Indian Property Market

PropVestment recently spent a few weeks away from our London base and visited various parts of India, looking into potential investments, the latest most innovative developments, areas of growth and analysing a property market far different to the one we are accustomed to in the UK.
Here we wish to share just a few observations from India, and that they mean to a Property Investor and what implications it should have upon your decision making when considering investing in India.

FACT:

Currently worldwide 50% population live in urban areas, India currently only 28%.
This means that India is far behind in the geographical phenomenon of rural urban migration, however like many other developing countries as well as developed countries this has rise to a range of issues in urban planning and infrastructure.
India’s solution, which has totally come about from the private construction sector and the growing demand of housing by the increasing middle class.
Satellite Urban Villages:
The architectural developments that take place on the periphery of cities on account of growing urban populace. Such developments provide fully sustainable living conditions with ample infrastructure and support amenities.
Satellite Urban Villages aim at decongesting the dense urban conglomeration and in turn provide an opportunity for city dwellers to escape the hustle of the city to a more serene and high quality life while enjoying all aspects of life that they are used to.
Top locations of new Satellite Urban Villages include Bangalore, Nagpur, Jaipur, Indore and Chennai.

WHAT DOES THIS MEAN?

PropVestment's tips where to invest in India

For an investor this is vital information, firstly that although some of the biggest cities in India, like Mumbai and Dehli have boomed, there are huge capital gains possible in the upcoming Tier II cities as mentioned above. This is due to a great potential for rural urban migration, most Tier I cities like Mumbai people are out priced.
Further to this is the phenomenon of the Indian middle class preference and desire for these Satellite Urban Villages in place of city centre congested blocks. To safely invest, one must clearly understand the regional and cultural norms and preferences.

The values of older style apartment blocks are starting to subside as this trend for modern luxuries and amenities strengthens, this is extenuated by the bollywood and celebrity culture in this country.

Keep an eye out for more exciting and intriguing observations we found in the Indian market.

For further advise on Indian property or investment options, do not hesitate to contact us info@PropVestment.com

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Today Monday 12th March the NewBuy scheme was launched.
The NewBuy scheme assists buyers who have a deposit of at least 5 per cent to buy a new build home. This is a smaller deposit than is normally required. The scheme will allow more borrowers to secure up to a 95 per cent Loan to Value mortgage on new build residential properties from participating builders in England.

What NewBuy means for FTBs

The Government is backing the scheme to help those home buyers who have found themselves excluded from sections of the market because they don’t have a large enough deposit.
NewBuy is expected to assist up to 100,000 households in buying a new home. All mortgage lenders and house builders operating in England are welcome to join the scheme.
But like many other schemes before, will this actually have a significant impact on the property buyer and will it mean first time buyers are helped.

How NewBuy works?

Developers pay the lender 3.5% of the purchase price of a new-build property, while the government provides an additional guarantee of 5.5%, allowing mortgage providers to lend to people with a lower deposit than they would normally need as it reduces the risk.
This effectively means the lender lends a maximum of 91.5% LTV but is secured with an extra 5.5% from the Government.
The scheme should increase the availability of mortgages with a high loan-to-value (LTV) and the government says it will help up to 100,000 first-time buyers.

Do you qualify?

• The scheme applies to buyers of new-build homes in England if the developer is taking part in the scheme.
• The purchase price must be £500,000 or less
• It must be a standard purchase (ie not shared equity or shared ownership),
• It must be the buyer’s main home rather than a second property or one that will be rented out. Although aimed at helping people on to the housing ladder, the scheme is not exclusively for first-time buyers.
• You only qualify if you have a minimum of 5% for the deposit.

Which lenders and builders have signed up to NewBuy?

Nationwide building society, NatWest and Barclays have already signed up, with others expected to follow suit, including Halifax by April and Santander by the middle of the year. Construction companies including Barratt, Bovis, Bellway, Linden Homes, Persimmon, Redrow and Taylor Wimpey have signed up.
Barclays is offering 95% LTV mortgages at 4.99% fixed for two years and 5.89% fixed for four years; Nationwide is offering 95% LTV mortgages at 5.69% fixed for three years and 5.99% fixed for five years; NatWest will offer 95% LTV mortgages at 4.29% fixed for two years and 4.99% fixed for five years.

