Banks exposed by commercial property slump

Britain’s banks risk losing £7 billion from the falling value of the country’s office, shop and industrial buildings stock over the next two years and write-offs could balloon to £18 billion if the economy slides into recession.

James Rossiter, Property Correspondent. The Times - March 21, 2008

The forecast from Capital Economics comes as investors and lenders to Britain’s £450 billion of commercial property are reeling from an average fall of 15 per cent in the value of buildings since last June, according to industry figures.

However, Capital Economics believes that prices may fall by the same amount again by the end of next year, bringing the total decline to 30 per cent from their peak. Capital believes that there is a one-in-five chance of a recession, which could trigger 40 per cent falls in average prices.

The bearish forecasts were given added weight this week by a profits warning from DTZ, one of the world’s largest commercial property agencies. DTZ is concerned that a recent pick-up in building sales has petered out and that rental demand for new space, which had remained strong, is on the verge of collapsing - full article

Property seminars: How we lost a fortune

It sounds so simple . . . Attend a free workshop and experts will teach you to become an armchair property millionaire. Does the formula work? Read these investors’ stories and judge for yourself:

Richard Dyson, Mail on Sunday - 11 November 2007

Convinced: Brenda Davies says Inside Track’s presentation was slick and articulate.

THE MUSIC TEACHER - Claims she lost more than £100,000

Brenda Davies responded to an advert by property investment company Inside Track in August 2004, attended a free workshop and then spent £2,495 to attend a two-day seminar on property investment at London’s Renaissance Hotel, near Heathrow Airport.

‘They were articulate and convincing,’ says Brenda, 58, a music teacher from Dulwich, south-east London. She wanted financial security with an income in her retirement and thought this was the solution.

She paid £6,000 to join Inside Track’s Platinum Club. ‘I thought, fantastic, these are professional property investors, I’ll pay them to build and manage my portfolio,’ she says.

Now she says she ‘must have been mad’, but by that first weekend she paid deposits on properties in Florida and Spain. ‘It seemed normal. Hundreds of other ordinary people were there doing the same thing,’ she says. Within weeks she had bought two more flats - one in Beeston, Nottingham, and another in the golf resort of Turnberry, Ayrshire - full article

Why today’s hedge fund industry may not survive

Hardly a week goes by without the implosion of a hedge fund. Last week it was Carlyle Capital, with an astonishing $31 of debt for each dollar of equity. But we should not be surprised. These collapses are inherent in the hedge-fund model. It is even conceivable that this model will join securitised subprime mortgages on the scrap heap.

Martin Wolf, FT.com - 18 March 2008

Getting away with producing adulterated milk is hard; getting away with an investment strategy that adds no value is not. That was the point made by John Kay, in a superb column last week (this page, March 11). With the “right” fee structure mediocre investment managers may become rich as they ensure that their investors cease to remain so.

Two distinguished academics, Dean Foster at the Wharton School of the University of Pennsylvania and Peyton Young of Oxford university and the Brookings Institution, explain the point beautifully*. They start by asking us to consider a rare event – that the stock market will fall by 20 per cent over the next 12 months, for example. They assume, too, that the options market prices this risk correctly, say at one in 10. An option costs $0.1 and pays out $1. - full article

Buy-to-let boom ‘unlikely’

The buy-to-let market is unlikely to see a boom on the back of falling house prices and low first time buyer demand, according to a group of leading economic commentators. Speaking at a debate today, senior figures, including the Council of Mortgage Lenders’ director general Michael Coogan, and Nationwide chief economist Fionnuala Earley, say they do not expect the market to shrink, but they also believe a boom is out of the question.

John Bakie, InfoOnline.co.uk - Tuesday 18th March 2008

“I think a lot of people will seek rented accommodation while they save the money to buy, but I don’t like to think of the market in terms of boom and bust and I expect it to remain steady,” says Coogan.

