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Mercury Homesearch - November 2019


November 2019

−  Property investor Madison International Realty has more than $1 billion to spend on central London, its president told Reuters, with Brexit uncertainty providing buying opportunities.


−  New buyer registrations were up 35% compared to the same month last year, and they have been active, with viewings up by 50%, and sales agreed 86% up by value. (JDW Chelsea)


−  $8.6tn of global HNW wealth will change hands over the next 10 years. (GlobalData)


−  “Real assets (property) are set to grow over the next five years” said the CIO of Avivaon Bloomberg. This is due to increased interest from pension funds and similarinvestors: “the commodity that everyone is investing in is talent... central London offers very attractive opportunities... in very specific areas”. (Bloomberg)


−  Today’s connected devices market is skyrocketing to a projected US$14.2 trillion economy by 2030. Stanford researchers predict 50 billion connected devices by 2020, and 500 billion just a decade later. (Abundance Insider)


−  Riding massive advancements in hardware, the AR/VR market could feasibly hit a US$767.67 billion valuation by 2025. Meanwhile, 3D printing is expected to grow at a CAGR of over 29 percent in the next 5 years, surpassing a US$49 billion market by 2024.


−  And in the next half-dozen years, we will begin connecting the globe—all soon-to- be 8 billion of us—at gigabit connection speeds. (Abundance Insider)


−  Jyske Bank, Denmark's third largest bank, has started offering negative rate mortgages so you actually pay back less than you borrow!


−  ITV has sold the London Television Centre for £145.6M to Mitsubishi Estate London.


FEAR CHANGE


Ahh Brexit, sweet Brexit will you please release us from your poisonous vice? You have been delayed not once but twice. Surely not thrice?


These were going to be the first two lines of an epic poem about Brexit that would haveshamed Byron and Shelley. Unlike them, however, I don’t have access to a supply of mind-bending drugs and I got stuck, so I’m afraid that you will never have the (mis)fortune ofreading it. Once again, my English degree goes to waste.


But I may yet be inspired now that we know there will be a General Election. What a treat! We can watch Britain’s finest minds, statesmen/women and orators attempt to persuadeus that they are trustworthy and know what they are doing.


And I will look at them and think – you are the most uninspiring gaggle of halfwits and nincompoops to have graced parliament in my lifetime. So, the election becomes not a case of voting for the most adept and uplifting candidates, but a case of damage limitation.


But all this politicking actually hides a rather uplifting fact.


Despite all the buffoonery that we have had to endure over the last three years, the UK is still doing rather well. Of course, we probably could have done rather better, but how many countries could have suffered this political divide and done as well?


In other words, the system works which is why London is still one of the most desirablecities in the world. Don’t believe me?


"The UK is now one of Facebook's most important hubs for global innovation. We continue to grow and invest heavily in the UK and by the end of the year we'll employ 3,000 people here." Facebook's vice president for Northern Europe


And:


“Last year London’s tech companies received almost as much investment as all the digitalbusinesses in Paris, Berlin and Stockholm combined... In the first eight months of this year alone, London’s fintech start-ups received more than £1.5 billion of investment- far more than San-Francisco.


Why? Because our city has a world-class finance hub in the Square Mile, which is nextdoor to east London’s tech cluster, meaning entrepreneurs can easily tap into talent from bothindustries, and ideas can jump between the different sectors.” (Source: The Evening Standard)


Meanwhile:


Offices in the new development at Marble Arch Place have just been let to a large U.S. private equity firm at a record price for the West End, while property developer Derwent London last week announced it had agreed £33.5 million of new lettings in the year to date, up from £23 million in the same period in 2018.


Now, I am not sure that I believe the statistic about there being more investment than inSan Francisco and I haven’t had time to check, but the point is still valid. London is hugely attractive for all the reasons stated.


The fact is that success has little to do with politics, although admittedly, a stable politicalenvironment helps but “stability” is subjective. The Brexit logjam may seem painful to us,but would barely represent a ripple in most jurisdictions.


No, success has far more to do with hard work, resilience, a legal system combined with a business culture and infrastructure that allows you to invent, explore, fail, fail again and then fail some more until you succeed.


