Booming Sales and Rentals - Keep An Eye On Inflation!
Thursday 23rd September 2021
Good morning
I would like to look at two topics in this newsletter:
1. Merseyside and Wirral sales and lettings market
2. Inflation and interest rates
Merseyside and Wirral Property Markets
Undoubtedly, both the sales and lettings markets in the region are, hot, to use a popular word applied to a market which is rising quickly or is showing increasing demand at a rapid rate. I regularly receive e-mails and telephone calls from investors living in the UK, predominantly London, and also from non-UK resident landlords looking for advice on what and where to buy and whether Tuna Fish can help. If we do not sell one of our own developed properties, we source others for them. There has never been a better time than now to invest, for many reasons, including inflation.
A word of caution to paraphrase George Orwell’s Animal Farm “All properties are created equal but some are more equal than others.”
By this I mean you have to be very selective and not invest in the first property you see on Zoopla. Time spent in research is time never wasted, or you can fast forward that by outsourcing to people with decades of knowledge of the market you are looking at, whether it’s Liverpool, Manchester, London or wherever, then you will short-cut time, and possibly any potential mistakes.
It’s not just about how much rent you can achieve, relative to price paid (gross yield), but costs associated with that rent, such as ground rent and service charge. If the latter is extortionate, your net returns will suffer. Property investment is all about net returns and capital growth over time, not gross returns, as business is about net profit, not turnover.
I will look at property investment strategies in forthcoming newsletters, for without one, you are rudderless, not a great place to be in a fastmoving river (market).
“Keep to Let”
There is an identifiable trend emerging across the areas where we specialise. There is a growing practice for those who move home, to keep the old property as an investment. We have seen huge demand for these houses and in all cases smashed the glass ceiling of the local rental market. In Southport we had 178 enquiries for just one house and only yesterday in Huyton, 83 enquiries of which my staff gave 28 forms out at the viewing to those wishing to rent it. These are phenomenal numbers and the properties in some cases go in days, not weeks or months. This is exactly what I mean about being selective and investing in properties where the demand is huge, for whatever the reason.
Inflation and Interest Rates
Homeowners who are in the fortunate position to hold onto their old houses as an investment are, in my view, making a very wise choice. Even if inflation is very low, it is still a wise choice as rent is paid every month and capital values rise over time. But in a period of inflation, it is the wisest choice. You do not want to be sitting on a cash pile, earning ‘nought point something’ with CPI inflation at 3.2% forecast to rise to over 4% for September (reported mid-Oct). Many prices are rising, most of which are beyond the control of national governments, such as in the case of natural gas. These price rises all feed the dark forces of inflation.
Many younger people will not remember when inflation was rampant in the world economy, and interest rates rose dramatically. There is not enough room in a short newsletter to go into the detail, but worth Googling.
A 10% rise in inflation, means your cash sitting in the bank has ‘depreciated’ by 10%. It buys 10% less goods and services. Property has always been a great hedge against inflation, so maybe, now is a time to reflect on whether your cash balances are better deployed in the property market, rather than in the bank?
Further, as interest rates rise, which they will, ensure that you have undertaken a sensitivity analysis of your cashflow. In other words, at what level of interest rates, do I go into negative cashflow? How highly geared am I? Is my interest rate fixed? If not, why not?
All questions property investors should be asking themselves. If you need any advice or assistance with any of this, please contact me via the website and I will give you a call.
Enjoy the forthcoming weekend
Best wishes
