London Has Peaked

cells

chucknorris wrote: »

That also includes me, but what I did know 24 years ago was that London property yields were extremely good, and with the prices being so low, it was obviously an extremely good time to invest, because prices were only likely to go one way over the following decade. so I bought my first 3 London properties in 1991, and another in 1992 or 1993 (I honestly can't remember when it was).

its not that straightforward,

prices are based on forward expectations as much as they are on today worth. the talk in the 1970s and 1980s was how to manage London decline

During that time somewhere around 1.4 million people left London, in 1991 census London was the LEAST densely occupied region of all of England Scotland and Wales and by quite some margin!! (fewer people per house)

so back then, i imagine the expectation was a continuing decline in both London population and relative economic output vs the rest of England. Those who assumed a continuation of the past twenty years probably thought in real terms London residential was not that good an investment

of course what happened was a flood of immigrants which completely reversed the population decline. again probably something few people expected in 1990 on the scale it happened. Coupled with globalisation and technology London turnaround was rapid

its why you get the result you do with things like, back in 1995 you could buy 1.5 Birmingham homes with 1.0 Hackney Homes. Now in 2015 you can buy 5 Birmingham homes with 1.0 Hackney homes.

Again 24 years ago did you know with certainty that London would outperform Birmingham by as much as it did?



anyway I have a question for you seeing as you have been a london landlord for 24 years. What was the going rent in London for a private 3 bed home/flat back then? I cant find any accurate data on rents going back that far

chucknorris

cells wrote: »

its not that straightforward,


anyway I have a question for you seeing as you have been a london landlord for 24 years. What was the going rent in London for a private 3 bed home/flat back then? I cant find any accurate data on rents going back that far

It really was that straight forward, enough to convince me anyway, which is why I took the plunge.


The first two investment properties I bought were 2 x 3 bed flats which I bought for £70,500 (originally rented at £750/month, but that was a friendly(ish) rent to friends) and £58,500 (which I honestly can't remember what the rent was, but probably about £650 to £700/month as the yield would have been higher than the former).

cells wrote: »

Again 24 years ago did you know with certainty that London would outperform Birmingham by as much as it did?

I lived in London, I knew the London market, so not only could I manage the properties easily, I also knew what was going on and what the profitability was. I had no interest in Birmingham or anywhere else (I stuck to what I knew).

chucknorris

cells wrote: »

and of course the real question is what bond yields will be like in 5 or 10 years time. Personally I think they will be close to 1% but if they return to ~5% then the housing market cant go much higher as we are already at gross yields below 4% in much of London


eg house nearby sold for £500k but would only get £20k Max a year in rent. Thats 4% gross or perhaps closer to 3% net.

Can such a house double in price to £1000k ......... even over a 5-10 year time frame? I dont think its likely as rents in 5-10 years will only be 24-28k so if the house doubled in price its gross yield would be 2.5% while its net yield would be below 2%

The only way that could happen is if BTL mortgage rates drop to the 1-2% region.


not to mention in such a world London housing stock would be worth north of £3 trillion ...... a figure which would be about equal to about that of the whole housing stock of germany.....

What the future holds doesn't really concern me any more, I am not interested in buying more property (I haven't been for a few years). The challenge now is to spend the equity before we die, personally I don't think that we will do it, but we'll try (no sorry you can't help). But in the meantime before we sell, the rental profits are quite high (more than both our professional salaries, I am a chartered surveyor (but working as a university lecturer) and my wife is an actuary, so we are not talking peanuts).

cells

chucknorris wrote: »

It really was that straight forward, enough to convince me anyway, which is why I took the plunge.

The first two investment properties I bought were 2 x 3 bed flats which I bought for £70,500 (originally rented at £750/month, but that was a friendly(ish) rent to friends) and £58,500 (which I honestly can't remember what the rent was, but probably about £650 to £700/month as the yield would have been higher than the former).

So when you bought yields were ~13-14%

How much is the going rent for those flats now? Just wondering what the rent price inflation has been over the 24 years

chucknorris wrote: »

I lived in London, I knew the London market, so not only could I manage the properties easily, I also knew what was going on and what the profitability was. I had no interest in Birmingham or anywhere else (I stuck to what I knew).

I was not really talking about you but in general,
did many people predicted that London would diverge so much from the second city, or even the third or fourth for that matter?

If you were based in Birmingham you would probably have done BTL in Birmingham and your gains would not have been anywhere near as good. So like with most things in life there is a big element of good fortune in it

cells

Another factor to consider is that at current prices the equilibrium is favouring a net conversion to more BTLs as income multiples are relegating more and more people to renting.

As prices go higher (relative to wages) the equilibrium will be pushing even more in the direction of converting Owner homes to BTLs

Personally I think another doubling in London prices over the next 5 years is very unlikely. But we could see +50%....or it could be +20% or anywhere in between

chucknorris

cells wrote: »

So when you bought yields were ~13-14%

How much is the going rent for those flats now? Just wondering what the rent price inflation has been over the 24 years






I was not really talking about you but in general,
did many people predicted that London would diverge so much from the second city, or even the third or fourth for that matter?

