I recently spent two days at the Property Investor Show, held twice a year at Excel in East London. Footfall was noticeably lighter that at events in 2016. I gave two talks and was sat on a panel called ‘The Great Landlord Debate’ about the state of the market and forthcoming regulation.
There’s a lot of sobering data around at the moment. House prices are falling, rental demand has slowed significantly and rents are falling in many parts of London. NLA research tells us that 19% of landlords are planning to sell in the next 12 months and only 13% are planning to buy. Their index showing how optimistic landlords are in their own letting business has fallen again to 41, just shy of the all time low of 39 it reached last year. It was in the mid to high 60s from 2011 to 2015.
I have spoken on a number of panels recently and find myself talking about the current uncertainty around Brexit and Landlord’s response to tax and buy to let changes, the likely decline in the UK economy and the Conservative party’s continuing antipathy towards landlords. Then the agent or the tax expert on the panel says business is still good and there are lots of opportunities out there. Am I am being too gloomy or are they stuck in sales mode and I am simply the voice of reason, I wonder?
If I think back to the 2011 to 2015 period in London, many of my talks were about promoting good practice, offering advice on business development and compliance with regulation. Being in property was exciting and I was keen to encourage those new 100,000 entrants to join the landlord community, behave professionally and run excellent businesses. I look at the graph of optimism index and I see my own mood and pessimism reflected in it.
There are some positive messages to get across. Most of my experienced colleagues are neither buying nor selling, they are holding. Falling prices means that there may be some opportunities out there, but people need to invest smartly. With restrictions on buy to let loans, investors need to look for high yields. If that means looking at locations outside of their geographic comfort zone, they need to do some thorough research. Staying abreast of regulation is also vital as many a business plan can be blown to pieces if investors fail to understand licensing and planning restrictions. Mixed commercial/residential projects are popular at the moment as they attract lower stamp duty and are not affected by recent tax changes restricting relief on finance costs. The extension of permitted development rights enabling conversion of commercial to residential also offers opportunities.
Professionals are circling to take your cash and set you up with an LLP and a limited company. My advice is to be cautious. Tax changes can be changed yet again: be careful of structuring your business around the whims of politicians. Their next shoot from the hip policy may be just a couple of years away. This is particularly true of housing, where we have had 14 government ministers in the past 10 years. If you are buying future properties through a limited company, remember how much more expensive commercial loans are – typically 4% – than buy to let loans. You may well be better off paying more tax, buying personally and benefitting from cheap 2% buy to let mortgages.
Are you downbeat or upbeat? I feel I have a duty to present a realistic picture. Property is a cyclical sector and any sensible landlord or investor will embrace the ups and downs. I certainly feel we are closer to the end of the current cycle than we are to the beginning, which was in 2008.