Target: Clapham Junction Investment (SW11)


Clapham Junction Period Maisonette ripe for conversion into flats


  • Clapham Junction period maistonetteCurrently marketed at £675k that is equivalent to £711 per square foot, this property may seem simply fair value / even moderately expensive given the property style and within Clapham Junction as a location.
  • However beneath the shell, this 3-bedroom period property maisonette stands out with key conversion potential for a proposed loft conversion and split of the demise into two apartments (see drawings). The conversion is expected to yield additional sq footage of circa 700sqft.
  • Note, the seller has already conducted drawings and obtained the necessary Wandsworth council planning consents (see here; also to note that CIL is liable). The consent ensures that valuable time is saved as a buyer to accelerate straight to works given that it would also be prudent to obtain necessary freeholder consents / provide notifications of works commencing during legal conveyancing.
  • The proposed pricing post-conversion is £550k for the new 3-bedroom flat and £350k for the new 2-bedroom flat. One would be smart to also look at the rental prospects for these apartments since a refinancing may be a smarter allocation of equity capital in a somewhat cooler sales market. Clapham Junction is to benefit from further regeneration (see here) plus also potentially benefit from Crossrail 2 in the longer term (which could make it only 1 station away from Kings Road Chelsea in the future).
  • The current market displays signs of weakness and uncertainty, in which investors must be increasingly savvy / cautious. This property is highly attractive and can potentially generate strong risk-adjusted returns comparative to other opportunities. Given the level of envisaged work, it is not a simple project for the faint-hearted but will need a strong project manager monitoring both costs and timings. Thus, LPA tips this as a good opportunity or example for the more active investor. We are also not surprised by the fact that that there is already competition on this property at the asking price level yet are of the view that there is sufficient margin in the project.
  • See the link to the property here.

London Property Analyst provides Expert Consulting Services

Contact manager@londonpropertyanalyst.co.uk to see how LPA’s bespoke property consulting services can help you achieve successful acquisitions in the highly competitive and lucrative London property market


 

Trend: London house prices

Is a price correction taking place?


  • Prices are noticeably shifting downwards across the capital as swathes of sellers commit to price reductions in an attempt to attract purchasers in a transparent shift to a buyers’ market. Note, in many cases sellers are open to bigger discounts than those most ostensible in the online portals. However, are these reductions bridging the expectations gap with the buyer market?
  • The recent stamp duty and mortgage interest relief tax changes have cooled the market, particularly in the buy to let and investor segment. The recent general election and failure of the Tories to maintain a majority seating status quo has also created political uncertainty.
  • We cannot also forget the rupturing Brexit referendum decision last year that continues to fuel uncertainty going forward until Britain finally leaves in 2019. Such uncertainty caused by the Brexit divorce decision and ongoing negotiation will be prolonged. A large faction of prospective sellers may decide to see how the political situation unfolds.
  • The main house price data indicators are slow to report the latest changing atmosphere. The latest news talks of slower growth (London growing by 1.2% in the last quarter vs 5% in the previous quarter). However, these delayed and poor stats mask in our view declining prices and the ability to negotiate lower prices, both on and off market.
  • Recently, there have been material corporate profit declines from Foxtons (FOXT) and Countrywide (CWD) blaming an uncertain market (-64% and -98% on 1H pre-tax profits respectively). The big falls in profits are being blamed on a sluggish property market. These real estate agents like many others will now try to befriend prospective buyers in order to entice them after a period of pitting them against each other in crude open house scenarios. (We don’t think the next half is going to fare any better for these companies and also note the introduction of more online prop tech disruptors that will impact the more traditional agents going forward).
  • Though there have been more price declines, they are not declining at a pace that bridge the gap to meet buyers expectations in many cases. Many prospective sellers are holding back from listing their properties due to the subdued environment resulting in more limited stock. In addition, the investor market has been hit but residential owner occupiers are still on the hunt taking advantage of the relatively cheap levels of credit available to them.
  • Nevertheless, the higher transaction costs have somewhat stunted the buy to let or investor market and this increased cost must be accounted for in the overall cost to buy or not to buy. This group of property buyers are key to property prices. In addition, demand is weakening due to a falling number of migrants and proposed exit of financial services personnel post-Brexit. The supply glut of luxury apartments adds to the downward pressure. Therefore, unless there is a monumental shift in government policy to provide further stimulus, we assert that the current price reductions will continue.
  • The overall effect of a prospective price correction poses dangers for many property owners who may consider reducing exposure or switching their capital allocations to different types of property with greater equity buffer levels. Now is not the right time to place too much value in house price inflation in the short term. A smarter strategy is required.
  • On the other hand, we do note that a mix of cheap longer term credit and recent legislative policy changes promoting a ‘generation rent’ provides compelling longer term view on property investment; the latter particularly from a PRS perspective. However, it must be noted that with forecast interest rate increases over the coming year, credit will start to get more expensive. It is certainly worthwhile booking that refinancing in sooner rather than later. In addition, the low interest rate environment has kept the number of distressed sellers low- this may change going forward.

