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Interesting Times - 26/06/2008
The media is currently full of reports all variously claiming to point to the future of the property market. Although nobody really knows what the future has in store, historically property has long been an excellent (tax-free) investment - despite my recent article suggesting that we should perhaps regard property as the home it is, rather than an alternative to a stock market investment.
But let’s just look at some facts. Whatever the economy, prices only ever fall when supply of properties significantly outstrips demand. At the moment, there is an increase of property available on the market. However, this is by no means the type of flood that would cause a crash. It is simply a minor cumulative effect of a slower sales cycle. In other words, few people are rushing to sell, but those on the market are not selling unless they are keenly priced. They remain available and on the market.
On the other hand, demand remains strong as we currently have an overall undersupply of property in relation to the housing requirements of the population in this country. This is apparently set to continue for decades. Indeed, with the heat taken out of the market, developers have less incentive to build, making the problem worse.
The buy-to-let market, which has over recent years partly replaced the first time buyer market, remains strong. This is not so much from the amateur buy to let investor who may struggle to raise mortgage funds, but from cash-rich professional landlords who are filling their boots. They can buy repossessions at auction and rent them for an excellent return due to the increased rental demand from those who either could not afford to buy, or could not secure a mortgage.
So cash is king in this market. Once the banks have sorted themselves out, and they will, because they are in the business of lending, and mortgages become more fluid, I suspect those who have bought today will be feeling quite good!
