Investing in Devon

According to some estate agents, Devon is fast becoming a good place to invest in.

Actually, that is not news. The Southwest has often been a good place to park your money in property. The region offers picturesque coastlines, a lovely country feel and loads of open space for your money.

Gill Fielding, founder of Fielding Financial, based in Totnes, claims that Exeter and Plymouth make particularly good investment areas. The towns both have Universities which attract high numbers of students, and hence can command high rental demand.

Also located within the vicinity are good hospitals and sporting facilities, which make them attractive to those actively seeking to rent.

The rise in tuition fees has put strain on students looking to enter University and do a degree and tuition fees of up to nine thousand pounds a year are now common. This has meant that universities which offer degrees for less cost, which would normally not have had a look in, are being considered. Traditionally these have been in the coastal regions, away from big cities, so the lower fees along with cheaper rents have started to make them look attractive to others. Ironically, this demand for rental properties will only push the rates higher for successive students.

How would you invest in property? Find an area that is in demand either by professionals or students. Good transport links, especially rail links or a tram network are essential. This means your property can be easily accessible without the use of a car, and within commute of the big cities. Some landlords even recommend checking out the local rail network timetable to see how often the trains stop, as properties along these areas tend to be more attractive. And if you can find an area that is cheaper to live in, invest in it quick before it is gone!

But it is not just about demand and transportation. Look at the entertainment scene and public facilities. Most rental properties are for younger people who have not yet managed to buy, so if the area you are investing in has an active entertainment scene, such as clubs for bands to perform, or comedy clubs, you may garner more rental income. Pubs, cafes and other social settings are good indicators. Which young person would choose to rent in a place with no social life and feel alone? Not many.

Whatever you do, though, if you do invest, you must make it entirely clear to your tenants that they should not sublet the property out. Increasingly, with the rise of sites such as airbnb, tenants are trying to gain income by even renting out their rented properties without permission. This has resulted in a lot of disputes between landlords and tenants which could have been avoided if tenants had been made aware of their responsibilities. And as a landlord, you would save yourself a whole lot of trouble if you had this point emphasised during the signing of a lease.

In any event of a dispute, remember you can refer to the property ombudsman for mediation. Tpos mediates between tenants and landlords and all other issues relating to property.

Is Edinburgh the new London?

Private landlords always seem to suggest that the best place for properties is in the north, in towns or cities with good railway and other transport links. Could Edinburgh be one of these?

The average house price in the Scottish capital grew by over ten percent in Dec 2017 compared to the previous year. This means that if you bought a property with the intention of renting it out, not only would you be a further ten percent richer already, but you have the means to let out the property for higher rents. But how is that possible? Well, higher property prices mean that people will find it hard to buy. And this simply will drive up the housing market.

The value of the housing stock across the city grew by £7.5 billion over the same period – more than any other Local Authority district in the UK as a whole.

This figure was for lower-end properties – if you can call it that – that did not exceed two million pounds. The same, however, could not be said for the more expensive properties.

The £2 million-plus market was at its lowest level since 2004. This is quite unsurprising as a ten percent increase would add the price of a one–bed property on to an existing one. The Land and Buildings Transaction tax (LBTT), which would see £198,000 added on to the price of a transaction at this level.

There are certain areas in Edinburgh that rode the increase in prices. The southern hotspots of Grange, Morningside and Merchiston accounted for a total of 377 sales transactions last year.

Faisal Choudhry, head of residential research in Scotland for Savills, said: “Scotland has witnessed its strongest market since 2007, with price growth now outperforming London. Values will continue to rise due to a lack of supply and strong city economies. “In particular, Edinburgh’s residential market profile continues to excel. The lack of supply and strong domestic and international demand for property in the Capital is one of the main reasons behind a rise in prime values in Edinburgh City.”

If you have always thought of investing in property, but are put off by London prices, Edinburgh may be the new place to consider. The number of new build transactions in Edinburgh increased by 30 per cent last year.

The strongest growth in transactions last year was witnessed closer to the city centre, where experts said the redevelopment of the St James centre had attracted people towards the city centre.

This is another sign that city centres, with their transport links, remain attractive places to invest in.

Common reasons for property investment

Why property? Many invest in property because it gives them an income and a pension pot, but it’s more than that. It suits their lifestyle, work ethic, skills, risk profile, personality, tax situation and inheritance plans for their children – and these are all things you need to consider carefully. You need to find financial professionals who can advise you properly but or now, let’s simply say that you will need some significant capital behind you if you’re serious about building a portfolio (I’d suggest at least £50,000 for each property you intend to buy) and I’d stress the importance of speaking to a wealth advisor. They can look at all your financial interests and plans for the future and help you decide the best way to invest in property to suit your own, personal situation – and whether property is even the right investment vehicle for you.

What I can do is explain why I chose property. Quite simply, it offers the most reliable, tangible, flexible, profitable form of investment I’ve been able to find, and I can break that down into six key aspects:

1. Leverage. No other asset class offers the opportunity to leverage in the way that property does. Banks and building societies lend against property at the level they do because property is seen as having a fundamental ‘bricks & mortar’ value. Markets peek and trough but a property will almost always hold a certain level of value, so while maximum Loan to Value rates may fluctuate (in the past 8 years, I’ve seen them fall from 125% to 60% and go back to 85%), you can still leverage other people’s money to make a better return on capital than you might otherwise – i.e. you can make your money go further. For example, if there was a 15% rise across all markets: £100k invested in stocks = £15k growth £100k invested in £25k deposits on 4 properties, each worth £100k = £60k growth

2. Refinancing. The ability to refinance a property, as an extension to leverage, means you can end up with an income-producing asset that has none of your own capital tied up in it. You can’t achieve this as quickly and easily as you once could, but if you manage to buy a property at a good price and that particular sector of the market rises sufficiently, you should be able to remortgage in time and release the money you originally invested. By reinvesting that money in another income-producing property, you’re expanding your portfolio and maximising the return on your capital.