PropVestment’s Thoughts

• Firstly the property market is down by upto 50,000 transactions a month, thats 600,000 a year compared to the peak in the property market a few years ago. So even if the full 100,000 NewBuy properties are reached, it will not have a major impact on the market as a whole.
• The scheme only helps buyers of new builds, these are not the most desirable properties, often built very fast, with out fine finishing. These properties are clones of each other and often lose significant value when it come to resell. The price is set by the builder, they will just inflate the original asking price so the 3.5% contribution by them is a false reality.
• Although major lenders have signed up there is no indication of how many of these products they will allow or how tight other criteria may be. There may be a significant difference in the volume of NewBuy Mortgage approvals to actual potential properties in the scheme.
• Finally what will be the location of these NewBuy properties, will we see small NewBuy villages full of first time buyers in indentical homes?

Overall PropVestment welcomes such schemes and it is a positive move by the Government, but like other schemes before we doubt there will be a significant impact in reality.
It will be more a headliner to make the government look like they are helping first time buyers.

Check out our First Time Buyers Posts on the last Government Scheme First Buy

Are you a First Time Buyer and need advice, contact us today for a FREE consultation

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McHugh Auction London

On Thursday 22nd February PropVestment attended the McHugh & Co Auction at BAFTA in Piccadilly. Majority of the lots were residential properties in London. Therefore the results tell an interesting story about the property market activity in London, which is in contrast to other parts of the country.
The observations will be of interest to property buyers, sellers and first time buyers alike.

If we look at all 34 lots, the average highest bid price was £339k, at an average of 14% over the guide price. However with the highest bids, there were still around a third, so 10 properties where the reserve was not met.

Taking out the ones that did not sell, the average selling price was £260k, which was an average of 21% over the guide.
What this shows that the lower value properties or smaller properties sold much better and achieved a much higher price than anticipated shown by the higher percentage over guide.
This also showed that investors are wary of higher value properties and more importantly for these higher value lots sellers want a much higher price and will not settle for less.
For example many of the RNM lots were multiple deed lots, that compromised of HMOs or properties with numerous individual flats.

If we isolate the lots where the reserve was not met, the highest bid on average was marginally lower than the guide with an average highest bid £391k.

Bargains

• Studio in Muswell Hill, sold for only £66k, short lease of 58 years but a rental yield at this price of 11%
• 3 Bed house on Finchley Road, NW2 sold for £320k
• 3 Bed House, with Annex with 1 Bed sold for £250k in Enfield. Potential to separate deeds and refinance

Bank Busters

• Freehold lot with a commercial and 3 flats in Harringay, sold at £750k, 36% over guide
• 8 Bed HMO in Mornington Cresent, sold  25% over guide at £1.03m
• 2 Bed Maisonette in Oakwood as seen in our post a couple weeks ago. Short lease with renewal option, Sold 87% over guide at £187k. Lease extension will cost almost £40k.

Conclusions

London market activity is always an exception to rules, there was a greater activity but also positives and negatives seen. Some lots sold, some did not. All about right property, right location. Trend is for smaller properties to be more fluid and easier to buy and sell.
There may be some first time buyers looking for last minute deals on lower value lots before the stamp duty is re instated.

See our other recent article on Auctions:

Allsop Results 

Barnard Marcus

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This is a complex question but the easiest way to get a decent estimate is to go via the purchasing process. There are many hidden costs that a first time buyer may not be aware of.

First Time Buyer Costs

More Details:

Sourcing Fee

Most agents do not charge a property sourcing fee, well not the high street lenders. If it is a private deal or from a specialist they may ask for a fee however in these cases they should justify their charges by the extent of savings made. If this is a case and you are getting a better deal than the market you do not need to budget this as the saving will balance the fee and more.