Then when you find something that works you need an environment where you can implement your idea quickly and efficiently. To do this (including the failing part) you need access to capital and a highly skilled workforce.


You also need the ability to adapt. If you don’t you will die. This has been true since thebeginning of time except that change is happening at an ever quicker pace. And what is the companion to change? Uncertainty!


The amount of claptrap written about uncertainty stuns me. Most people fear change and dislike uncertainty. But both are inevitable, if not ever present, even if we live under the illusion that we have created a safe, predictable world.


The uncertainty that you can see – like Brexit – is not the uncertainty you want to beworried about. It’s the change that you can’t see coming which will get you.


Except, even then you can adapt to the situation. This is why economic forecasts are wrong at the best of times – there are simply too many variables to ever hope of making accurate forecasts (with the notable exception of the property cycle in the UK & US. Ironically most economists ignore the one thing they could actually forecast...).


So predictions of what the referendum would do, i.e. an immediate recession and steeply rising unemployment proved to be completely wrong. And to be fair they also get it wrong by being too positive:


“Staggeringly... well after the demise of both Bear Stearns and Northern Rock, and the same month that Lehman Brothers collapsed – the consensus among economists “remained that not a single economy would fall into recession in 2009”. (Source:MoneyWeek)


So, how on earth can they accurately predict that Brexit would make us £70bn worse off in ten years? Yes, if nothing changes then they may be right. But do you think individuals and businesses are going to simply plod along doing nothing?


Of course, some will and they will fail just as several shops in the high street have failedbecause they didn’t adapt to changing customer needs and desires – however, there areseveral bricks and mortar shops that are thriving despite Amazon. Hmmm, maybe it’s worthstudying them and replicating/improving on their models? No, what am I thinking? That would be a silly idea...


Oh, and if you don’t believe me this is what Jeff Bezos said at the Amazon AGM“Amazon today remains a small player in global retail. We represent a low single digitpercentage of the retail market... largely because 90% of retail remains offline in brick andmortar stores.”


It is very easy to be consumed by doom and gloom because we are genetically programmed to fear loss more than we lust for gain. This is why the newspapers and TV channels lead with negative stories – it is what we are attracted to.

But we live in a world of extraordinary abundance. I mean in 6 years’ time everyone could have gigabit speed internet access. What would that allow people to do? There are currently 1.7 billion people who do not have access to banking. What will happen when they have access to credit to allow them to build businesses, etc.?


This is where politicians – of all parties – are a disgrace. They are not brutally honest about what is coming. Technology and a global workforce mean that if you are an unskilled worker in the UK, you are going to be left behind because the work can be done more cheaply elsewhere.


Even skilled workers are in danger - you can go onto sites like fiverr.com and upwork to hire researchers, graphic designers, PR experts, you name it – from all over the world for a fraction of what it costs here (although the quality of the work does vary!).


Unions, etc. can delay the day of reckoning but they can’t prevent it. What they (and politicians) should be doing is pushing and helping their members to learn new skills so that they can adapt and hopefully move on to better jobs.


Alternatively they can continue with absurd demands, e.g. the strikes on Southern and now South Western Rail have been because they want the guards on the train to open and close the doors rather than allowing the driver to do it. I mean it’s the 21st Century. Get real. They claim they are striking in the interests of passenger safety, but the Underground seems to work quite well in that respect as do trains across the world...


I am sure that you can think of several more examples.


But as one of my clients has pointed out – the reason why London has been so successful is that we are good at adapting. Not always – as I mentioned there will be several failures amongst the successes – but the reason why the UK and US are so attractive is that the system works despite the incompetence of government.


Could Corbyn put a spanner in the works? Nothing is impossible and most people will be paralysed by the thought of it because it seems so scary, but in reality the chances of him winning a majority are extremely slim and winning a large majority that would actually give him the power to enact his more insane policies is even more remote.


