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Posted on 14 February 2007
Houses vs Apartments
Hi,
Hope you are well, and are keeping to your goals for 2007!
I have had a busy couple of weeks and am in Nottingham this week catching up.
This week we highlight a recent article in the Financial Times, and have an update on our Belfast events and Consultation days.
Houses V Apartments – what’s best?
Next events - Belfast
For the last few years we have recommended buying houses that are in affordable areas of the country as the best way to enjoy capital growth, and steer clear of many of the city centre apartments in the UK.
The FT has recently confirmed this, with an article,
"Price of new flats falls 0.9% as rest of house market soars"
By Jim Pickard, Property Correspondent January 20 2007
The price of the average new flat in the UK has fallen 0.9 per cent in the past three years, even as the rest of the housing market has risen 31 per cent.
The news will make alarming reading for the tens of thousands of investors who have bought new apartments in recent years in the hope of rapid capital growth.
The Financial Times has analysed data from the Land Registry and found a vast discrepancy in capital growth between different types of housing.
The average home leapt in value 31 per cent from £161,665 in September 2003 to £211,453 in September 2006. But the typical new flat fell slightly from £191,223 to £189,564 during the period. The figures are the Land Registry's most recent detailed breakdown of the market.
The data should be treated with caution as they could reflect developers building smaller flats or in cheaper areas. But they show a striking trend.
"It is straightforward supply and demand. The housebuilders keep on repeating, parrot fashion, that there is a massive undersupply of housing," said Alastair Stewart, a construction analyst at Dresdner Kleinwort. "The undersupply is not in flats, but in houses, which they are not building in large numbers."
Housebuilders have built an increasing proportion of flats in recent years as a result of government policies that encourage high-density, brownfield sites. More than half of new properties are now flats compared with20 per cent in the late 1990s.
There is an oversupply of flats, especially in larger regional cities such as Manchester, Bristol and Birmingham. To the east of London, where the government has earmarked hundreds of thousands of homes in the future, there are also fears of a glut.
A recent report by agents Savills showed that property prices in Docklands rose just2.2 per cent between September 2002 and June 2006,when much of central London enjoyed a boom."
The full article can be seen below:
http://www.ft.com/cms/s/56439f30-a82a-11db-b448-0000779e2340.html
This headline figure is only giving half the picture as well. If you borrowed 85% of the purchase price – and for simplicity we say apartments stayed at the same price, compared to houses rising at 10% per annum for the last year – your return on your deposit would be around 60% per annum buying a house compared to 0% buying apartments.
So huge differences simply by choosing the right type of property. Now in some countries many more families live in apartments so each local market will be different – and even within the UK different markets will have different demands and supplies.
Still the vast majority of property clubs only offer apartments in the UK to investors – and while some will still prove good investments – I have bought apartments in the last 12 months, but have been priced under £70,000 – the housing market under £100,000 will prove a far better option in most areas due to limited supply.
I went to a 2 hour free workshop recently where the investment club pulled out the usual line that all property doubles in value every 7 years – and proceeded to offer £200,000 city centre apartments.
Remember that prices will only go up if there is a demand for the property and it is perceived good value.
This seems simple yet people still get it wrong. It is vital to look at supply and demand eg as highlighted above most major city centres in the UK have seen a large supply of new build apartments over the last 7 years – and while there is undoubtedly a demand for city living, the level of supply is such that prices are flat and in areas have actually dropped as demand did not equal supply at the original prices.
This can also be seen in many overseas countries where there have not been restrictions on supply – and demand is simply not there for prices to rise.
It is easy to see in places tipped and hyped as great new resorts or holiday destinations that the level of building going on means supply will outweigh demand and capital growth and rental income will suffer.
If you are looking to invest overseas look to emerging markets and look where the locals are buying ie the major cities and towns where there is often a huge undersupply of property. What a contrast these cities are, where everything sells with minimal fuss to the local market, as opposed to many coastal resorts in new EU countries and emerging markets where every second person will sell you an off plan property and supply outweighs demand! In many of these resorts there is very little resale market as the locals cannot afford the properties and agents show no real interest as they are offered larger commissions for selling off plan properties from developers.
If there is limited rental demand and too much supply you simply will not see capital growth. It may seem basic economics, but if you buy where demand outweighs supply you will see a far stronger and quicker return on investment! An investor who bought a property with us in Estonia 14 months ago, told me last week his apartment has just been revalued 60% above the price he paid – in an area where demand clearly outweighed supply. He borrowed 70% of the purchase price giving him around a 180% return on investment! Compare that with paying the same price on a coastal area of some over hyped countries and he would have seen no capital growth at all. What a difference to your return on investment.
I always prefer targeting a market where the locals are buying as well as investors and where supply struggles to keep up with demand to ensure capital growth – if you keep to these basic rules you will do well!
Next Events in Belfast
We have had an excellent response from investors in Ireland to our next events in Belfast – we are over for a presentation on Friday 23rd Feb, and then have a buy to let Workshop on Saturday 24th February.
For more information on these, and future events in NE England and London go to http://www.property-investment-tips.com/property-events.html or email us at info@property-investment-deals.com
Spaces are limited, so if keen to meet the team, email us or call us on 0115 947 4155 to reserve a space!
That’s all for this week – any questions, just let us know!
Good luck with all your investing!
Regards
Alan
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About Alan:
Alan Forsyth is a full time property investor from the UK. He runs the website www.property-investment-tips.com which gives free, independent investing tips to investors. This site, www.property-investment-deals.com is designed to run alongside his original website, and will give in more detail his recommended property deals, and full details/pictures of any new deal on offer.