Mortgage Arrangement fees

These typically vary from lender and even with lenders depending on the products. Sometimes the better the interest rate or higher LTV the higher the arrangement fee. In many circumstances the fee balances out savings in the fixed term.
However these are almost always added on to the loan amount so will not impact your immediate cash flow.
Occasionally the lender may ask to pay a surveyors fee

Stamp Duty

As of 24th March 2012 the stamp duty holiday is over for first time buyers. For property up to the value of £250,000 (most first time buyers will fall into this bracket) the stamp duty is 1%. Stamp duty is payable up on completion and will need to be sent via your solicitor.

Legal & Search Fees

You will need to keep aside about £1000, usually sent prior to your solicitor before they will carry out any work for you. The searches are for your benefit and will uncover potential problems in the property or surrounding area. Some of the fees go to the solicitor for their time and some for expenses such as telegraphic transfer fees for transferring funds in and out of their client accounts. Remember the cheapest solicitor is not always the best, go with a reputed individual that works efficiently and spots errors in documentation.

Refurbishment

Typically this will vary vastly with every property but going along the lines that the property is in a livable condition, it is usual that the very least you may want to give all the walls a coat and put in the basic furniture to make it live-able to your standard or into a rent-able condition.

CONCLUSION

There are many hidden or non obvious costs, do your research, ask the right questions to the right people, and most importantly do not over commit.

See our article on Mortgage advice for first time buyer

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PropVestment provides a brief but insightful analysis of the results from Allsop’s Residential Auction in February 2012.

Headlines

• 90% success for all lots in London and South East.
• AST yields over 10% 
• Northern England struggling

90% success rate at Auction for London and South East

As you can see with the above chart, London as shown by the M25 statistics shows that over 90% auction success with an average price of £324,074. South East and South West also sold well with almost similar success rates however the values were significantly lower.

The worst success was the North East and Northern Ireland. The North East had the lowest success and the lowest average value for the Mainland. This means that this part of the country is the worst effected and the limited activity shows that even bargain hunting investors are staying well way.
The Northern Ireland results could be attributed to problems in mainland Ireland, however with only 6 lots that all sold, the data set is very limited.

Rental yields above 10% , investors market

The main information to be taken from these statistics is that most sales are investments for rental yields, with ASTs demanding lower prices but therefore higher yields. This can be attributed to risk factors.

An interesting stat is that sites with planning permission had a very low success rate, there are buyers there but sellers are keeping a high reserve on these.

CONCLUSIONS

As with previous auction articles like Auctions are for sellers we see similar stats here, majority of lots in London and South East sell well at high prices, however the rest of the market is struggling.
Auctions are for experienced investors and sellers, and not currently for first time buyers. 

*Graphics from www.allsops.co.uk

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On Monday 6th February 2012 PropVestment paid a visit to Barnard Marcus residential property auction at Grand Connaught Rooms in London.
This was the first major property auction of 2012 in London. Thus it was pack out, many experienced and new property buyers in the hall.

Auctions are for buying not selling now

Lot 1 had guide of £800,000, a four bed house in Battersea, it went for £1.28m + 2.75% fees. This was the story of all the first twenty or so lots.
All the first 23 lots were in London, the average winning bid was over 30% above the guide price, taking out 5 where even at this level the Reserve was not met, the other 18 properties sold at over 36% above guide price.

A few other key high lights from this auction:

• Most land only deals did not sell, reserve not met
• A piece of land without planning permission for a possible 8 units went for £860k, that’s insane for the area, almost £110k land cost then planning then construction.
• Most of the lots on by order of Mortgage companies got bids over guide however did not sell due to Reserve Not Met (RNM). This can only be the case as the lenders have over valued in the past and now face negative equity. Failures.
• Properties in North England and Wales were the hardest sale, many RNM and a few with highest bids well under guide prices.