As The Guardian, which is a Labour supporting newspaper, said in July this year:

There was a time when the leader’s avuncular persona was more powerful than policy orslogan. Everyone in Corbyn’s 2015 campaign, including the candidate, was astonished by theeffect. He once exuded a gentleness that made allegations of fanaticism sound preposterous. Now his peevish side cuts through. He once animated feelings of belonging and purpose inpeople who had felt starved of inspiration by soulless New Labour... He had Glastonbury singing his name in 2017. It wouldn’t happen now. He can still pack a town hall, but that is propping up a base, not enlarging it.


Few Labour MPs, if any, relish the prospect of an election under their leader, although most pretend to want one. It is hard to present Corbyn as a man for the future, and May’sdeparture will date him even more. He will be a stale continuity figure from the time of stasis, irradiated through years of loitering ineffectuality amid the referendum’s toxic fallout. Hisaura of specialness has dissipated, revealing the man in all his flawed mediocrity.”


Now if this had appeared in the Daily Telegraph or The Times I would have taken it with a pinch of salt as these are Conservative supporting newspapers so it could easily have been planted by any anti-Corbynite.


But this is the Guardian – a stronghold of Labour ideology and support - which goes to show a couple of points I have been making for some time: the probability of Corbyn becoming PM is low and him becoming PM and being able to do anything is also slim asmost of his own MP’s don’t like him, believe in him or agree with his policies.


Do you think he would be any more powerful than Theresa May was when she didn’t havethe backing of her party?


As I say, it’s not impossible, but do you think it is likely that he will get a majority whenhe has no clear policy direction and has failed at everything he has done in the last threeyears...? And his plan for Brexit? Give him another 6 months to sort it out!! Give me strength.


But what of London property?


−  Transactions on properties in prime central London rose 14 per cent in the third quarter of 2019 compared with the same period last year (Lonres)


−  Buyers spent a total of £2.06 billion on super prime properties in London in the year to May 2019. This was almost exactly the same as 2018 (£2.05) billion in the previous 12 months (Knight Frank).


−  The market for properties worth £10 million plus is showing a resilience in terms of demand against an uncertain political backdrop, but overall transaction volumes fell 13% to 104 from 120. PropertyWire


−  Across both second hand and new build there were 54 sales over £5m in Q3 2019 (43 second hand, 11 new build), and 201 sales over £5m between Q1 and Q3 2019 (171 second hand, 30 new build) – a 19.6% decrease on Q1 - Q3 2018. (Savills)


−  While sales of £10-15m properties increased 29.6% on the same period last year, the number of transactions over £20m fell 43.3% although in both cases the numbers are small - 35 and 17 transactions respectively. (Savills)


−  The average value of transactions in Q1 - Q3 2019 was £10.7million, -5.2% lower than in Q1 - Q3 2018.


However, the market below £2m is much more active:


“The market below £2 million was particularly buoyant... with sales up 12%annually.” Lonres


“Comparing the month with September last year, viewings were up 62% and new buyers registering more than quadrupled... the shortage of stock is the main issue limiting transaction numbers for now. The number of properties we are seeing to value has fallen by 50% compared with the same month last year.” (John D Wood Chelsea)


So, transactions are low due to a shortage of good quality property. And this is what the statistics hide – good quality properties are selling quickly - assuming that the owners aren’tasking for an idiotic premium – and are increasing in value.


On the other hand, average, poor or blatantly overvalued properties are languishing.


Meanwhile, London needs 65,000 new homes per annum but “building on sites of any size has almost ground to a halt... in the first three months of this year, work began on just 77new homes in Zone 2, down 97 per cent compared to 2015.” Evening Standard


Against this backdrop the rental market is strong, especially below £1,000 per week, but is renting a good idea?


“The high cost of urban housing is one of the most divisive issues of our times. Rising prices have created entrenched cadres of haves and have nots, but because property owners tend to be in the majority, renters are often the ones left shortchanged.


That’s emphatically not the case in Berlin, where owner-occupiers make up just 15 percent of the market. Once a famously cheap place to live, Berlin rents have doubled overthe past decade and house prices have gone through the roof. Berlin’s “cool” reputation, burgeoning startup scene, and rock-bottom interest rates have all contributed to the boom. Because rent increases have outstripped pay rises, residents feel worse off.” Bloomberg


And this is always the way - it is only the renters that feel worse off and get priced out. Rents inevitably increase as economies and the supply of money expands. Meanwhile, owners will be feeling rather good. What this also proves is that the percentage of people who own property is irrelevant to prices.


