On housing markets falling and the unreported UK and Spain realities

So property values are falling in the UK. According to popular knowledge (and that means doomsayer journalists who scratch a living at an average £23,000 a year), the market value of your property is meant to crash anything between 10% (according to the very Government) and 40%.

I don’t really know what the market is going to be doing. Actually, I really doubt that anybody can predict what the next move of the housing prices, but as every cloud has a silver lining, rental yields are going up. It is time for some rationale kicking in the market. Internet bubble P/E ratios for properties to let didn’t make any sense, and for the long term buy-to-let, raising rents is good news.

The prophets of doom make a living selling papers, not reporting news.

In the winter of 2006 (and still now), 1-year old new built properties in West Thamesmead (across the Thames, right in front of the City airport) were selling in auction at a 40-50% discount, and I can tell you, there was something fishy between the usual triad of banks, surveyors and builders.

Banks where approving mortgages based on surveys made by surveyors that didn’t have anything else to compare prices with, but the builders own price lists.

That allowed Barratt and friends to give away no-money down, stamp duty paid deals to prospective buyers… who eventually bought their spanking new river front properties.

Rent was 40-60% below what was estimated and we ended up with landlords belly up, and the repos started flowing in.

I remind you, dear reader, that we are not talking May 2008 here, we are waaay back, in the pre-subprime, pre-credit crunch world.

Last winter the government talked of setting up a commission to investigate what happened in this, and other areas where the key three players of the property game colluded to con the unsuspecting public. The falling market came along, and the news of such commission, disappeared from the radar… I guess it is not worth the weekly salary of a journalist.

But, as I said, rental prices are in the up, and if you played your cards well, due diligence, patience and time will do the trick and hopefully rent, if not capital gains (better capital gains, now down at 18%), will cushion up your golden years.

The Spanish story
The excesses of the cheap credit that fuelled the property bubble hit the hardest to Spain, and reports of falling sales and house prices and increasing unemployment in the construction sector are the news of the day.

It is true that the savings rate of the Spanish as a whole is well above the US and UK, but it is also true that the letting market in Spain is non existent.

Years of subsidised lettings policy de facto killed the market and nowadays you can still find people living on limited long term leases that not even cover the cost of the service charge. Furthermore, the landlord always loses in any transaction or legal intentions to evict the tenants.

For obvious reasons, landlords keep properties empty before letting them out.

It looked like the inflow of immigrants together with the raising house prices would force the government to change the legal background on tenancy agreements, but what do they do? Some regional governments talk of a “tax on empty properties” and through the State government, regions are managing cash rent benefits to young tenants.

So, again, falling housing market and raising rents… not so sure.

Again a populist democratically elected government (aka votes count, realism can wait) has twisted the mechanics of a market, and surprisingly, in the middle of a housing crash and with drying credit, rents are stalling and even falling.

We are all just puppets in this farce.



2 Responses

  1. Interesting that you write about “something fishy” in the property market. I have read a lot about the credit crunch and its causes, which mostly seem to centre around property speculation. Very recently I wrote a post on my collected understanding of it, in as near as possible plain English. While I was writing that post it occurred to me that something looked strange, but I was working at a macro scale and had no specific examples. Anyway I wrote a post about that suspicion as well. So thanks for the pointer to an example of cabalistic profiteering. I may well follow up my post with examples if I find more.

  2. Conceptualizer, I was about to answer your comment, and ended up writing a new post that I hope will help you on your quest.

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