If you were based in Birmingham you would probably have done BTL in Birmingham and your gains would not have been anywhere near as good. So like with most things in life there is a big element of good fortune in it

The 2 flats in question currently rent for £1,800/month for the cheapest and £1,767/month (the latter is lower because we reward long staying tenants, its true market rent is about £2,050/month).

I am only interested in profit, if I lived in B'ham and the market didn't look good, I would not have invested, I'm not particularly attracted to property, only profit. The market was extraordinary at the time, when I put an ad in the paper I would get up to 30 calls the first night! It got to the point where you ignored everyone after about 10 possible tenants.

chucknorris

cells wrote: »

Another factor to consider is that at current prices the equilibrium is favouring a net conversion to more BTLs as income multiples are relegating more and more people to renting.

As prices go higher (relative to wages) the equilibrium will be pushing even more in the direction of converting Owner homes to BTLs

Personally I think another doubling in London prices over the next 5 years is very unlikely. But we could see +50%....or it could be +20% or anywhere in between

I am hoping that property prices in London keep up with inflation over the next 5-10 years, anything else is a bonus.


I don't really care that much where prices go now, but I am expecting them to at least keep up with inflation over the next 10 years. I will probably sell up about then (market dependant).

cells

chucknorris wrote: »

The 2 flats in question currently rent for £1,800/month for the cheapest and £1,767/month (the latter is lower because we reward long staying tenants, its true market rent is about £2,050/month).

I am only interested in profit, if I lived in B'ham and the market didn't look good, I would not have invested, I'm not particularly attracted to property, only profit. The market was extraordinary at the time, when I put an ad in the paper I would get up to 30 calls the first night! It got to the point where you ignored everyone after about 10 possible tenants.

so roughly speaking rents have gone from £750 per month to 1900 per month over 24 years in your area of London, an increase of 150% or 3.9% a year compounded. Thanks that's good to know


I have been wondering over the last few weeks how rents have moved in Birmingham vs London. Have rents in Birmingham not risen as much as in London and hence that's why prices in Birmingham haven't gone up as much. I suspect that is the case but I don't know. I wish there was a land registry type database for rents so a good regional analysis could be done.

cells

chucknorris wrote: »

I am hoping that property prices in London keep up with inflation over the next 5-10 years, anything else is a bonus.

I don't really care that much where prices go now, but I am expecting them to at least keep up with inflation over the next 10 years. I will probably sell up about then (market dependant).

I suspect they will at least match the 3.9% rent price inflation over the last 24 years and I think they will beat that.

Even the London plan which set a target of 48,000 new homes set that figure taking into account a constraint of land. They actually believe London needs 60,000 homes a year to keep up with demand a figure I think is about right. But the actual build rates in London are not 48,000....they are closer to 18,000 a year.

So the mayor and his team believe 60k is needed annually but what actually gets built is 18k or thereabouts. That should ensure London house prices beat London rent price increases which seem to be running at about 4% a year



Another general question. In your 24 years would you say the rental market was pretty consistent and steady or were there periods of no rent growth and other periods of high rent growth?

chucknorris

cells wrote: »

I suspect they will at least match the 3.9% rent price inflation over the last 24 years and I think they will beat that.

Even the London plan which set a target of 48,000 new homes set that figure taking into account a constraint of land. They actually believe London needs 60,000 homes a year to keep up with demand a figure I think is about right. But the actual build rates in London are not 48,000....they are closer to 18,000 a year.

So the mayor and his team believe 60k is needed annually but what actually gets built is 18k or thereabouts. That should ensure London house prices beat London rent price increases which seem to be running at about 4% a year



Another general question. In your 24 years would you say the rental market was pretty consistent and steady or were there periods of no rent growth and other periods of high rent growth?

Although I do not think rents will continue to rise at 3.9% per annum, I have no concerns over holding London property, other than to get the timing right for selling, the only reason that I will sell is my age. We have no children and I am 57, there is a lot of equity that needs to be released and spent, plus I don't want the hassle of owning property when I am in my 70's. So it is a case of selling sometime before the next market correction. It all depends on the market, at the moment my best guess would be about 10 years. The reason that I do not think rents will rise at 3.9% per annum is that we are now in a low inflation environment, whereas back in the 90's inflation was extremely high, and it was also higher in the noughties too. Again this doesn't concern me, I am more than content with the current profitability (skewed in my favour by low margin tracker mortgages).

There were 2 or 3 short periods when rents stagnated, even dipped slightly, but nothing that bad, by then profits were high anyway, it might have been more meaningful if I had just started out. Over the years it has changed from just covering the mortgages in year one (1991), to very good profits. But the main thing is that in over 24 years with multiple properties, I have never had a rental void, other than when I have instigated a short void between tenancies to redecorate, or a longer one to refurbish.