This is especially true in the UK & U.S. where the property markets are structured in a way that has to benefit owners rather than renters. Of course, there will be brief periods when it seems better to rent, but in the long run it is a mistake. And while most people think now is a better time to rent it is in fact a better time to buy.


Yes, it may seem scary with all the political uncertainty, but then the best time to buy is when there is “blood on the street”. This is the UK’s political equivalent. And why is it best to be greedy when others are fearful?


Because by definition there has to be a significant amount of money not in the market. It issitting on the side lines waiting for “certainty”.


Right now, there are trillions of dollars sitting idle in bank accounts. Meanwhile, UK & US banks are desperate to lend, because they are well capitalised. Does this sound like an environment where there is a shortage of money that will push prices down?


In fact, there is more money in the world than ever before despite all the political shenanigans. More people are making more money in more jurisdictions than ever before. This is a trend that is accelerating. In other words, the ability for the money supply to increase is huge, especially if banking regulations are relaxed.


Conversely, the supply of land is fixed. Of course, globally many new cities will be built and existing conurbations will be improved. But cities like London and New York are incredibly hard to replicate and it certainly won’t happen overnight.


Consequently, these two cities will continue to attract a disproportionate amount of international investment because they are global hubs. Other global hubs, cities and locations where the wealthy like to congregate, e.g. the south of France, Aspen, etc., will also benefit from this trend, which is why people who say prices are too high fundamentally do not understand what is happening.

Add into that the fact that different currencies have differing purchasing power and the situation becomes even more complicated because while prices may seem high in sterling terms they can actually look very cheap, e.g. sterling has dropped 20% against the dollar over the last few years.


As an aside, yield is often a dreadful indicator of value when it comes to property – just as it is for stocks. Amazon doesn’t offer a dividend but has been rather a good investment. And yes, I know that it is a growth stock, but when you buy high quality property in high quality locations, it is also a play on global economic growth and increased money supply.


When you also consider that there is significantly more price elasticity at the top of the market you can understand why London, HK, NY trade at massive premiums to other locations. This will play out even more once India and China relax their exchange controls. This trend will also benefit Val d’Isere, Bahamas, etc. But who do you think will benefit from this trend - those who own land or those who rent?


So, although it sometimes seems cheaper to rent, it isn’t. Those who rent get priced outand have to move further afield because they are displaced by those who can afford the new rents. This is how cities have expanded for centuries. Notting Hill, for example, was once oneof London’s worst slums.


There will be more money in the world in ten years’ time. This is partly due to greater connectivity as we have seen, but the market will also adapt and find new ways to get credit into the financial system and the property market:


“As population increases in cities, so too does property continue to increase in value. London-based Landbay is a fintech/proptech platform that finances landlords to help thembuy properties to rent out. Today, the startup announced that it has received a €1.1 billion loan from an undisclosed financial institution to finance mortgages on its platform"


Founded in 2014, Landbay has seen lending volumes rise by 200% over the last 12 months, while lending default rates remain at 0%...


Landbay focuses on the professional segment of the buy-to-let market, which is growing significantly as the regulatory landscape evolves. The funding announcement follows theincrease of Landbay’s loan ceiling to £2 million, and its maximum loan term from 25 to 30years.


“Technology has been perhaps the greatest disrupter of the financial services sector in thelast decade,” said Julian Cork, COO of Landbay. “Fintechs, including peer-to-peer lenders, have been able to take advantage of the most up-to-date technology when building their infrastructure, allowing them to do three key things to stay on top move at speed, expandefficiently and stay focused. Importantly, we’ve done this whilst maintaining a 0% defaultrate so credit quality is not being compromised with scale. (Source - eustartups.com)


Meanwhile, The Times reports that:


“Banks are in fierce competition to lend to landlords, defying the gloom in the buy-to-let market. Habito, an online mortgage broker, this week said it would start to offer its own buy- to-let loans. It says it will consider self-employed and older landlords, and will have no minimum income levels for first-time landlords with deposits of at least 25 per cent.