3. Income. With all other asset classes, you mainly profit from growth on the capital. Although there may be interest payments on other types of investment, I haven’t found any that offer the same income potential as property.

4. Control. Unlike most other forms of investment, such as stocks or bonds, you have a high degree of control over the investment returns a property provides. While you can’t control either the property market as a whole or mortgage rates, you do have the power to decide: the type of property you buy what mortgage product you have how you let the property the type of tenants you accept the rent you charge (to a certain extent) how much you spend on managing and maintaining the property Essentially, you have a high degree of control over income and expenditure, and, therefore, profitability.

5. Opportunity. The diversity of opportunity to make money from property is really exciting to me, and is one of the reasons it’s used by so many people as a wealth creation tool. Whether you want on-going income, short/medium-term gain, a pension plan, a home for your children in years to come or a lump sum return in the future, property can work for you. You can buy to let single or multiple occupancy units; renovate a property and then sell or remortgage; self build or develop yourself; strike a deal to sell property or land to a developer; get paid for sourcing property; do everything yourself and make it your career, or work with other people to make it a more passive investment… It really does offer a huge variety of options – even one property can allow you to realise different returns at different times in your life, depending on what you need and when.

6. Systemisation. This is a big part of why property works as an investment vehicle for me. If you can put the right systems and team in place to effectively source, acquire, refurbish, let and manage a portfolio, you can reap considerable financial rewards for relatively little of your own time. That frees you up to either focus on high-value aspects of your business, or simply to enjoy some of your lifestyle activities. I said earlier that property is a business, and you need to have the ability to establish and manage a ‘head office’ in a way that works for you. But as long as you can do that, your systemised business should be able to function as a money-earner whether you’re there or not.

Buy to let market slows

Recent reports suggest that the buy-to-let market is cooling after recent measures introduced by the government to control the power of landlords and other individuals buying second properties.

The new 3% additional tax was one of the measures introduced in April 2016. In short, it levied an extra tax on top of stamp duty, which was meant as an attempt to cut back on the accumulation of properties by private landlords.

Another attempt to introduce rent control was the removal of tax relief on mortgage interest altogether which came into April this year.

The laws affected mainly individuals, but not companies, and this has not gone unnoticed. In fact, some individuals are continuing to exploit the loopholes.

One such measure is to buy commercial properties for conversions into private flats. Commercial properties are unaffected by the additional tax levy, and hence at the point of purchase the tax is lower.

Some individuals have also set themselves up as a company, and purchases are done via the company. While many of them claim this tidies up the accounts – as the properties come under the financial expenses of the company, others accuse them of profiting from this because the interest is treated in a business expense.

It appears that many private landlords too are contemplating that the company structure is the way forward for them. Certainly, it seems that many considering investing in buy to lets are setting up companies first, and then making purchases. Those who have yet to set up companies but wish to assimilate this form of structure may find that they are coming under the financial squeeze of the government.

What does that hold for the rental market and the many thousands of young professionals that are dependent on renting as a step to the housing ladder? It appears it may be a step they never come down from. Landlords – in the form of companies – may only resort to raising rents in order to cover costs.

Adding property value from studies and cellars

One of the biggest changes that has occurred within the family home over the past 10 to 15 years is the growing popularity of the home office. An increasing number of people now choose to work at home, either to create a better work-life balance, to avoid the misery of commuting, or simply to undertake the work they love in the comfort of their own homes.

Britain has become an entrepreneurial state, with many ambitious individuals and small groups keen to set up companies on the lowest possible budget. It’s undoubtedly true that setting up at home cuts overheads significantly, and allows you to work long, productive hours without completely giving up family or home life. Just over 10 years ago, I remember leaving a large practice to start my own business from my spare bedroom. It was an enormous downscale –believe me! However, even though I now have a much larger, fully staffed office, I still like to spend time at home in my own study, in quiet contemplation. It can be an amazing place, allowing me to avoid the distractions of the outside world and focus on delivering work that needs high levels of concentration.

Whether you choose to use a corner of your living space, or create a study or home office in a designated room, it’s undoubtedly important to keep it tidy and make it ruthlessly efficient. But that doesn’t mean it can’t be beautiful. Seamless, integrated storage will keep chaos at bay, and you can focus on creating a comfortable, motivating place to work.

A study is a good place to have if you have to work from home. Another place that can add value is a cellar.
If you are lucky enough to have a small cellar underneath your house –perhaps used for nothing more than some storage or a place to keep some wine cool –you may be able to change this into much-needed, usable space.

One of the problems with existing cellars is that they have no natural light –and no natural ventilation. It is also common for cellars to have very restricted headroom.

If you are working to a tight budget then your best option is to waterproof the existing space as it is, paint and decorate it, install some decent artificial light and some mechanically extracted ventilation, and then use the space as a decent family utility room.

The great thing about putting washing machines and dryers in this sort of underground space is that the surrounding walls give a large amount of acoustic protection. It’s great to move all of these noisy appliances from the ground floor down to the cellar. If your budget can stretch a bit further, why not consider digging out the cellar’s ground slab, and building in a new, insulated concrete floor at a lower level, to give you some increased headroom. If you have a few more spare pennies stashed away, you can always look at enlarging the cellar and extending it underground –either towards the front or back of the property. This may provide you with the opportunity to install some glazing at ground level –to allow natural light into the basement spaces and encourage some good, old-fashioned natural ventilation. This makes your basement utility room a much nicer space in which to spend time –rather than being shut away in a dark and dingy dungeon.

