Property !!!!!! A Nation Hypnotised? Blog Discussion

MSE_Martin

Thank you

Just a quick note to say what an interesting position. Great to see so many views, argued coherently, and without venom. I think many less financially educated people reading this coming from the weekly e-mail will find the arguments educational (as do I).

Martin

PS. Just agreed to do a Tonight with Trevor on this subject, so the debate will continue

ReportInvestor

whambamboo wrote:

Well, considering you seem to think it's such a great investment, I would have thought you'd have done your own research before investing.

I believe you will find this graph quite instructive

http://www.biscithome.net/cgi-bin/sitebuilder/view_image.pl?site_id=12982;picture_id=1364

Clearly rental yields are at their lowest level ever. This is relative to asset values. In the last few years rental yields have risen above the retail price index but below wages, which is not a good rise at all.

Given that yields are so low, it implies that the value of the asset is too high, and will fall. This isn't good.

The graph shows property yields over time (generally falling), not rental prices (generally rising).

The mistake that you are making is not to compare the yields with investment returns on other assets over the same period. The rental yield fall looks quite tame.

In the late 1980s / early 1990s the endowment policy salesmen were factoring in substantial unrealistic annual returns based on an age of higher interest rates and higher gilt yields.

whambamboo wrote:

It's very clear that presently property [has] extremely low yields relative to any other asset class

I disagree. I still haven't had an answer to my question about where you could look to get, say, 4% yield that is likely to rise with inflation?

"Rising yield" from an investor's point of view, just means that the investor can expect the income - relative to the capital originally invested - to rise.

Chrysalis

It is an illusion and its to prop up the economy, if it wasnt for the people cashing in on equities then we would have been in recession a long time ago, right now instead of exporting goods our economy is fuelled on credit which isnt sustainable.

Interest rates will go up over the medium term, a interest rate rise means higher mortgage payments, higher payments means people having to sell, more properties been sold then demand means price crash ie. early 90s. The biggest fuel for the market right now is BTL buyers its people buying multiple properties and very few FTBs to some extenct it is been fuelled by imigration and a ever increasing population as well but this wont be enough to mean everlasting price increases a drop will come sooner or later and since our economy is so reliant on credit now a recession will come with it.

F_T_Buyer

For anyone who's interested, ARLA's quarterly review:

http://digitalnation.fileburst.com/arla/arla_review_q2_06.pdf

Looking at the figures, the average gross yield is 5.24%, where the net yield (after average voids of 27days) is 4.86%. The cost of a bank borrowing money is 4.75%, so anyone buying now will be losing money monthly unless they put a big deposit down.

Infact, reading the review you can see the vast majority are relying on capital gains. Even the report portrays rising values are a return (it's not until you sell).

So, this isn't investing. It is speculating. Speculating prices will rise to make the profit.

"The worst reason to invest in something, is because it is rising in value!" <-- Warren Buffet!

nemo183

F_T_Buyer wrote:

I also kind of disagree when you say no one knows what will happen. They are all sorts of reasons to predict something, such as interest rates, in that myself and others have discussed interest rate futures on here, which is valueable to anyone considering a fixed mortgage vs a variable mortgage.

Remember, if something is unsustainable, it won't be sustained. That I can guarantee.

Firstly, surely the idea of any investment involves the concept of risk, combined with an element of uncertainty. There may well be ways of attempting to predict risk, but quite evidently they involve unknowns which in turn lead to risk. If they didn't, and were 100% correct, they would be useless as everyone whould chose to invest in the same thing.

On the other hand, people have a reluctance to accept the possibility of something being unsustainable, mainly because they refuse to consider the underlying detail and mathematics and place more place in overall trends, perceived wisdom and sentiment - until it's too late.

ReportInvestor

ReportInvestor wrote:

I still haven't had an answer to my question about where you could look to get, say, a 4% yield that is likely to rise with inflation?

I've just found one that gets quite close!

A 60 year old male could get 3.6% annual income, rising by 3% pa (so not fully inflation linked) on a £200,000 investment by buying an annuity.

Only trouble is, he's got to give up his all rights to his £200,000 savings to do it :eek: and he could drop dead tomorrow, leaving nothing for his family.

No wonder that buy-to-let option still looks attractive.

paulmuk

I believe that high house price inflation is partially a result of the restrictive nature of the British planning system. The countrywide alliance and its allies are a powerful force pushing the NIMBY (not in my back yard) message.