David Miles, chief economist at Morgan Stanley, agrees: “I think net new demand is unlikely to increase, despite the prospect of attractive yields, because capital is likely to depreciate in the short term. However, it’s too costly for those already in the market to get out, so I think most current investments will remain.” - full article

Chancellor ‘ducks’ the property crunch

The mortgage industry slammed the government for misunderstanding the crisis facing the housing market, as Chancellor Alistair Darling announced another spate of ‘consultations’.

thisismoney.co.uk - Lucy Farndon, Daily Mail -13 March 2008

The Treasury outlined two key problems - the lack of liquidity in the wholesale markets which fund many mortgage loans, and the lack of availability of long-dated mortgages to provide certainty to homeowners on interest rates.

But, as is often the case, the Budget contained nothing that would chance the status quo. A ‘working group’ will be established to examine possible ‘market-led initiatives to help improve the mortgage-backed securities market’.

Michael Coogan, director general of the Council of Mortgage Lenders, said: ‘There was little of immediate concrete substances for the housing or mortgage markets in this Budget. While there may prove to be benefits in the long term, the Chancellor ducked the pressing nature of some of the issues that are facing the markets right here and now.’ - full article

Is this a good time to invest in property to let

It’s been an interesting 18 months for the UK property market. The introduction of the Hips Home Information Packs affected it a little, as did a number of interest rate rises and the credit crunch.

PropertyToday.co.uk - 14th March 2008

Is it still somewhere you should sink your money? It can be a big risk buying a property to let out to tenants, although as a long-term investment there can be many financial rewards.

We take a look how recent news stories are reflecting the pros and cons of being a property investor - full article

The RICS response to Budget plans

The Royal Institute of Chartered Surveyors has reacted to the Chancellors plans for housing as announced in the Budget.

housefund.co.uk - Thursday, March 13th, 2008

On the issue of the delivery of 200,000 new homes on public sector land, RICS said: “The Government has committed to achieving the delivery of 200,000 new homes on surplus public sector land by 2016, and the Budget announces that the Government has firmly identified sites on central government surplus land with potential for 70,000 new homes.

RICS believes the commitment to making public sector land available for housebuilding is necessary, but will only solve part of the land supply issues if we are to achieve the Government’s housebuilding targets.

Identifying sites for 70,000 new homes is a drop in the ocean when two million additional homes need to be built by 2016.

Encouraging the re-use of existing buildings and allowing well managed development on Greenfield sites must also be encouraged if housing targets are to be met. ” full article

Budget 2008: reactions in the property market

Stamp Duty, first-time buyers, new homes, green measures and fixed rate mortgages
Darling’s first Budget: the main points

Winner or loser? Work it out with our budget calculator

It was never expected to be a pulse-raising Budget. The main themes were to be of stability and green measures. But it has nevertheless managed to raise a few heckles amongst commentators in the property market. Here we bring you a round up of who said what about Darling’s first Budget - see the experts’ views and comments

Landlords’ biggest issue is rising amount of paperwork

The biggest issue facing property investors with a growing portfolio is the huge amount of paperwork they have to deal with.

Property management software firm Property Portfolio Software has analysed three years’ worth of feedback from its customers.

And it identified a number of trends to work out the top five issues facing landlords.

Investors say the biggest pain is the sheer amount of paperwork that has to be handled, to ensure rents are received and all bills are paid.

Other issues in the top five include keeping track of legal documentation and effectively managing tenants.

Continue reading Landlords’ biggest issue is rising amount of paperwork…

Chancellor to close loophole in finance deals based on Sharia

The Chancellor is expected next week to close a loophole in Sharia finance rules that have allowed commercial property investors to avoid paying stamp duty on more than £1 billion of deals, The Times has learnt.

James Rossiter, The Times - 5th March 2008

Alistair Darling is expected to tighten the rules on mortgages that comply with Sharia – or Islamic law – in his inaugural Budget after commercial property developers discovered a quirk in the legislation that allowed them to escape stamp duty. The Government brought in changes to the stamp duty regime three years ago amid concern that homeowners opting for Sharia-compliant mortgages were paying stamp duty twice.

The 2005 Budget brought in measures to correct this anomaly but inadvertently created a tax avoidance opportunity that property developers have rushed to exploit. More than £1 billion of commercial property deals over the past two years have escaped stamp duty at 4 per cent.

Peter Beckett, the tax director for Ernst & Young, said: “This loophole has existed since 2005 but has been used more widely following the closure of previous stamp duty tax planning schemes.” - full article