PropVestment Conclusions

Property Auctions have changed now, its a much more public affair and it seems that its no longer a place where you can pick up a bargain. The sellers use it to sell properties that otherwise will not fetch a similar price through traditional means such as local agents. This tell us something about the quality of the properties and legalities of them. There were many amendments to the information provided with particular importance on certain higher rentals, those properties were on the day changed to vacant possession. Therefore the guide rental was incorrect, how is one to know what the real rentability of a property is without doing thorough research.
Due to these pit fall, an auction is no longer a place for inexperienced or first time buyers to find a property to buy.
Rather it is a place where landlords can easily offload not so good properties and rely on the ignorance or lack of research of bidders.

PropVestment Auction Advice
Buyers – Do your thorough research and get someone to look at the legal documents prior to bidding.
Sellers – Use auctions to sell unwanted properties, especially in London, everything sells

Have a read of our observations last year at Savills here

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Came across this listing today (below). Is it a worth while investment? £100k guide price.

The listing

LEASEHOLD MAISONETTE VACANT POSSESSION
By Order of the London Borough of Enfield
Situated in a popular residential area, close to Trent Park and local shopping/ travelling facilities including Oakwood Underground Station (Piccadilly Line).

A Self-Contained Purpose Built First Floor Maisonette with accommodation comprising:
Living Room
Bedroom (One)
Bedroom (Two)
Kitchen
Bathroom/WC
Leasehold for a term of 99 years from 25th December 1959 at a ground rent of £15 per annum.
Entire Vacant Possession upon completion

Short Lease, no problem

The maths

Its no secret that with only 46 years on lease most normal lenders will not lend.
So cash invest it.
£100,000 invested (if can buy for guide)
Rent: £13200 (based on asking rental for same flat few doors down)

46 years means over £600k income
Take out your £100k with saving account interest over first 8 years

Leaves £500k, yes half a million for not doing anything

The twist 

Call PropVestment and we will show you how to pull out your full £100k in 6 months and keep the property forever. Free lifetime Income

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First Time Buyer Mortgage

In the recent years taking out a mortgage for the first time has become more of a difficulty. With the slowdown of the economy, the rules have tightened and become more stringent. The lenders too have become more particular regarding to whom they are going to lend. So, it would be better for you to buy a newly built home or a park home as these can cost you less. If a home costs you less, you may also be able to do with a small mortgage amount. So, in such a situation getting the first time buyer mortgage won’t be a tough job for you.

Taking out a mortgage

The things that you would require to take out first time buyer mortgage are:

*    High affordability – In order to take out a mortgage even if it is a first time buyer mortgage, it is important for you to have high affordability. This will mean that if you have high affordability, you will also be able to manage to make the timely mortgage payments. Lenders prefer people who have at least more than average or high affordability.

*   High credit score – It is important for you to have a high credit score so that you can get a mortgage with low interest rate. Without a high credit score, you may not be able to get low interest mortgages.

*     Clean credit report – In addition to high credit score, you should also have a clean credit report with no missed payments. When you apply for a mortgage, lenders pull your credit reports. If you have missed payments, lenders tend to believe that you are not a responsible borrower. Thus, your loan application may get rejected.

*     Low debt to income ratio – In order to take out a mortgage, you are also required to have a low debt to income ratio. This too is checked by your lenders to decide if you are a responsible borrower.

Other than having these, in order to obtain a mortgage, you will be required to:

1. Check out different offers – In order to take out a mortgage, may it be for the first time or second, it is important for you to check out the different offers by various lenders. You will have to compare and then decide which the best offer is for you.
2. Use a mortgage calculator – In order to decide on the cost of a mortgage, you can use a mortgage calculator. This can help you in determining which mortgage you can afford to take out.
3. Get pre-approved – It is good for you to get pre-approved for a mortgage as this can help you to obtain a loan easily enough.

So, these are the things that you will be required to do in order to take out a mortgage so as to buy a home for the first time.

CLICK HERE Now, Free FTB Consultation

For fantastic mortgage brokers check out our “The Prime” for highly recommended brokers.