Thanks to the restrictive planning policies of this country, we are left with some of the smallest and oldest housing in Europe.

* In a March 2005 Mori poll, 50% of those questioned would prefer to live in a Detached house and 22% in a bungalow. Only 2% would want to live in a low rise flat, and only 1% in a flat in a high rise block.
* Yet in 1990, about an 8th of new built homes were flats, and in 2004 this had risen to one half.

Government policy is encouraging developers to build a glut of flats and smaller homes. It is these homes that are set to be hit the worst by any house price correction.

As we have moved to liberalise and open up markets across most of our economy, our housing system remains centrally planned. This has proved detrimental to the overall quality and availability of housing. What started as a system where the state carried out development to ensure that the population were provided with a good standard of housing, has eventually become one in which the planning system is used to restrict development, particularly in rural areas. It is bizarre that as technology advances and our perceived wealth as a nation increases, our homes are actually getting smaller.

We should be building a lot more bigger, better homes but in order to do so we need to overcome the common NIMBY myths:

Britain is a small, overcrowed country

This is a myth. Only 8% of the total land area in Britain is urban, which is half the figure in the Netherlands. It is also lower than in Belgium, West Germany and Denmark. We may live in crowded cities, but we do not live in a crowed country.

Southern England is especially crowed

Again, another myth. Actually, the north-west bears the title of the most urbanised region in England. The South-west and East Anglia are among the least overcrowded.

We need agricultural land to be self-sufficient

Britain has one of the highest proportions of Land used by agriculture in the whole world, and we produce agricultural surpluses. We depends on imports for almost everything, especially energy so being self-sufficient for food alone is rather pointless.

Cities are bad for the environment

Low rise, low density developments, like the detached houses that the majority of the population aspire to, are actually better for bio-diversity than mono-cultural agriculture farmland.

Building on brown-field sites is always better

There is only a limited amount of brownfield sites. Even if we built on all of them this could only account for around 14% of our housing requirements. If we restrict development to these sites alone, then house prices will continue to sky-rocket and we will be living in dense high rise blocks of flats.

It is a shame that our nation has become obsessed with property. High property prices only help people trading down, or retiring. Anyone who aspires to own a bigger home would in fact benefit from lower prices.

whambamboo

ReportInvestor wrote:

I've just found one that gets quite close!

A 60 year old male could get 3.6% annual income, rising by 3% pa (so not fully inflation linked) on a £200,000 investment by buying an annuity.

Only trouble is, he's got to give up his all rights to his £200,000 savings to do it :eek: and he could drop dead tomorrow, leaving nothing for his family.

No wonder that buy-to-let option still looks attractive.

Everyone knows annuities suck - that's why we've got The Compulsory Annuity Purchase Protest Alliance. So what's your point?

The evidence is abundant that property does not perform as well as the stockmarket. You'll get 3.5% income from shares, plus capital growth as well. And let's not forget, it's much cheaper and less hassle to hold shares.

If you want high-yield, you can do that too, and most likely more tax-efficient than property.

There is nothing wrong with property as an investment, it's just that it's blindingly obvious that if prices double and yields halve it's not as good an investment as it was, and not only that, but there is a very serious risk massive loss of capital. Property just doesn't make sense now.

F_T_Buyer

paulmuk wrote:

Britain is a small, overcrowed country

Southern England is especially crowed

We need agricultural land to be self-sufficient

Cities are bad for the environment

Building on brown-field sites is always better

Here are the links to the full report:

http://www.policyexchange.org.uk/Publications.aspx?id=160

http://www.policyexchange.org.uk/Publications.aspx?id=165

Some nice easy reading...

whambamboo

ReportInvestor wrote:

I disagree. I still haven't had an answer to my question about where you could look to get, say, 4% yield that is likely to rise with inflation?

The stockmarket outperform inflation, and has also outperformed the property market in terms of income and capital growth over the last 20 years.

E.g., compare

http://www.nationwide.co.uk/hpi/Default.asp

with

http://www.finfacts.com/Private/curency/ftseperformance.htm

End of 1975, FTSE all share given as 158.08, by 2005 it was around 2800.

£158.08 invested in property would only be worth £2038.
The property market is unlikely to do that over the next five years.