The truth is that any additional space for utility-room storage, which can be easily accessed by a cellar staircase, is always going to be a great asset and a selling point for any good family home. Even with the tightest budget, any conversion of an existing cellar is going to be a good use of space.

The construction processes vary depending on the type of property that you live in, but the general principles of creating a new basement under an existing building go something like this:

1 The basement company constructs a hoarding at the front of your house, which allows them to start digging through your front garden.

2 Once they have dug down to the basement level, they then start to make their way underneath your house, by forming a one-meter-wide tunnel right down the middle of your home. They go down the middle because all of your structural foundations run along the edge of the house. For the time being, they have to stay away from them.

3 They then have a skip located on the road outside your house and a conveyor belt that goes from the underground space up through your front garden –over the top of the street footpath and into the skip on the road. As the guys dig out the mud, they throw it on to the conveyor belt and it goes from the subterranean space and into the skip. The skip is unloaded regularly by a lorry with a grabber.

4 They then tunnel off to the corners of the house and begin to underpin the house with huge, deep, new concrete foundations. They gradually and very slowly do this in sections to provide the much-needed structural support to your foundations before they can remove the surrounding soil.

5 They underpin, remove a bit of soil, then put up some Acrow props to provide some temporary support for your flooring above.

6 Once all of the perimeter walls and foundations are completely underpinned, the remainder of all the soil under your house is removed.

7 Steel beams and steel columns then span beneath your existing ground floor to keep it in place.

8 Light wells are formed at the front and the back of the property, to allow in as much natural light and ventilation as possible. These can either be sunken external courtyards or glass skylights inserted at ground level.

9 Next, the waterproof tanking system is put up against all of the concrete walls.

10 Insulated concrete slabs, under-floor heating pipes and screeds are installed.

11 All the drainage and plumbing is installed.

12 The walls are timber-batoned, dry-lined and plaster-boarded before being given their final finish.

Living room and kitchen design for aspiring landlords

Living rooms have changed so much over the last few generations. In the good old days, your living room might have been known as a sitting room, a drawing room, a front room or a parlour. The living room was often the space in which you could grandly declare your style, status and taste, because it was here that visitors would be invited when they came to your home. In many families, the living room was a child-free zone, kept for ‘best’ to impress! Times have undoubtedly changed, and not that many houses have space for such luxury – spreading out to fill every room in the house instead! In fact, the separate ‘formal’ drawing room often feels like a fairly boring and redundant space – rarely used and usually not very comfortable.

Here in the 21st century, we are much more adventurous with our use of space, and it’s increasingly common to combine the kitchen-dining area, making the kitchen very much the central hub of the home. Many kitchen-diners have their own TV screens, and most homes have a number of TVs scattered throughout. For this reason, the ‘new’ living room isn’t necessarily a place for sitting down to watch TV. In fact, in my home we watch more TV in the kitchen than in any other room. So maybe it’s time that we rethink the way we use our living spaces. Sure, get a TV in there for times when you really want to flop and chill out; however, it makes sense to think about giving your living room a new role.

Today’s living rooms can provide space for reading, listening to music, having a relaxed chat and gathering around the fire. Where kitchens can often feel like ‘harder’spaces, with functional flooring and finishes, the living room wants to be a place where you can curl up and get cosy. It’s important that any living room feels relaxing and comfortable. It’s undoubtedly a space where you can hang out with your kids, but there is also an opportunity here to make this a space that is a little more grown-up. The TV will always be the inevitable focus of any living space (or, indeed, any room in which it is situated), but by planning a room properly there are ways to give equal priority to a beautiful, real fire. Real fires have such a powerful psychological appeal, and represent one of the very best ways to truly relax.

We live in an age in which we all love a greater sense of space in our homes. Most of us don’t want to live in tiny, box-like rooms, all with a similar scale, size and proportion. Instead, we like variety in our homes, diverse spaces with plenty of light and a great flow of air. We like rooms to be sized to match our requirements; in other words, we need them to be big enough to host our lifestyles, and smaller when we want to be cosy. The lighting and finishes are then chosen to create an atmosphere appropriate to those rooms.

If one thing’s for sure, kitchens are the absolute heart of the home. They aren’t just places for cooking, but a hub for socialising with family, friends and relatives. The 21st-century family kitchen is a virtual hive of activity and, for me, it is without a doubt the most important room in the house. Dining rooms are, however, something completely different. There really has been a change in our view of these spaces, particularly in smaller homes. Sure, if you have a grand house with loads of space, then a formal dining room is a fantastic space for those special occasions – huge dinner parties, or family gatherings. However, if you need more space in your house, and need it in rooms that might sit alongside your dining room, then this is the first room that needs to go.

Another reason why we are seeing the death of the formal dining room boils down to the fact that younger families simply don’t use formal dining spaces in the same way that previous generations did. The modern family is much more relaxed and far less stuffy. Times are changing and we don’t seem to mind the idea of entertaining in what is effectively kitchen space.

Your kitchen has to be ruthlessly functional, highly durable, and intelligently planned to suit the exact needs of your family. If it’s not, then you have not only wasted a large proportion of your refurbishment budget (even the most affordable kitchens still cost money), but it will drive you mad every time you use it. Cooking for you and your family should be a pleasurable and rewarding experience, and not a source of frustration.

