Buying time?

by Rachel Crook

The last few days have brought a few headlines that might have been regarded as a reminder that April 1st was nearly upon us.

Talk of an increase in mortgages, more investors buying property and expectations that property prices will soon rise may have raised a few eyebrows.

But this was not the stuff of spaghetti trees. These really are the findings of new surveys. For example, property portfolio managers Young Group revealed that there is indeed an increased expectation of prices rising and with it more of them wishing to invest. In both cases, this is particularly so in London.

While the Land Registry revealed that the average price in the capital slid below the £300,000 mark in February, the expectation among many investors is that the situation will reverse itself inside the next year.

The Association of Residential Lettings Agents (Arla) has also brought forth news of improved sentiment, with its first quarter survey going further than Young Group and reporting a boost to buying here and now, with more properties being bought than sold for the first time in two years.

Some may wonder how this can be, with most of the latest house price surveys showing that homes are still being bought and sold for less than before.

This last fact, even bearing in mind some of the optimism elsewhere, might be regarded by some as negative, along with the fall in rental rates over the past year as the market has been flooded with 'reluctant landlords' - people whose attempts to sell their home have failed and have resorted to the plan B of renting them out.

One reason may be today's figures from Nationwide that did show a rise in house prices, which were up 0.9 per cent in March. The lender's chief economist Fionnuala Earley said these should be taken with a pinch of salt and suggested it is premature to talk of a recovery yet, but they may add to the optimism.

Investors may have more deep-rooted reasons to buy. Ian Potter, the operations manager at Arla, stated that there is a good reason for landlords to make more acquisitions, even with rents lower.

He said: "[They] realise that the rental return on those properties is still quite keen in comparison to other investment opportunities around in the market place and long term. They don't buy with a one to five-year plan; they buy with a five to 15, perhaps even 20, year plan."

This long termism is the key, he noted, for even if prices do fall in the short term, that is not the be-all and end-all of the situation.

He continued: "They (landlords) would expect property prices to make a recovery in the long-term. Whilst there's an argument that property prices could still go down, there is an even stronger argument on supply and demand that property prices in the long term will go up."

So there is a clear message for those considering investing in residential property. It should not be undertaken because it is believed the recovery may be imminent or even already underway.

The real reason for it is that the longer run will certainly bring better times, when the recession is a fading memory and the market is strong again. Then the investment made now will bear fruit.

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Published on: April 2, 2009

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