4walls Blog

I think it would be true to say that, here in the U.K., the desire to own our own home is ingrained into our culture.  Newspaper headlines charting the rise (and fall) of property prices are an almost daily occurance, not to mention the myriad of property programmes on the box - "A Place in the Sun", "A Place by the Sea", "Property Ladder", "Dream Homes", "Buy, Build, or Restore", "Homes Under The Hammer", "Escape to the Country" ... the list goes on and I admit to being an avid viewer myself!



And this isn't a recent phenomenon.  Our grandparents almost certainly said "invest your money in bricks and mortar".

Then there is the famous saying "An Englishman's home is his castle" .... and a more recent home owner's mantra "the average U.K. property doubles in value every seven years ... ".

These sayings might be cliches, but they are cliches for a reason.

What I want to examine in this blog is the "intrinsic" value of property and what that means to us as homeowners and investors.

Like any market, the property market in the U.K. is fundamentally driven by supply and demand.  (A secondry factor is of course access to financing - but that is a separate blog).

The fact is that we are an island, and not a very big one at that.  No one is making any more land.  Then we have huge population growth, high immigration, people living longer, the break-up of the family unit, strict planning controls ... the list goes on.  So the demand side of things is looking pretty good.

Statistically, the average property has gone up in value, on average,  approx. 11.8 % per annum since the end of World War II.   (However, property prices are cyclical and we have a correction every fifteen years or so, no surprises there).

But averages are misleading, because they are just that, an average.

If we look at England as a whole, we have a massive North/South divide in property prices.

This can be attributed to a shortage of available development land in the South East, whereas in the North, there are endless old industrial units, car parks, old mills etc that can be redeveloped.   (City centres up North are often saturated with endless new build flats that do not fit the needs of the local people).  So the supply/demand balance starts to vere towards over-supply in these regions.

The South East also has higher population density than the North.  Therefore, there is too much demand and not enough supply.

London is our capital and the centre of our wealth and that radiates out into the surrounding areas.   Again the South East benefits from this influence.

In the current property correction, new figures suggest that repossessions are much higher in the North, meaning that house prices will be down-valued by repossessions in those areas.  The fundamentals underpinning the property market are weak compared to the South East.

As Martin Skinner wrote in his recent blog "Investment Property Priorities": 

"Northern regions are more reliant on the state than southern regions and they will suffer more as a result. Demographics were forgotten somewhat during the boom and financial engineering was often prioritised over fundamental property investment criteria like location and future supply & demand.

Sadly many investors found that agents, property clubs and developers forecasts for rental income and re-sale values evaporated and have been left sitting on flats that in some cases could take a decade or more to get back to where they were estimated to be at their peak. And that's assuming the local populace doesn't move to the south in search of better pay (or just any old job)".

On that basis it would be logical to say that the North/South divide is going to widen in the years ahead as investors stick to tried and trusted locations and government cuts start to kick in.

So, when looking at the intrinsic value of property, we can conclude that the value of property in the South East is far more stable and robust.

As an investor, your first focus should always be cash-flow, but I believe that your second focus should be "intrinsic" value and the stability of prices in that area.

But again, the South East is a big place, so where do you buy in the South East?

London will always lead the way with property prices, as it is our capital and the hub of our wealth.  But outside of London, when looking for investment property, I look for areas with four important factors: 

1.  High rental  demand from young professional renters and professional families.

2.  Investment in the area.  (New business parks, supermarkets, leisure facilities, retail parks, etc).

3.  Great communication/improving communication links:  rail, motorways, etc.  Should be within a 1.5 hour easy commute of London.

4.  Infrastructure:  shops, leisure facilities, good schools, outdoor spaces ....

Some towns that tick these boxes are Basingstoke, Reading, High Wycombe, Guildford, Portsmouth, and Southampton.

In these locations, I would only ever buy houses.  NEVER flats.  There is inevitably an over-supply of them, and the demand side of the equation favours houses.  So "type of property" should be factored into your due diligence and research as there may be an over-saturation of 2 bedroom flats and a shortage of 3 bed houses.

However, there is another type of property that enjoys strong intrinsic value, and that I believe will always be priced at a premium, and that is coastal property.  This is because it is in high demand from people retiring to live by the sea.  They often buy in cash, so the the finance market does not affect their buying power.  (Obviously check for flood risk and coastal erosion as part of your research!).



The coast also attracts wealthy second home owners, who want a weekend get-away.  At WhiteSand in Camber, Rye, E. Sussex , where we have our holiday let, "SeaBreeze", one third of the properties in the development were bought for cash by wealthy Londoners.  These wealthy owners are unlikely to become desperate to sell and subsequently down-value the whole development by selling 40% below market value, as is happening in the North.

Finally, many people choose to live close to the sea for lifestyle reasons.  With the advent of the internet, and more and more people working from home, we are not tied to city centres and the daily grind of the commute.  The Halifax survey last year revealed that 80% of towns enjoying mass inward migration were coastal towns.  (Whereas, mass outward migration was recorded from city centres, the highest being from Birmingham).  This new trend again ensures that coastal property prices will continue to remain intrinsically strong, safe, predictable, and robust.

I guess what I am trying to say in this blog is that, when it comes to making an investment decision, there is no such thing as the average property in the average town.  And you are not an average person:   you have your own unique set of criteria that will determine your personal buying strategy.

But when you have calculated possible cash flow to your satisfaction, take a few moments to understand the "intrinsic" value of what you are buying.  After all, you are investing in the property.  You want to know that you have minimised risk and maximise returns and that you can go to sleep at night safe in the knowledge that you have invested wisely in a property that will always have an "intrinsic" value, no matter how the overall U.K. market is performing.  "Average" doesn't really cut it in my book, especially when you might be in a business relationship with that property for 25 years .....

I hope that one day you will be advising your grandchildren that it makes sense to invest in bricks and mortar!  You might even be sharing those insights as you relax on the beach at your holiday home ... !

I hope you have got value from this blog.  If you would like to join a dynamic community of serious and committed Landlords and property investors, please check out our Property Tribes forum.

You are also cordially invited to join us at our next property/social media networking event in Guildford on the 27th January.  Full details and registration can be found >>> here.