On Monday I went to The Royal Garden Hotel, Kensington to the Savills Residential Property Auction. The atmosphere of auctions has changed, and there were some shocking observations I made, both subjective and objective.
Key Points: First 50 Properties
|Average Guide Price||£259k|
|Average Bid (Sold)||£288k|
|Average Highest Bid||£301k|
|Average increase on Guide by Highest Bid||19%|
- Sellers’ Auction, High Prices & Reserve not met too often
- Properties sold up to 205% of guide price
- Reserves not met on over a third of properties
Let’s analyse all the facts, firstly my headline calculation of average increase on the guide price by the highest bid. 19% is no small increase, £42,000 on the average property. Does this mean that guide is undervalued, or that bidders are over bidding. I think both are the case. Even though Savills state that the guide is not a valuation but a possible indication, it is safe to assume that, that is just legal disclaimer jargon. Many investors in the field have been complaining of undervaluation, especially when attempting to raise finance, this is just another piece of evidence for that cause that properties prices are being made artificially low to fuel speculation of a so called double dip recession in this market. However I think bidders were also bidding higher than their real valuations, this may be because it was the first auction after a long summer break, investors wanted new projects and there has been a lack of activity elsewhere in the market.
The figures I calculated also show that the bids in properties where the reserve was not met was also significantly higher, I think this is due to a great under value in the price of more upmarket properties, and naturally the seller does not agree with that sort of guide and wishes to achieve what they feel the property is worth. Sellers are fighting back, only accepting higher bids for their properties, if this continues through all channels of properties transactions, demand will outstrip supply and prices will inevitably rise. Very simple economic theory states this, no need for computer models and high paid analysts that are paid to say otherwise.
Deals of the day – Here are a few interesting properties
- 3 bed, end of terrace, requiring modernisation in Enfield. The guide was £155k and Zoopla value it at £180k, it sold for £184k, in my opinion even though the highest bidder paid more than both valuations a three bed, effectively a semi for this price is a bargain, central heating, double glazing and off street parking. In an area where it is easily rentable, especially there is high DSS demand in this area with plenty of guarantee rent agents too.
- 4 Bedroom or 3 plus reception flat in Tooting, requiring modernisation. Guide was £170k, Zoopla says £263k and it sold for £225k. The price is between the two valuations, as a whole the flat can probable be rented out at £1200-1500 a month, and even more under HMO or Students.
Both of these first too are being sold by councils or housing associations, meaning there are demand for those in need of housing and on benefits, further there is evidence that these organisation are offloading assets to free up cash, recognising the fruitful market condition. Investors can pick up suitable properties are good prices, keep your eyes open.
3. Mid terrace derelict house, with planning permission for a 4 bed, 3 storeys rebuild in Forest Hill. Guide was £100k, and it sold for £205k to a phone bidder. Over double of the guide. This shows the potential in these developments, in these times of higher unemployment a cheaper more flexible workforce can be assembled. Average house price paid on the street in last two years is £340k and if this is a total rebuild I believe a figure close to the £400k mark is achievable.
4. A derelict detached house, 2 minutes walk from Bound Green station with a significant plot of land and two concrete garages. No guide was given, Zoopla value was £356k and the highest bid of £605k was rejected, reserve not met. I was particularly interested in this property and watched with keen interest, knowing in the back of my mind having the finance in place I would have bid up to £450k, but was shocked to see the sellers, London Borough of Haringey were expecting way over the £600k mark. This building is ideal for a small bed and breakfast development or even a small block of 6-8 flats. Another occasion where sellers are holding out for higher prices and that development potential is being recognised and priced into value.
On a subjective matter another observation was how auction etiquette has changed, such a mix of people from all back ground, the suited city professionals to the newly naturalised families in an array of traditional clothing. People were on the phone, a few children in the mix and overall a light hearted atmosphere. Auctions are no longer the reserve of the property tycoons and professional but a place any potential property buyer can turn up. A highlight was a young couple securing a property, a bit of romance and excitement, to show the impact a first property can make to peoples livelihoods.
Overall the auction showed the strength and developing nature of London Property market. For more information on up and coming auctions please email info@PropVestment.com or check the Facebook page www.facebook.com/PropVestment for the latest events.