Buying in the run up to Christmas – opportunity or trap?
I had surgery on my shoulder last week so I am typing this one handed with my left rather than right hand, so apologies for any mistakes.
And don’t worry, it was nothing serious. I put my shoulder out playing football last year and it hadn’t recovered. As my surgeon gleefully pointed out when he visited me before the operation, I am far too old to be running around a football pitch.
He scores zero points for bedside manner!
Oops, sorry, my ever-vigilant assistant, Veronika, is telling me to focus and not bore on about my arm. So, what about London property? Well, the run up to Christmas is often a great time to buy.
Because some sellers become far more flexible on price. Quite simply they want to have exchanged contracts or at least agreed a price before the end of the year. This is completely illogical (unless there is a tax motivation), but either way it works in your favour as a buyer.
The fact that fear is the dominant emotion in the market right now also works in your favour and shrewd operators are taking action as noted by Bloomberg:
“Billionaire American Families Seek Profit From Brexit Chaos
Basically, a firm run by two families, the Stephens and the Van Tuyls — is looking to invest heavily in the London property market: "Brexit in its current status causes uncertainty," said Peter Mather, one of the FirethornTrust's founding partners. "The uncertainty causes volatility, and the volatility causes opportunity."
This is only one example of what is currently happening but several other wealthy families and trusts are also taking advantage of the old adage “Be greedy when others are fearful”.
So, if you are contemplating acquiring a property, you should start actively looking now rather than waiting until the New Year. HOWEVER, …
… you must be selective. I was recently speaking to a gentleman who was proudly telling me about the massive discount he had negotiated on a property in central London and how it was a bargain. And on the face of it the discount he negotiated was big compared to the asking price, but there were two problems (I didn’t say this to him by the way):
- A discount is only really a discount if it less than fair value. Most asking prices have little resemblance to fair value (as in this case)
- Focussing on the discount rather than the future performance of the property is one of the biggest mistakes property buyers make.
In this instance, he had bought a property that by its very nature was guaranteed to underperform the market in both weak and strong markets – the exact reason the seller was happy to be rid of it. In other words, this property did not adhere to the “Best in Breed” strategy.
Here are some basic figures to show you the importance of buying a property that will outperform:
If you bought a property for £1m this is what would happen:
|0 Years||5 years||10 years||20 years|
|5% per annum||£1m||£1,283,358||£1,647,009||£2,712.640|
|8% per annum||£1m||£1,489,845||£2,219,640||£4,926,802|
|10% per annum||£1m||£1,645,308||£2,707,041||£7,328,073|
As you can see, over the long term the difference of just a couple of percentage points outperformance can be huge due to the power of compounding.
And this is the trap too many buyers fall into. They see a “bargain” but only consider the base numbers, because they have been told that the run up to Christmas is a good time to buy. So, it is essential that you undertake your due diligence – not only by scouring the market to find the best opportunities, but also to understand what makes a best in breed property and what represents fair value.
If you don’t find a suitable property then just wait until you do, even if that means waiting until 2019.
(If you are buying a home, you will probably be focussed on finding a property where you and the family will have lots of space to grow into, where you will feel safe and have fun while also having easy access to great shops, schools, restaurants, etc. I am not suggesting that you sacrifice this, far from it, but most homebuyers fail to see the full range of properties available and miss the one that would fulfil their requirements and will outperform).
One final note – due diligence does not mean looking at websites or waiting for property alerts. You need to source off-market properties too. Now, you won’t be able to recreate the network that I have which allows our members to have first refusal on the finest properties in London, but you can still give yourself an advantage over most other buyers by simply speaking to the estate agents once a week.
Because the estate agents often don’t list all their properties as the agency, Jackson Stops, highlighted in an email they sent out two weeks ago:
“You might be interested to hear that c.20% of our sales this year haven’t made it to the open market”.
Quite frankly, relying on the websites virtually guarantees average results (although you should be just about ok if buying properties under £1m as long as you fully understand valuations and are a good negotiator).
You can discover more about this in my book, The Insider’s Guide To Acquiring Luxury Property in London. If you haven’t requested a copy you can do so by leaving your details on the form to the right-hand side of this page or emailing email@example.com or calling 02034578855 (+442034578855 from outside the UK).
Good luck with your search for a property in London.
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