 

  • In the UK’s current economic, political and social climate, buying a property that safeguards and grows your capital is challenging.  A smart property acquisition strategy is required.
  • Contact us at manager@londonpropertyanalyst.co.uk to learn more about how we can assist you in buying London property.

 

Trend: The Housing White Paper


Trend: Housing White Paper – Good things happen to those who wait…?


 

  • housing white paperThe Government’s Housing White Paper was finally published earlier this month. The consultation document that outlines the Government’s thinking on how to repair ‘the broken housing market’. However, the Housing White Paper has faced criticism by many housing experts. They claim the government is dithering rather than freeing the regulatory shackles to promote house building. One can empathise with those who wish for a more expedited process. After all, it is a supply side issue that desperately needs to be solved.

Key Points

  • house building new homes
    House building year-on-year

    There was a clear move away from previous pledges that focused solely on driving home ownership levels upwards. Housing of all tenures has a part to play with support for large-scale institutional investment in the Private Rented Sector (PRS). The UK enjoyed a house price inflationary environment for the past few years. A build-to-sell approach is now expected to be outweighed by a build-to-rent approach for many developers. Getting a strong operating partner is key to tapping into greater institutional PRS appetite.

  • The government had indicated several years ago that it was targeting 200,000 homes to be built per annum. The White Paper has now increased this target stating ‘225,000 to 275,000 or more homes per year are needed to keep up with population growth and start to tackle years of under-supply.’ Such targets need be combined with reductions in red tape around brownfield and greenfield sites. Did this occur?

    Other Points

  • Status quo was maintained with regards to the Greenbelt. Some anticipated increased scope for brownfield site use within the Greenbelt, particularly adjacent to existing communities or transport infrastructure.
  • There was no mention of stamp duty, which has increased for all home buyers over the last two decades and reflected in stamp duty receipts. HMRC reported that it had received nearly £2.4 billion in 4Q 2016. The 2016 policy imposing greater stamp duty via a 3% surcharge on 2nd+ home buyers has already had a marked effect on the housing market, particularly the higher priced homes brackets. Another key question has arisen as to whether buyers should pay or if sellers should now assume the stamp duty burden?
  • Finally, there was a U-turn on Starter Homes – the affordable housing scheme proposed by David Cameron in 2014. They will still go ahead as part of a wider measure to boost all forms of Affordable Housing.

Summary

No doubt, it is an ambitious, daunting and urgent project to correct the current severe and growing supply and demand imbalance. It is a much-needed focus given the challenges faced by many prospective home-buyers that have inherited strong home ownership ideals. They have been simply out priced. However, time will tell whether the suggestions provided are the answers to fix the supply-side in the overwhelming supply and demand imbalance. Taking too much time may not be the answer and politically-driven digs at key players, such as buy-to-let investors and developers, within the property sector is counter-productive. Working with both established and new entrant developers and property investors should be the focus to help boost housing supply.