The Housing Humbug Report - Property Markets in 2014

This is the fourth Housing Humbug report during my tenure as a writer for IPIN Global and looking the previous few years of predictions in preparation for this year's post I have noticed a few changes in the way the property market is viewed and reported as a whole...

This is the fourth Housing Humbug report during my tenure as a writer for IPIN Global and looking the previous few years of predictions in preparation for this year's post I have noticed a few changes in the way the property market is viewed and reported as a whole.

From a logical perspective one would hope over time the larger influencers of the markets (the government, banks, media, agents, developers and regulators) would get better at what they do, for example; better and more efficient policies, faster construction times, more cost effective building practices, better statistical analysis and market projections and so on. However, I rather fear the opposite is happening.

My predictions for the UK markets last year ended as being one very much of disdain:

"This year's prediction for the UK housing market in 2013 will be in the style of a British Rail announcement.

*BING-BONG* There will be little if any change in the UK housing market, until the different sectors that need to communicate and work rationally together actually do so, at least to some degree."

As it happens – it would appear I was largely correct:

We have seen the launch of government schemes (Help to Buy) that do little other than encourage more debt and push up house prices – making them less affordable (whilst still being billed as "helping people to get onto the housing ladder")

We've also seen schemes to encourage banks to lend more - initially to both homeowners and small businesses – only to be curtailed recently and restricted to small business lending only.

There was also the "New Homes Bonus", a cunning ploy to get more buildings built and finished – only to be confused in Parliament buy the Tory party's own newly inaugurated Housing Minister Kris Hopkins when he said "I am afraid the new homes bonus is not about encouraging people to build homes".

The Help to Buy policy which came under a lot of fire from the industry (myself included) for promoting more debt for those that can least afford it whilst inflating house prices at the same time was handed over to the Bank of England. They subsequently delegated it to the FPC amid many a claim that there was no bubble on the horizon and it was good for the people. Not long after it appears, those at the top do believe it will have an adverse effect on the market. Considering the BoE proved their lack of knowledge very well last year when it comes to mortgage regulation – much of this comes as no real surprise in the slightest.

The statistical side of the industry has not performed any better – more "average house price reports" are being generated than ever – all of which have holes than the Swiss national output of cheese. Rightmove caused uproar in the press this year suggesting London property prices had gone up by 10% in a press release – only to reveal of course this was asking prices – nevertheless many of the worlds mainstream media thought it fit to omit "asking" from their reports.

The UK media at large have faired no better unfortunately – rather than hire experts from any of the property industries they seem to have struck upon a very simple, fool-proof formula when it comes to housing headlines (and any other investment sector) which consists of just adding the word "bubble" and another adjective to fit – end result is newspaper selling headlines!

The mainstream foreign media have performed no better unfortunately, most using the exact same formula to report on the property market in China with even less understanding of it and the only evidence to hand being a few convenient pictures that do little else than illustrate their limited knowledge and opinion rather than any solid local market facts.

So far this year the UK property market has been a bit like watching an episode of the Road Runner cartoon with almost all the suggestions being proffered to bring the housing markets back to some kind of normality looking no better than Wile E. Coyote's shopping trolley full of anvils after a visit to his local ACME store.

All the ideas make sense when considered alone and without factoring in any other elements – the problem is it is going to take a combination of many things and policies to make any real difference without causing yet more problems.

The place to start in all of this is look at where it started going wrong in the first place – deal with that and the solution will be apparent. (Want to know where it went wrong? Prepare for some heavy reading here).

Property Predictions for 2014

  • Housing Minister Kris Hopkins to excel as the new Shapps-Man
  • Tory Party to continue manipulate the market with ill-thought out policies
  • Labour Party to continue to insist that just "building more" will fix everything
  • Bank of England to continue to baffle people with things it doesn't know about, and if that fails, create a new department to hide it
  • Newspapers to continue to promote bubbles as though they are at an Ibiza foam party
  • Isle of Wight to be sold off to the Chinese, flattened and renamed "Nimbystan" whilst China pays off the UK national debt, moves any objectors to its new found island and gets the country back into some sort of decent economic shape again

What to do as a property investor?

Borrow as little as possible – if at all - to fund any property investments. Leverage sounds great in all the brochures and an easy way to make money. The reality is however, interest rates will rise and if you can't keep up, expect a visit from the repo-depot.

Understand what you are investing into and how you are going to get out of it. If you don't – you really shouldn't be investing. Just because it says it's a good deal doesn't mean it is – check the small print and do your own due diligence to be sure.

Invest into growing market sectors that are showing consistently improving performance. Student accommodation in the UK has been an ideal example for the past few years with repeated year on year growth. The sector will begin to balance out before too long as more projects reach completion – but the market still has some way to go before that happens.

The hotel sector has also seen very positive growth which is set to continue into 2014 for a variety of reasons. Changes within the market itself have shown a rise in construction, acquisition and popularity of the "quality on a budget" sector of the market, as well as the "apart hotel" concept. 

If you know where to look there are some serious bargains in the luxury market – both in the UK and abroad. Just remember if you are buying abroad – the laws and taxes are different – research and understand them before taking the plunge.

If you happen to have very deep pockets indeed – consider the refurbishment of a listed building; just be mindful of the mountain of paperwork involved, possible public opposition and seemingly never-ending list of things that could get missed in the original plan.

Further afield – consider a structured investment into boutique hotels with luxury and limited availability as headline features. Buying into high quality specialist niches doesn't always mean high costs, but it does invariably result in better than average returns if you buy at the right stage.

For something really different from the norm, consider what I would regard as a genuine "emerging market" whilst it is still emerging. Very much for the braver individual investor and likely for the long haul – but take a look at this link to see a first-hand report and film on a country that will be making investment headlines for the next decade at least.

- Wednesday 18 December 2013

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