The Property Dip - Time To Quit? BMV Roundup Oct 2008

by Graham Brown (LoveProperty)

According to Seth Godin, the Dip is the manifestation of the belief that “The old saying is wrong-winners do quit, and quitters do win.”

We’re certainly going through the real estate property industry Dip right now. RICS says it’s a 30 year low in property sales and there’s certainly no shortage of property investors quitting and heading back to their day jobs or worse still, filing for bankruptcy.

On the one had, pundits reflect the professional sentiment - we have tasted the beginnings of the meltdown but may have saved ourselves from being forcefed the full 3 courses.

So what exactly should we be quitting?

There is Still a Pulse…

You could be convinced otherwise that things are really that bad, there’s still a number of ready made BMV deals coming through the pipeline, some markets are still bearing up (according to the agents and Rhett Lewis), some lenders such as Nationwide have made tentative moves to cut their rates, others are still bullish such as Vanessa Warwick and  some are just fed-up with the naysayers. Paragon claim that landlord rental demand is “strong” and the FT reports that agent activity is on the way up, so what gives?

What is suffering right now is property investment that was the easiest foot on the ladder for would-be pundits - ie the product of common sense. Some talk of the unravelling of buy to let scams. Sale and rent back is also coming under tighter supervision with the latest NLA announcements.

Either way, time to quit means time to give up on the old business model.

Bottom Fishing - not there yet

But it’s maybe too earlier to proclaim a brave new dawn for the Property 2.0 investor, we have still to hit the capitulation point that analysts refer to as “the bottom” - the point at which assets would be going out of fashion, which for those that are selling will last an eternity but for the rest of us - a few days.

Mark Harrison recommends that we take a straw sample of our own immediate environment to see if the credit crunch is real. His analysis of the credit crunch and the average Joe is very interesting, worth reading, suggesting that there is still some length in this one before we reach the turnaround.

While pundits claims we are out of the woods and that prices could rightside themselves by 2010, I’d err on the side of caution for the meantime. FT’s aptly named feature section “Financial Panic” leads with “The panic passes but the causes remains“. The paper continues to suggest (through Landlord Zone) that we still have a 30% correction (drop) to run before we get there and latest research from Savills suggests that all markets are exposed. Rob Best also provides a good insight into the current state of the lending markets and what it means to us as investors.

Emerging markets a safe haven? Maybe not in the short term if you take the advice of this blog, although there’ll always be a market squirreled away somewhere that developers will tells us is recession-proof. This time it’s Canada (apparently).

What lies on the other side?

The money markets are still disfunctioning and there are 5 good reasons why they may never return to the good old bad old days of the early 21st century (download the free ebook on the future of [#%0#2]BMV[/#%0#2] investing). We can see evidence of this in the current lack of appetite for lending. Although lending rates should recede, lenders are imposing increasingly punitive terms on their mortgages (such as axeing all 85% LTV BTL mortgages) to frighten off all but the most diligent and persistent of investors. Hip Consultant provides a reasonable analysis of recent developments.

Robert Peston (BBC) reports that the wholesale markets inactivity is forcing banks to reduce their lending and as ever, property investors are at the mercy of the US financial markets (download Ebook here).

We also still have a hyperactive LIBOR refuses to come down to market representing more expensive borrowing (although the LIBOR has eased slightly in last week) and the spectre of higher oil prices. Donald Trumps makes a good point for all investors in paying more attention to OPEC than their central bank as an indicator to recovery.

Still economic woes don’t curtail all market activity, here’s some good news…

Now is a good time to own an apartment building according to Bigger Pockets, providing us with 15 reasons to take the plunge. John Lee of PropertyCow reckons that he can make good even 15% BMV deals that most would now be throwing away due to inability to raise adequate finance.

And if your tenants feel the themselves and stop paying, then fear not because there are plenty of ingenious ways to name and shame them. Here’s one such method I recently became aware of through Property Owl.

Plus, there are still plenty of determined entrepreneurs out there - just check out Graham Brown’s Property Radio interview with Rhys Morton and Tom Sanderson regarding the adventurer spirit (link here).

Find yourself stuck with a development you can’t sell off quick enough? As housebuilders are forever cooking up new ways to move their stock, one creative developer  has decided to raffle off his £1.7m development to the lucky ticketholder. On examination of the numbers, he’s onto a good thing - wins both ways. As they say, necessity is the mother of invention and he’s certainly come up trumps with this one. However, don’t get too excited - looks like the Gambling Commission have cottoned on to a similar scheme for a £1m house down in Devon (thanks to Rat&Mouse for the tip).

So I’ll leave you with the outro provided by the agents Alexandre Boyes who are putting a brave face on everything (hat tip to FindaProperty blog):

We’ll move again, don’t know where, don’t know when,
But I know we’ll move again, some sunny day.
Keep smiling through, just like you always do,
‘Til the billions drive the credit crunch away.

For more information on beating the [#%2#2]credit crunch[/#%2#2], check out my 20 Links for BMV investors to help beat the credit crunch or dowload the Free Ebook written by LoveProperty members: Free EBOOK - 5 Things You Can Do Monday Morning to Reduce BMV Risk in the Coming Global Financial Meltdown

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