Life, Confidence and the Property Market - Island Life February/March 2009
The end of winter is a good time to reflect on the turbulent months behind us in the Island’s property market, and to look ahead.
In 2008 we endured a year of extraordinary financial events, with the banking system turning cartwheels and the property market suffering one of the harshest periods of trading for over half a century. But what lies ahead in the future?
The media seems to be full of ‘expert’ opinions about how much further property values will drop; when the market will turn and how long any period of recovery will take. From newspaper and broadcast journalists to eminent economists, banks and property programmes, they all have something to say. Not one of them seems to agree. This is hardly surprising; none of them is a clairvoyant and none has ever encountered this sort of crisis before. We are in uncharted waters. Interest rates are at their lowest for hundreds of years. So, no matter how expert anyone thinks they are, nobody really knows. With so many people conjecturing different things forecasting appears to be a rather pointless exercise.
But, perhaps, we local property experts do know a thing or two. We know what is going on in our particular market place. We know we are still agreeing sales and, whilst prices need to be realistic, buyers are returning in increasing numbers. Some, who have been in rented accommodation, having sold last year, have been paying their rent from the interest on the sale proceeds. The lower interest rates no longer cover the rent. They now have to buy or start using up their capital. There has certainly been a general upsurge in activity following recent dramatic interest rate cuts, and we think this will increase with further cuts as banks slowly relax their stranglehold on mortgage money.
Similarly, investors with capital are now looking once more to ‘buy to let’ as the interest rate return on financial investments has collapsed. No matter how eroded confidence is across the property and financial worlds, people do still leave home, co-habit, get married, give birth, separate, divorce, move or lose jobs, win the lottery and, sadly, die. These ‘lifestyle’ reasons mean that, despite lower property transaction volumes there is still movement. There always is.
Those looking to ‘upsize’ rather than 'downsize' are realising that this is a good time to do so, why? Because if they are selling a house which was worth £300,000 to buy one worth £500,000 then (say) a 15% drop in value across the board means that whilst they have lost £45,000 on the house they are selling they should save £75,000 on the one they are buying, they are therefore, arguably £30,000 better off than they would have been if selling and buying the same property eighteen months ago.
Many people have been waiting for the market to ‘hit the bottom’. The problem with that is that you don’t know when the bottom has been hit until after the event, by which time it is too late to take advantage of the lowest prices. Some are taking the view that the big drop has already occurred and they should buy now, whilst there is more choice, before everyone else does, when there will be a reduction in the number of available properties and therefore more limited choice.
So now is a good time to look forward, perhaps with just a little more optimism than in recent months. Low interest rates will attract buyers, turmoil in financial markets may just turn investors back to the safety of bricks and mortar, money will need to be lent to ensure the banking system begins to move again and, most importantly, life and the Island’s property market will go on.
Sam Biles is Managing Director of leading Country House and Waterside Property Specialists Creasey Biles and King 01983 282222 sam@creasey-biles-king.co.uk
