Why property investors should never believe all they read in the newspaper

Could you and UK house prices be swayed by misinformation?

In an article published in the Evening Standard on July 1st 2016, readers were panicked by the headline London house prices slashed after Brexit vote”.

One of our Investment Property specialists in our London office took a call from a client recently who had read this article. He was terrified that London property prices would come crashing down. He even quoted that a flat in Belsize Park had lost a third of its value in a week. “It’s true,” he said, “I read it in the Evening Standard.”

In this post, you’ll discover just how misleading that Evening Standard article was. You’ll also find out how you can check such ridiculous stories in less than five minutes, and the lengths to which we go at Gladfish to make certain our clients are investing at realistic prices.

The media loves sensationalising the news

That Evening Standard article spoke of “nervous homeowners cutting their asking price” after the Brexit vote unleashed a “perfect storm” on London’s property market.

The article highlighted four properties that have been on the market for between five months and more than one year. According to the Evening Standard’s analysis, these properties had their asking prices reduced substantially in the last week of June. A simple internet search that takes less than a minute reveals how this is just complete and utter tosh.

A property lost 30% value overnight – or did it?

One of the properties – a three-bedroom flat in Belsize Park, NW3 – “went on the market last May at £1.5 million” and had its “price cut to £1.05 million last Friday” (24th June, the day after the EU Referendum vote). You might be forgiven for thinking that the seller has panicked overnight. After all, the article makes it appear that the seller has slashed the price by almost a third the day after the Brexit vote. They are clearly desperate to sell before the world caves in and the sky falls in on them.

I’ll make a prediction now. The seller will have to reduce the price by around another 10% or so to sell. “So,” I hear you asking, “you think that house prices already down by around 30% (according to the Evening Standard article) will fall by another 10% or more in Belsize Park?”

They might; they might not. (I’m predicting central London prices will soften by 10% to 15% from their peak, before recovering and moving forward again – at least partly because of negative sentiment.)

What I do know is that the Evening Standard has hopelessly misrepresented what is happening in the market. If the journalists writing the piece had bothered to spend just two minutes of their time researching their facts, they could easily have written the piece with the title “Rip-off homeowners forced to offer homes at realistic market prices.” but that probably wouldn't sell as many newspapers.

The seller’s real story

That 3-bedroom flat in Belsize Park, NW3? I searched on Google for ‘flats for sale in Belsize Park’. Within a minute I’d found the property in question. I also found some facinating information.

Here is what happened to the asking price since it was first listed:

asking_price_since_first_listed.pngIn other words, the owner had reduced the asking price by just 12.5% after Brexit. And this is after six months of no sale at £1.2 million.

I can also tell you more about this flat. For example, the current owner bought it for £952,000 on 1st November 2013.

To me, it appears that the owner first listed at £1.5 million and immediately dropped the price to make it ‘look like a bargain’. The price was reduced by around 17% within a month of first being listed. A little more than six months after putting it on the market, the owner had dropped the price by 20%.

The seller was over-valuing their property

Even then, a little more research tells me that the owner was still chancing their arm. A look at the Land Registry website tells me that a similar property on the same street was sold for £1.1 million on 26th June 2016.

Even at £1.2 million, in a market that was already having the froth blown off it, the seller was probably 10% or more overpriced in December last year.

That leads me to my prediction that the seller will have to accept an offer of 10% or more below the current asking price, because he’s asking almost as much as the market value based on local history, in a market that was panicked. On top of that, according to home.co.uk, the average price of a flat in NW3 is £900,000.

Search house price truth behind the headlines

This simple bit of research took around 3-4 minutes to do. Here are the steps I took to get to the truth:

  1. Search on Google for the property for sale.
  2. Go to the Land Registry website and search for recent sales data in the street in which the property is for sale.
  3. Go to home.co.uk and research area price history, selling prices, and asking prices.

It pays to do your property research

When we source off plan or off market property for investors, we go to extraordinary lengths to corroborate the values property developers put on their off-plan or new build properties:

  • We go through an 89-point Due Diligence Checklist.
  • We speak to local estate agents, letting agents and property management companies.
  • We search house price history in the area and search Land Registry records.
  • We spend a lot of time ensuring rental values on an investment property is realistic.

Just because a homeowner is asking £1.5 million, then 1.35 million, then down to £1.2 million within six months, doesn’t mean this is the right price or a bargain. This principle goes for new developments, too. New builds almost always have a premium pricing structure. We make sure that we’re happy with the valuation before we take a single step on the road to investment.

We never sensationalise market rises or falls. We don’t think that a buy or sell executed on emotion is a good one or a sensible idea for successful property investing. We look for excellent property fundamentals, crunch the numbers and invest in ‘boxes that make money’. You should too.

In the meantime, feel free to contact one of my team on +44 (0)207 923 6100. They won’t bite (I promise), and won’t spin a yarn that’s worthy of sensationalist media. They’ll simply tell it like it is.

Live with passion

Brett Alegre-Wood

Brett Alegre-Wood
October 10, 2016

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