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Where to buy property?

Are the first signs of the much vaunted ‘green shoots’ starting to appear in the housing market?

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Landlords have witnessed massive falls in housing values over the last year. According to the Halifax and Nationwide there has been almost a 20% fall from the peak in 2007. This is not far off the 25-30% fall that many leading commentators were predicting for the market. It also means that the average house price of £147,746 (Nationwide Feb 09) is close to hitting the Nationwide’s long-term trend line , since 1975 for real house price growth of 2.8%.

Some landlords are starting to call the bottom of the market. These landlords feel confident that they can pick up a bargain by buying at below the asking price, thereby insuring themselves against potential future falls. The real market may have some way further to fall to reach the bottom. There is however already some anecdotal evidence that in some areas there is a pick up in interest in buying property.

A recent article in the FT highlighted how a Nottingham estate agent, Robert Bilson of Savills, had received offers on 4 out of 8 properties that were very recently put on the market.

Return of the ‘property hotspot’?

The question then arises, for landlords seeking a bargain, where to buy to expand their portfolio?

Those landlords who were buying property 5 or so years ago will probably remember the phenomenon of the property “hot spot”. The “hot spot” developed almost mythical status with many property investors in the early part of the decade, as they jumped on trains to various outlying parts of the UK to search for the next booming location.

This time round there is no urgency to catch the 6.15 from St Pancras north. These so called ‘hot spots’ were more a function of increasing affluence, economic confidence and ultimately a booming economy in London and the South East. This time it’s London and parts of the South East that are in the economic doldrums, as the financial service industry takes a hammering. Such a neat wave of increasing property values is unlikely to appear for at least a decade or more.

For the time being, property ‘hot spots’ are much more likely to be local in nature with specific areas recovering more quickly whilst other areas in the same town or city, languish in the doldrums for many years to come. Why?

Economic apartheid

One thing that the current Government has engineered very neatly but probably unwittingly, is a growing economic apartheid. This time it’s drawn along public and private sectors. Who you work for, private industry or the public sector will have a massive impact on your wealth over the coming years. Those individuals working for Government have experienced good pay increases, particularly those in middle and senior management. They have complete job security and near, cast iron pensions, and remain completely insulated from the chill winds of the economic downturn. “What credit crunch / depression” is the common repost?

Private sector bearing the brunt

Those of us in the private sector that own something, produce, manufacture or sell have had to bear the force of the economic hurricane. We face losing our jobs, having our salary slashed, or the value of our business decimated and as for pensions!

This has a massive impact on the prospects and values of residential property in different areas.

Therefore, landlords looking at areas to buy should think first. What areas are popular with teachers, social workers, local government officers, nurses and doctors? These locations are ones that will see their prices recover first and fastest. Not least because the potential purchasers are going to be the ones that banks and building societies are going to feel most confident lending to. How many teachers, nurses or doctors have you heard are under the threat of redundancy?

How to pinpoint these areas?

Unfortunately, since the demise of the the old Citroen deux cheveaux, spotting the teachers and social workers hang out is less easy. However, I would suggest a visit to the website up my street ,which reveals a lot about the inhabitants of an area and should give some clues as to those locations that attract the public sector middle classes. Good schools will be vital, low crime statistics, and look at the ACORN review for an insight into the inhabitants. Public sector enclaves will not be necessarily the ‘poshist’, they like a little bit of ‘shabby chic’ as well as a well stocked deli. They also appreciate their ‘period features’ so areas with older properties tend to be popular.

These middle class enclaves will inevitably be more expensive than some areas and that will mean a landlords investment yield will be lower. However, with 4 million unemployment a realistic possibility by 2010. Landlords looking for a safe bet could do a lot worse than looking at these middle class enclaves. They may not live up to a billing as a ‘hotspot’. They are however likely to remain luke warm whilst other areas cool dramatically in the chill winds of a global economic slump.

This is the first in a series of articles for 2009 in which we explore where to buy as we anticipate the recovery in the housing and investment market.

HAWKEYE – unique perspective on property investment

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