In the early 1950s, researchers in the US developed the idea of the ‘work triangle’. This is an ergonomic concept derived from research to improve industrial efficiency, which was then applied to the domestic kitchen. Whether you are planning your own kitchen, or enlisting the help of a professional, you can use the ‘work triangle’ method to check the efficiency of your design. The three points of the triangle correspond to the three main kitchen activity zones. There is the wet zone (the sink), the cold zone (the fridge) and the hot zone (the cooker). Their position and relationship to each other is critical to achieving an efficient and comfortable kitchen design.

The recommended overall distance (the total length of the three sides) is 6 metres (20 feet), with no two points being less than 90 centimetres (35 inches) apart. Sound complicated? It’s not really. Read on! If the total is less than 4 metres (12 feet), then your appliances will be too close for comfort. If it’s greater than 8.5 metres (26 feet), then your appliances will be too far apart and you’ll waste time and effort trekking between them. A good way to burn off the calories that you are about to put on, but not an efficient kitchen design! Try to assess the traffic flow across the triangle, too. If you have a large kitchen, people walking through the space may not be a problem, but in small rooms it can reduce efficiency even further.

Design choices affect your rental yield

Some, if not most, people look to property as a way of making money. The attraction with being a landlord is that it offers you lifestyle options, a stream of income that once set up, provides you with income so you can get out and make the most of life. Is it unfair to say there is a secret landlord inside most of us? If you are able to let out a property, making the right design choices may allow you to reap the most income possible, because it gives a good feel to a tenant who would then be willing to pay a high rent.

Every single decision you make – from the smallest design detail to the selection of finishes and furniture, and the overall arrangement or layout of a room – has an impact on the way that your entire home feels. Together, these decisions can have a profound effect on the way you live your life, and the dynamic you create within it.

Building a conservatory or an extension on your home can add massive value. Not only can it transform the quality of the architecture in your ground-floor spaces, but the additional space will also increase the overall floor area of your house, which will automatically increase its value when the estate agent whips round with his tape measure. Best of all, if your new spaces are well designed, you’ll certainly add that ‘wow’ factor. In fact, extensions are a magical way to flood your house with light, create space where you didn’t even know you had it, and open up the rooms in your home to make them work the way you want them to.

The first question that you have to ask yourself is what kind of extension you want and why? Before even considering your options, you need to analyse your existing house plans very carefully to fully understand the impact your extension will have on the design of your existing house. You also have to be sure that whatever you build completely fits your needs. The most common form of extension on a property is a ground-floor rear extension; the most popular form of extension is a rear, ground-floor addition. Both of these can have a substantial and dramatic effect on the way that the ground-floor spaces work.

In many cases, these types of extensions are used to expand the kitchen-dining area, which has pretty much become the heart of the typical British family home. Creating additional space where the average family needs, wants and uses it most means that you’ll not just be making your home more productive in terms of space, but you’ll be in a fantastic position if and when you do come to sell.

Standard conservatories bought directly from a manufacturer can be even more affordable, but it’s worth being wary of this approach. If selected in the wrong style, a standard, off-the-shelf design can conflict with the architecture of the existing house. This doesn’t have anything to do with whether the extension is modern or traditional – far from it. Most people don’t have a preference for either style, as long as the design of the extension is good – and appropriate for your house. Often, however, I find that the standardised conservatories in mock Georgian, Tudor or Victorian styles don’t really work well when added to the back of a house from a different period. A well-designed and well-built extension will always be a good preference over a low-budget PVC conservatory that won’t necessarily enhance the standard of your home. The truth is that agents sometimes wonder why people do go for fully glazed conservatories with glass roofs, which they then cover completely with blinds because they are worried about their privacy! This high level of glazing is not necessarily very comfortable, either! In the winter months you can end up with a freezing-cold extension and, in the summer, the equivalent of an indoor greenhouse. A more considered design, which overcomes the issues of privacy, heat loss and solar gain , is by far the best way forward. Planned correctly, you’ll still be able to achieve fantastic views and access to your back garden.

We live in an age in which we all love a greater sense of space in our homes. Most of us don’t want to live in tiny, box-like rooms, all with a similar scale, size and proportion. Instead, we like variety in our homes, diverse spaces with plenty of light and a great flow of air. We like rooms to be sized to match our requirements; in other words, we need them to be big enough to host our lifestyles, and smaller when we want to be cosy. The lighting and finishes are then chosen to create an atmosphere appropriate to those rooms.

When it comes to bedrooms, they must be beautifully calm and comfortable spaces, for adults and children alike. The ideal bedroom should be cosy and serene, allowing your mind to be cleared of the pressures of the day when you retire to bed. When you consider the fact that we do, on average, spend nearly a third of our lives sleeping, the quality of our beds and the rooms they sit in become that much more important. The space should be beautiful; the bed should be a haven.

It makes no difference if you are a traditionalist, enjoying an over-the-top bedroom and indulging in Louise XIV-style splendour, or an avid minimalist, with a room stripped bare of any ornament, decoration or distraction. In both cases, comfort and cosiness should be the order of the day, and a fundamental part of your design brief. This means that the selection of your finishes and furnishings is actually the most important choice you will have to make in your bedroom. However, to create a fully successful bedroom, all of the principles of good design need to work together.

Bedrooms need to serve a dual purpose – lulling you to sleep and allowing you to languish in bed for those all-too-infrequent lie-ins, but also stimulating you adequately to give you the get-up-and-go you need to get out of bed in the morning. It’s also an extremely personal room, where we undress, dream, mull over the day that has passed and plan the day ahead, and also spend intimate time with our loved ones. We take to our beds when we are ill, and retreat to our bedrooms when we want a thorough rest. It’s not surprising, therefore, that creating the perfect bedroom is a challenge on a major scale.