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- Public Confidence

– Lending

Public Confidence

Market activity is dependant on a few things, firstly public confidence, this has seen a recent resurgence with many agents claiming great interest and newly registered clients in the post Christmas period.  People property search in agents as certain sectors start to turn around or the fact that the public know that interest rates are likely to stay low for the near future, houses start to seem affordable again. Together with the fact that many news sources are predicting higher rents on the market this year, a general upward trend is only exaggerated due to the Jubilee and Olympics.
Therefore buying sounds like a good option.

According to estate agents, the typical number of house hunters registered per branch in December was 294, 32 more than the average figure for November, with viewings continuing right up until the Christmas break, the National Association of Estate Agents (NAEA) found.
The percentage of first-time buyers also rose to 21% , continuing the increase since this section of the market hit its lowest proportion in nearly three years last autumn, although first-time buyers made up a quarter of the market during the same period last year

London was the only area to see price increases in December while respondents in the West Midlands and Yorkshire and Humberside reported the biggest drops.
At the same time, new instructions edged up for the third consecutive month during December, with 12% more respondents reporting rises in homes coming onto the market.
London saw the greatest increase in supply, with 38% more surveyors reporting a rise – the highest figure since January 2005

Lending

However there is a second all important component of buying a new property as well as confidence and interest is mortgage aspect. New lending is still very low and the stricter criteria means that even though people want to buy and sell, this is becoming the stumbling block, and as a result the sales are at one of the lowest points at the moment.

Transaction levels are likely to see a slight resurgence in 2012 and climb back to around 880,000, roughly the level of activity recorded in 2010. However, to put this in context, total sales in 2006 were almost double this amount at 1.67 million.

The weak economic picture anticipated for the next six months, along with the prospect of increased unemployment, means that demand to purchase property is unlikely to see any significant increase and will remain relatively flat.

Commentators and analysts expect sales to stay low – perhaps even lower than they have been in the past year. That means 2011′s eventual total might even be lower than 2009′s figure of 859,000 sales for the whole year – the lowest since modern transaction records began in 1978.
Even the reluctance of lenders to repossess many of the borrowers who are now in arrears has played its part.
With tens of thousands fewer homes being repossessed than lenders had predicted just a couple of years ago, the market has been deprived of the cheap homes that would otherwise have been put up for sale.

PropVestment Conclusion

The public are ready, investors are ready, the financial institutions are holding the property market back.

People are looking to buy a house?

Sources:
http://www.telegraph.co.uk/finance/personalfinance/borrowing/mortgages/9024366/Property-sales-fall-to-lowest-level-for-a-year.html
www.bbc.co.uk
www.homemove.co.uk

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Research by the CBRE, one of the world’s leading commercial property advisers, suggests that commercial property values have ground to a halt in November, but that the increased involvement of insurance companies might make a difference.  According to the CBRE’s latest monthly index, last month’s capital value returns registered at only 0.4%. This makes total returns for business property at 7.6% for 2011, with capital growth of 1.9%. Central London property has performed consistently, although the wider picture has seen only shops and retail warehouses avoid falls this month. London office and retail performance has offset falls in rent elsewhere to ensure that rents remain flat across the board.

Nick Parker, senior forecasting analyst at CBRE, described the results as unsurprising given the signs of deterioration, and noted that investors were becoming ever more focussed on prime property:

“November was the first month this year where more widespread weakness started to creep into the UK property market performance with more real estate sub-sectors seeing capital value falls than gains.  “Given the wider economic uncertainty caused by weak fundamentals in the UK economy plus the growing threat posed by the Eurozone, it now seems that investor appetite has once again become more narrowly focused on the super-prime end of the quality spectrum at the expense of assets further up the risk curve.”

However, the competitive presence of insurers, CBRE notes, offering better loan-to-value deals and better margins, has propped up real estate activity and could account for as much as 20% of commercial property lending in the future.

Insurance companies have progressively increased their share of real estate lending after retail banks began showing signs of reluctance. With the number of business property lenders actively lending down in 2011, it is hoped that the impact of insurance companies evolves beyond the prime end of the real estate market, which is where their lending capacity is largely based at present.

Author

Carlo works in the real estate sector and writes about investments and commercial property in London and in the UK. He likes industrial architecture, nature and traditional british food.

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