I recently had one of Allsopp & Allsopp’s major real estate investors quote Warren Buffett to me: “Be fearful when others are greedy, be greedy when others are fearful.”
We were having a conversation over lunch. Our ‘client’ (I say that because by now he is more to me than just a client) has bought a number of units this year and is looking to purchase more. He has bought more units in the last two months than in any other two-month period, and I was asking why he had accelerated his investments.
His reasoning, he said, is that he sees a lot of negative press at the moment around the property market.
Headlines such as: prices are dropping, over-supply, job losses, tight lending criteria, VAT squeezing people’s pockets, and more.
However, he believes that the market is overcoming all of these hurdles and that now is the perfect time to buy. He is adamant that the market is going to ‘rebound’ towards the end of 2018.
This obviously set me off thinking about how his thoughts matched my own and also, what the data in my business is telling me about the current market and what we may expect going forward.
The natural starting point is the price drops we have seen over the last three years. I have read a lot of conjecture, but what most people seem to overlook is that at the end of December 2013 the mortgage cap was brought in and the transfer fee was doubled. This isn’t a complaint, it was a necessary step at the time. Throughout 2013, prices were rising and the market was looking like it was going to run away again. Since then, apart from the first couple of months of 2014, property prices have been on a steady decline.
How long this will continue is literally the million-dollar question. All property markets go through cycles, but if there is one thing that property markets the world over teach us, it’s that they always go back up again. You only know where the bottom is once the market starts going back up.
It’s an incredibly difficult, I would say nigh on impossible, thing to predict. The tactic I would advise is to buy when you judge the market is around the bottom. You may lose a little short-term if the market does drop slightly, but in the long-term you will do well.
Still on the pricing theme, the alternative to a lot of people buying at the moment is to continue to rent. I bought my home in 2013 and the price is lower now than when I bought it. However, if I take the rent that I used to pay away from the purchase price of my property then I am in credit. So, the market has gone down but I have been paying off capital on my own property since I purchased, not paying off somebody else’s mortgage.
Let’s take a look at oversupply and job losses. Expo 2020 is now only a couple of years away. If you read online you will see that a lot of experts are predicting that the Expo will create 300,000 jobs. That is roughly 10% of the current population. They are not all going to remain in Dubai, but a significant amount will.
Added to this, it’s estimated that Dubai will spend 7 billion USD on infrastructure in the runup to the Expo with 2.9 billion USD going toward the extension on the metro line. If we take lessons from around the world again, whenever infrastructure is improved the property market improves.
The tighter lending criteria is a big stumbling block to entry to the market at the moment. Currently a purchaser needs a minimum of 32% of the property’s value (accounting for 25% deposit, 4% transfer fee, 2% broker fee, various admin fees, relevant VAT, and bank fees) in cash to be able to complete a secondary market purchase. This is huge!
If this was reduced even by 10% for first time buyers we would see an increase in demand in the market which would ultimately lead to an increase in prices. So, what do you do here? Do you look to purchase before a relaxation in the mortgage criteria (if one does happen) so you’re in prime position to take advantage of an upswing, or do you wait because if there is a change it will mean you have to tie up less of your cash? I know what I would do but it’s for the individual to make the choice.
I think VAT is still in its infancy and we are yet to see the full impact; however, my own opinion is that it won’t really affect the market too much. Everyone I talk to agrees that there needs to be some form of taxation to sustainably grow a country and 5% VAT is still much lower than what many people reading this will pay in their home country. I don’t envisage that it is going to stop people making such a big decision as a property purchase.
And while I don’t want to talk too much about what Allsopp & Allsopp is doing as this article isn’t about that, with so much data available to me it would be remiss to completely ignore it.
So far this year our mortgage team is busier than it has ever been and we are approximately up 40% in terms of sales transactions. I don’t think we’re alone in being up on our transaction levels, either. From talking to some other brokerages, I think they are also showing an increase.
The conclusions that I draw are that in a way my friend and client is right: now is the time to buy. However, despite some of the negativity that we all see in the press, I don’t see a market that is fearful. On the ground we are seeing strong demand, optimism, and confidence in the market.
Looking ahead, anyone purchasing a property within the next six to eight months will look back in five years’ time and be very thankful that they decided to take the plunge.
By Lewis Allsopp
CEO, Allsopp & Allsopp
Years in real estate & market speciality: 16 years, residential
Why did you write on optimism in the market? I have seen a lot of negative media so far this year around the property market and whilst some people are seeing negativity, I think there is a lot to be positive about
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