Think carefully about your needs before working on the design brief for your new bedroom. A bedroom should be a sanctuary, but a functional one at that. Take your time to work out exactly what will work to create the optimum environment.

Factors influencing property development

Deciding to become a property developer as a vocation is an important decision that requires various considerations before you take the plunge.

Developing a property in poor condition as basis for a successful business venture which gives a sound return on investment requires a lot of energy, time, money and luck. How much energy, time and money are required multiplies with an increase in the scope and level of activities. If you move from developing a large, Victorian property to two properties, or more, the demands rise commensurately.

Using project management ideas to succeed – the feat of managing a project based development process, whether of a single Victorian house, a single larger scheme, an old warehouse conversion to provide dwelling units for 20 people, as in for example, a block of flats being adapted for Home in Multiple Occupation (HMO, each require the application of the same basic principles. Even when the challenge is that of working on two sites simultaneously, sites, which are next door to each other, you still need lots of energy. The point of note here is that, each of these scenarios will pose their own challenge.

For some, these challenges can sometimes prove so daunting, that developers with years of experience get into trouble, which is when, some take appropriate, corrective measures and the result can be survival from where they rebuild and live to tell the tale. Others may not be so lucky and go under. You have to keep your eye on the ball in relation to the factors which will help you to not only avoid going down but to move from one successful development project to another. This said I am reminded of the old Chinese saying which goes something like; the glory is not in not falling but in rising even higher after any fall.

When it comes to property investment, as with other times, location and unrealised, hidden values hold the key to success in this business. Furthermore, in a UK context, London and the south of England, are the ultimate magnet for property developers. This is an area consistently identified as offering ideal investment returns on account of; development opportunities, the high rents achievable and the considerable capital appreciation over time are all contributory factors. Demand and supply factors, which favour the developer’s side of the equation, have contributed in no small way to property price appreciation over the last three decades and more, with supply unable to match or catch up with demand in over three decades, especially since the 1990s.

Spreading London ripple effect – what is often referred to as the ‘London ripple effect’ in relation to high prices always sees the higher London price rises, spread to the surrounding regions and beyond. Such ripple effect is dependent on the prevailing economic climate of the time. Examples abound of out-of-London property hotspots like Birmingham, Manchester, Liverpool and Leeds to list a few.

Scotland and Wales Farmers’ diversification into the market for holiday accommodation – for a couple of decades now, it has been noticed that in locations far removed from the hustle and bustle of city life, for example in Scotland and Wales, areas which have not witnessed property price increases, like those found in the south of England, farmers have included diversification from core farming activities into providing accommodation for tourists. For the farmers who have taken advantage of the opportunities opened by tourism, refurbishing old barns and disused farm cottages has become an established strategic route to generating additional revenues. This has to be seen in the context of dwindling grants and subsidies, formerly built into the income streams of members of the farming communities. It is as much driven by political pressures and dwindling government support as by the survival exigencies of the day. You can be sure that where there is a development tag attached, you will soon find a property developer knocking on the door. Could that developer be you in the near future?

Scotland and the City of Aberdeen and surrounding districts – still on Scotland, there had, until recently, over several decades, been intense development activities in and around the city of Aberdeen. This relates to Aberdeen being at the centre of Scotland’s oil industry, with people coming to work in the industry or to study about different aspects of the oil industry at Aberdeen University and the surrounding colleges.

Supply demand factors as drivers – in Aberdeen once more demand – supply factors act as drivers and according to 1st quarter figures from the Halifax Price index, annual price rises in Scotland stand at 9.3%, in August 2016, while that for the UK as a whole is 10.1%. A check on house prices in Aberdeen and its surrounding districts, relating to different types of housing; flats, period properties and new builds, prices are comparable to those in some areas around Greater London. A fact, which may come as a surprise to many of us, cocooned as we are in our city life bubble. The government estimates a shortfall of 3 million homes exists at the present time.

Scotland and the cities of Glasgow and Edinburgh – the cities of Glasgow and Edinburgh, between them have a combined population of just over a million, and 8 universities, four in each city and several colleges in their patch. There has always been a steady hive of development activity by which students’ accommodation needs have been catered for. Over several decades developers and buy to let investors busy themselves working the students’ districts assiduously.

Ever present opportunities – there are constantly emerging development opportunities, which can be capitalised on, if you’re at the right place at the right time, and for those who know their patch, and are also known, they are first to be notified, when opportunities suddenly crop up. And the elephant in the room requires that you be financially ready to take advantage of such opportunities when they arise. These are hallmarks of discerning developers.

The feel good factor as relates to the property market, may come and go and irrespective of the state of the market, opportunities are always there, explained another. When asked about the negative equity phenomenon, one property developer’s response was that the phenomenon which descended on the property market in the late 80’s and early 90’s is a distant memory, and long forgotten. Negative equity was the term coined for properties losing their value – even overnight properties became worth far less than had been paid for them just a few weeks before.

Negative equity may well be a distant memory. However, it serves to remind us that while the last forty years have seen steady property price increases averaging over 9% annually it is worth stressing once more that property prices can go up but they can also come down. A cautionary tale: as distant memory it may be, but it serves to remind us that whilst the last forty years has seen steady property price increases, averaging over 9% annually, it’s worth stressing that property prices can go up as well as come down.

