved if we had tried to secure the property quickly.

This proved that they had our best interests at heart because they could have secured the property quickly at a higher price and received a higher fee. Instead, they had the confidence and professionalism to give us the best advice.

In short, they changed what would have been a time-consuming, stressful and expensive process into a highly enjoyable experience and we have acquired our perfect home at a favourable price. I cannot recommend Mercury Homesearch highly enough and you would be making a mistake if you did not have them represent you. Mr P. Murphy (Royal Borough of Kensington & Chelsea)

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