The number of mortgages available to first-time landlords is at a record high of 1405 up from 645 according to Moneyfacts.”


Does the property market sound like it is struggling for funding? Does this strike you as a liquidity crisis? Would this suggest that the smart money is still sitting idle on the side lines?


And all this is happening while the papers are relentlessly pessimistic and the majority of people are fearful... which is exactly what happened in 2000 and 2001. But, actually, that was a fantastic time to buy just like now.


The cycle is simply repeating, just as it has for the last 300 years (the only times it hasn’trepeated like clockwork were during the two World Wars). There will be another huge boom and prices will reach heights that most people think impossible – in my view prices will at least double within the next ten years.

And then they will crash again, because it is a cycle of boom and bust. But that crash is years away.


If you bought in 2000 or 2001 you were more than insured against 2008 because your property had increased so much in value by then. Indeed, if you bought reasonably well in prime central London in 2005, then your property was still worth more in the depths of 2009/10 than what you paid for it.


But the earlier you bought in the cycle, the better you would have done.


Is it psychologically easy to buy now? No, because everyone is telling you not to – the newspapers, economists and your friends at dinner parties who are simply regurgitating what they have read in the press.


But out of all these sources, how many have actually studied the history of the property market? Is it unreasonable to suggest that they are just saying that prices are too high because they are higher than they have been in the past? Have they made any connection between prices and the money supply/availability of credit/velocity of money?


And remember banking regulations are still very strict. Historically, they have always been relaxed as it is the path of least resistance for politicians – indeed, this has already started with the relaxation of the Dodd Frank Act in the U.S.

This is just the tip of the iceberg. When credit becomes more available and the velocity of money picks up then we will see prices that were previously viewed as impossible. Of course, it might be different this time, but it never has been.

If you haven’t started actively looking for properties (and browsing the property portals isnot actively looking), then you are unlikely to do anything before the election or even the Brexit date of 31st January.


The big danger is that you will delay thereafter because there will almost certainly be something else to worry about which the papers will compare to Armageddon but will prove not to be the end of the world.


So, please ignore the noise and take action sooner rather than later. However, you must beselective. Just because a property has been reduced dramatically in price doesn’t make it agood acquisition. It stuns me how many buyers are more interested in a large price reduction to the asking price rather than buying a property that is good value & will outperform, but only represents a small price reduction to the asking price.


As I often repeat, research by Savills has shown that “between 2005 and 2013 the topdecile of properties in prime central London increased in value by 190% while the bottomdecile only increased by 63%”.


Which would you prefer?


So, if you or your clients would like to discover how to find the best opportunities and negotiate the lowest price possible, you can request a copy of my book, The Insider’s Guideto Acquiring Luxury Property in London, by emailing veronika@mercuryhomesearch.comor calling 02034578855.


The book will save you time, money and stress by showing you what you need to do and the seven biggest mistakes to avoid.


Of course, if you know everything there is to know about London property, then the bookisn’t for you. However, if the book even only manages to show you how to find a property that is just 1% better than you otherwise could or negotiate 1% more off the price than you would otherwise be able, then it is worth £10,000 if you are acquiring a £1m property.


So would it be a bad use of your time to request the book?


Simply email veronika@mercuryhomesearch.com or call 02034578855 (+442034578855 from outside the UK) to request your copy.


Good luck with your search for a home or investment in London.


Best regards,


Jeremy


What a presentation that was. I do not think that I have ever heard anybody give such


refreshing and appropriate advice regarding the purchase of property.


As a Chartered Surveyor, I do have some experience upon which to comment on your book

which I have read avidly from cover to cover. How I agree with all you say and how many

times have I heard people snigger when I have done exactly what you recommend, invariably with a successful outcome.


People generally make all the mistakes to which you draw attention and rarely employ any of the tactics/strategies that you recommend. Your book should be compulsory reading for all those thinking of buying property in London.

Paul Brittlebank FRICS Chartered Surveyor

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