Healthy employment figures – among the many factors impacting on the property market, are recent UK employment figures, (August 2016) which show a high proportion of people in work compared to the years 2007-2010. The importance of healthy employment figures to the property development process lie in its relationship with other factors which impact on the market for materials, labour and income.

Traditionally, factors such as interest rates reflect the state of the market in relation to supply and demand and its impact on the property market. Interest rates is a subject to which we will return later. The simplest relationship which can be adduced is that higher labour costs can lead to higher incomes for the working population. Improved incomes in turn mean those who wish to purchase properties; flats or houses are better able to afford them.

A dynamic market is good for development – a corollary of the above, is this; the greater affordability made possible for those purchasing in any segment of the market; low, high or in the middle, the more dynamic the market is, the better it is for the developer. It means the greater the numbers of people in the market well placed to afford to purchase properties, the likelier the chances the developer has for a quick sale and turnaround, followed by a move to the next project.

A developer who takes too much of a narrow perspective, may end up paying the price, as a result of the adverse consequences which may result from ignoring details from other perspectives, even when such details are minute. For example, using wrong structural engineering calculations or failure to take account of small recommended measurements because the builder thinks you could get away with not doing so. When the correct details are ignored and corners cut, they can result in unstable structures, which end up imperilling thousands of pounds of development investment.

Property development is much like any other economic activity; retailing, banking, running or hotel or any of the businesses we see on the high street. Each one of these businesses requires coordination of human, raw materials and financial resources with the latter acting as the glue that holds the business together.

Deciding to become a property developer is an important decision. There are many considerations to be undertaken beforehand, and during the process. But done correctly, it may be rewarding, both financially and vocationally.

Before you take the plunge in investing in property

Many potential investors are asking whether, given current market conditions, it is the right time to invest in property development. This is because property prices are falling in many parts of the United Kingdom and people are beginning to worry about the ‘credit crunch’ and the effect this will have on their family finances. To be able to answer this question it is important to understand the relationship between the UK economy and the housing market, consider short- and long-term trends and undertake a full assessment of market conditions. It is also important to consider possible benefits for investors of the current market position, especially in terms of the availability of bargain properties such as repossessions and failed buy-to-let investment properties. Once you have considered these issues you can then ask whether it is prudent to invest in property development at this time.

If you are thinking about investing in property development you need to have a thorough understanding of current and future economic and market conditions, and understand how they relate to the housing market. As we have seen in the United States, when the economy expands, lenders tend to extend too much credit and consumers are happy to accept this credit, usually because they have confidence in the housing market. This results in many people taking out larger mortgages than they can realistically afford, and leads to much greater borrowing on credit cards and hire purchase agreements. However, when economic conditions worsen, excessive borrowing means that people are unable to meet their payments, confidence in the housing market slumps, property prices begin to fall and homes are repossessed.

The International Monetary Fund (IMF) believes that the UK housing market will follow the US market, but on a two-year time lag. Experts fear that many homeowners in the United Kingdom who have overstretched their borrowing will suffer as a similar credit crunch begins and inflation rises. Indeed, recent figures indicate that the number of repossessions in the United Kingdom reached 27,100 in 2007, up from 22,400 in 2006 according to the Council of Mortgage Lenders (CML), and experts fear that this figure will rise to more than 45,000 in 2008. This has prompted the UK Government to begin talks with mortgage lenders to try to avert the crises and deal more favourably with homeowners who find themselves in arrears and facing repossession.

Some experts, however, think that the media in particular are over-emphasizing the financial problems being faced by the United Kingdom and that, in doing so, they are making a bad economic situation worse. Financial crises are always big news and the media has had some spectacular financial stories to report recently, including problems with rogue traders and bank collapses. Some people believe that this type of scaremongering could lead to people reducing their spending and saving money, which means that less money is spent and large amounts of money are removed from the economy. This can help to increase the likelihood of a recession and a property market crash.

One view is that buyers are being manipulated by stories in the media that do not reflect reality. This is because the media need to tell a story, but they also need to entertain, which often leads to a concentration of personal stories that do not reflect what is happening in reality. However, despite stories in the media not always reflecting reality, the media do have considerable influence on the public. Indeed, the Royal Institution of Chartered Surveyors (RICS) found in a recent survey that 23 out of 200 surveyors cited media gloom as having an impact on confidence in their local property market. If people are new to a particular market, such as property development, it is understandable that they will take note of the media when making investment decisions. However, you should balance this information with your own research.

The economy in the United Kingdom is suffering, and there is potential for a property market crash, but this does not mean that property development is not still a viable investment opportunity, as long as careful decisions are made backed up by thorough personal research.

If you are thinking about investing in property development, it is important to monitor inflation and interest rates carefully to make the most of your investment. At this present time, the UK inflation rate is well above the Bank of England’s 2 per cent target and above average for the European Union as a whole. Inflation determines the real return on any investment that you make and can have a major impact on the value of your investment in the future. This is of particular importance when viewing property investment as a long-term strategy. Therefore, you need to make sure that if you decide to invest in property development, your plans are not at the mercy of inflation and any future rises that may occur.

In the United Kingdom the Consumer Prices Index (CPI) measures changes in the prices of selected household goods and uses this to determine the rate of inflation. For more information about the CPI and for up-to-date figures, visit www.statistics.gov.uk.

When economic growth is strong more money chases fewer goods and services, which pushes up prices and leads to higher inflation, which is what we have seen over the past few years in the United Kingdom. When this occurs, interest rates are used to keep growth broadly in line with its long-run trend of around 2.5 per cent each year.

This is one of the reasons why interest rates rose in 2006 and 2007. Higher interest rates tend to discourage borrowing and encourage saving, which should slow the economy. Lower rates encourage borrowing and should have the opposite effect. This is one reason why we have seen the recent cuts in interest rates. Movements in interest rates affect the overall level of demand in the economy and so can have a powerful influence on the inflation rate. Although higher inflation rates tend to be good for borrowers and bad for investors, you need to consider this link between inflation and interest rates when making your investment. If you intend to take out a mortgage on a property, the real value of your mortgage could be reduced considerably in times of high inflation, so this could work in your favour, but only if interest rates are favourable. Therefore, if you have cash to invest it may not be prudent to invest all of it in property by buying outright when inflation is high. Instead, you could decide to borrow on the property, or you could look to other types of investment.

When doing this you need to consider the trends and prospects of other types of investment. Other assets, such as shares, can produce better returns than the property market, but this type of investment is much more volatile. In general, bonds and high-interest savings accounts will not provide as good a return as property has done over the last 35 years, but, in general, they are much safer options. If you are interested in other types of investment, you should seek the advice of an independent financial advisor.

To gain a better understanding of the trends and prospects of the housing market it is useful to look at how the market has performed in the past. Two useful house price surveys are produced by the Halifax and the Nationwide Building Society. The Halifax House Price Index was first produced in 1983. It shows that since then house prices have increased by 8 per cent a year, while inflation has increased by 4.5 per cent a year. The Nationwide house price survey began in 1973 and in that time house prices have increased by an average of 9 per cent a year. This compares to an average rate of inflation of 7 per cent a year over the same period. These figures show that house prices have beaten inflation over the last 25–35 years, and that therefore buying property has represented a good long-term investment.

Where investors can lose out is when they view their investment as a short-term strategy during times of market uncertainly. For example, in the five years from 1990 to 1995 house prices fell by around 10 per cent. Short-term investors who spent large amounts of money on properties and then tried to sell them lost out considerably during this time because prices were falling so quickly. However, in the 13 years since 1995 house prices have more than trebled in many parts of the United Kingdom. This means that, during this period, short-term property development strategies did prove to be very lucrative. Even people who bought properties that they sold on without doing any work were able to make a profit as prices were rising so quickly.

Currently we are experiencing another drop in the market. Therefore, there will be less opportunity for short-term developers to make a profit, whereas long-term developers can buy properties cheaply and keep hold of them until prices begin to rise again. If you are only interested in short-term development you must be very careful in your property choices if you are not to lose money on your investment.

Opinion is divided about whether we will experience a property market crash. Experts have predicted that house prices will fall over the next two years anywhere between 5 and 40 per cent. As we have seen above, short- and long-term fluctuations in the housing market have always occurred and it is inevitable that an adjustment to the housing market will take place after the boom of the last decade. House prices have more than trebled in certain parts of the United Kingdom over that time and it is impossible to sustain this type of growth.

In March 2008 the Halifax reported that house prices fell by 2.5 per cent, which is the biggest single drop since the property market crashed in 1992. However, these figures do not reflect the whole story, as this kind of drop is not occurring in all parts of the United Kingdom. Indeed, house prices are still rising in some areas, such as parts of London, the East Midlands and parts of the South West. However, as a potential investor you must be aware of the types of property that are rapidly losing their value and the areas that are dropping at a higher rate than others.

For example, over the past decade buy-to-let investment has become very popular for part-time, amateur investors. Unfortunately, many of these people felt that it would be an easy way to make a large profit without putting in the required amount of work, again fuelled by over-the-top success stories reported in the media. This has led to investors making inappropriate decisions about when, where and what to buy, and many have paid too high a price for a property that is difficult to let. Many of these investors are now getting the jitters, again due to media reports about a property crash. They, along with other buy-to-let investors, are trying to sell their properties. This has led to a number of similar properties appearing on the market at the same time, which has pushed prices down further and made the properties harder to sell. Although this is unfortunate for the people trying to sell, it creates more opportunities for potential buyers who can negotiate considerable price reductions. However, you must understand why the venture has failed in the past and make sure that you don’t make similar mistakes. This involves undertaking a careful assessment of the current and future rental market in the area.

With all the current and potential financial problems we are experiencing in the United Kingdom such as rising inflation, the increasing costs of mortgages and credit, and the rising cost of food and fuel, you are bound to be asking whether the present time is really the time to invest in property development. Investing in property development can no longer be viewed as an easy way to make a quick profit, especially given current market conditions. However, it can be a lucrative and fulfilling venture if you are prepared to put in the required work and conduct all the necessary research. The property market is facing uncertainly over the next few years, but wise investors and full-time professionals who are in for the long haul know that property investment is safe and secure if they treat it with the respect it deserves. As long as you are careful, do your research and make wise decisions, then the time can still be right to invest in property development. Indeed, recent movements in the market, fuelled in part by the media scare stories mentioned above, has meant that there are more bargains available, if you know where to look and know how to compete with other property developers.

At the moment it is a buyer’s market and there are plenty of bargains available. You need to undertake a careful assessment of your present and future finances when you think about investing in property development. It is important to consider these in terms of the amount you can afford to borrow, the interest rates you will have to pay and how these may rise or fall in the future. As the housing market begins to slow down, how will this affect your financial investment, over both the short and the long term? You must make sure that you do not put your family and your home at risk through unwise investment choices.

Short- and long-term trends need to be taken into account when you consider your investment strategy. Although short-term strategies may still work in areas where property prices are rising, they will not work in areas where prices are falling. You must bare this is mind when developing your investment strategy.

In conclusion, to invest successfully in property you must understand the relationship between the UK economy and the housing market, consider short- and long-term trends and undertake a full assessment of market conditions. While present market conditions may not be so favourable for property developers who wish to renovate and refurbish to sell on, there is still plenty of potential for developers who see their investment as a long-term strategy. If you are hoping to invest in property development, there are a number of different strategies that you can adopt, depending on your family circumstances and finances, your skills, the property market and the area in which you live.

Property Investment Appraisal

What exactly does the ‘appraisal’ of property mean? There are two distinct applications in mind. By ‘appraise’ we could mean

a. To fix a price for (an asset);
b. To estimate the amount, or worth or value, of (an asset)

The first of these meanings implies what is known, in the UK, as the valuation process or, in the US, as the appraisal process: the estimation of market value or the prediction of the most likely selling price. There is now widespread acceptance of the international definition of market value set out in the valuation standard of the International Valuation Standards Committee, commonly known as ‘the White Book’ (IVSC, 2005), which is now in its seventh edition.

This definition is the estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arm’s length transaction after proper marketing wherein the parties had acted knowledgeably, prudently and without compulsion.

Many nations also feel the need to have their own valuation standards, not least the UK, whose standards [maintained by the Royal Institution of Chartered Surveyors (RICS)] have been through a number of editions of what is commonly referred to as ‘the Red Book’. The latest edition (RICS, 2003) is the fifth and has adopted the aforementioned basic international definition.

There are even attempts to create regional standards (such as the European ‘Blue Book’, published by TEGOVA, The European Group of Valuers of Fixed Assets), and this has created some tension and rivalry between international, regional and national bodies, particularly in Europe.

However, there is now very little disagreement, if any, on the general wording of the market value definition, even if there are some differences in interpretation. These differences will continue to diminish as the property investment market becomes more and more international.

The second of the two meanings, the estimation of worth or value, is not necessarily market-based. Since 1995 this concept has been developed and institutionalised, having entered UK valuation standards in the 1990s as the ‘calculation of worth’, and now defined in the White Book under the term ‘investment value’.

The term ‘calculation of worth’ has now – happily – been dropped by the RICS in favour of the international definition.

The definition is as follows: the value of the property to a particular owner, investor or class of investor, for identified investment objectives. This subjective concept relates specific property to a specified investor, group of investors, or entity with identifiable investment objectives and/or criteria. This definition does appear to fudge a major issue, specifically whether worth or value is to an individual investor or to a group of investors. This has significant implications about how it might be assessed in practice, as the value to an individual and the value to a group may not be the same.

Individual investors are influenced by a set of criteria by which the value of an asset might be assessed. For example, their tax situation, the rate at which they can borrow, how much equity capital they have to spare, what adjoining assets they own and the strengths and weaknesses of their existing investment portfolio are all factors that may lead them to perceive value in a particular property.

Hence, while all investors may agree upon such important variables as the size of the asset being appraised, the cash-flow implications of the lease and the likelihood of achieving planning permission for a change of use, individual investors will always be subject to different motivations.

The distinction between value and worth can be important. Further, it is possible that a group of investors will use the same criteria and share the same characteristics, and would as a result attach a similar value to a property asset. Identifying the possible buyer group is very relevant to appraisal, which is therefore the process of identifying a mixture of objectively measured market variables and the prospective owner’s (or group of owners’) subjective estimates of other relevant factors.

We could use the term ‘appraisal’ to cover the process of estimating either market value (the prediction of the most likely selling price) or investment value (the estimation of worth to an individual or to a group of individuals).

We could therefore encourage the use of the term ‘market valuation’ or ‘valuation for pricing’ for the former, and we would prefer to use ‘investment value’ for the latter. We hope this will not cause too much confusion, but the possibility of confusion unfortunately exists, grounded in the fact that the development of property terminology has been influenced by the isolation of the property world from the securities markets.

There is no doubt regarding the meaning of valuation in the securities markets: it means the estimation of worth.

Pricing is a function that is carried out by buyers, sellers and market makers. The price of a particular company in the stock market is publicly quoted, and large numbers of identical shares in that company can be bought and sold. In property, however, there are no market makers.

The price at which a transaction will take place has to be influenced by an expert opinion – a ‘valuation’ – because there is both insufficient market evidence and insufficient homogeneity of product for traders to be able to fix prices. It is therefore to be expected that at any one time different views of worth will be held by different individuals and these differences will fuel market turnover.

In addition to the main concepts of market value and investment value, ‘sustainable value’ (mortgage lending value), a relatively new phenomenon used in the bank-lending process, has been developed in mainland Europe. It has found some favour, particularly within German banking systems, and the mortgage lending value basis has been adopted, along with market value, within the international banking regulatory process known as Basel.

The concept sustainable value has been subject to intense criticism, as of it does not conform to any recognised economic concept of value and the definition is virtually incomprehensible. The implications for investors can be damaging and may have had some impact on the German open-ended fund crisis of 2005/2006. But it is arguably of no merit and should be abandoned.

The stock (property) selection policies of both major and minor property investors often include an examination of the mismatch between estimates of market value and investment value in order to spot pricing anomalies, and any investor or advisor will benefit from a clear understanding of the difference between the market value of an asset and its worth to an investor or group of investors.

If there is a difference, is this evidence of poor-quality appraisal? It is widely believed that market valuations should primarily be accurate; that is, they should closely predict selling price.

Accuracy may therefore be a relevant and useful test of the quality of a market valuation. Investment valuations, on the other hand, should primarily be rational; they should be professional and expert reflections of a combination of objectively measured market variables and the prospective owner’s subjective estimates.