News: Property bubble-burst inevitable?

Fri, 28 Sep 07

Recent turmoil in the financial markets means that everyone is now an “expert” on issues such as “sub-prime” lending, money supply, Banking liquidity, “Moral Hazard” and “LIBOR” - subjects and detail that were seemingly irrelevant to most people until a month ago but now loom very large in the media...

Poor PR and a confused/ secretive approach to regulation by the Bank of England and the Financial Services Authority led directly to queues forming outside Northern Rock to withdraw savings as it is apparently safer to keep savings “under the mattress” these days!

Nick Hopkinson, Director of specialist property firm Incito asks: “Have we all gone mad? Is this inevitably going to lead to a bursting of the property bubble? Where is the safest place to invest for capital growth?”

One month on from the historic scenes outside Northern Rock branches (not seen in UK for over 150 years) and the financial markets/ banking system still seems to be functioning, despite poor risk management and media hype. “Rather than take my investment advice from the media, I prefer to look at independent data and expert opinions” says Hopkinson from Incito Property.

FTSE remains volatile

Firstly, the stock market has not completely collapsed and the FTSE is back around 6,400. Yes, it remains volatile and the only people really making money are the Brokers and tipsters who make money regardless of market movements.

If you have the stomach to ride this rollercoaster there is still much money to be made in the stock market but it is high risk in the short term and individual investors can’t benefit from “gearing” in the stock market. “I don’t think many people regard the FTSE as a safe Haven for investing at the moment”, Hopkinson comments.

Secondly, in the “real economy” the Office of National Statistics has announced latest quarterly Gross Domestic Product (GDP) growth of 3.1% today. This is ahead of recent forecasts and shows that “UK PLC” is still growing solidly.

Balance of payment figures actually improved in the quarter. Inflation is currently running at 1.9% (below the long term target of 2%) indicating a generally downward pressure on Interest rates in the next few months. All “experts” are latterly suggesting the next interest rate move will be down and not up, as hyped in the Media during July and August.

Government failing on new homes

Thirdly, regarding the housing market: despite the Governments much discussed plans to increase building to meet the chronic shortage of supply (particularly in the SE) latest quarterly figures (to May 07) from National House Builders Association (NHBC) show that the number of private sector applications to start new house builds actually DECLINED by 1% to only 44,297 versus a year ago! Meanwhile, the Government is targeting 150,000+ new homes per year.

According to the Royal Institute of Chartered Surveyors (RICS): with sustained strong demand, and real shortages of this type, it would appear unlikely that prices will drop back or slow down in real terms in anything other than the immediate short term regardless of recent interest rate rises and affordability.

Currently, less than 150,000 new homes are built per year in the UK, giving a shortfall of 1,000,000 from the required figure of 3,000,000 over the next decade! That of course, ignores population growth from such factors as immigration and the regional nature of the shortage (i.e. the real shortage is concentrated in geographic pockets and is not everywhere). It is very unlikely that the Housing market will collapse given this massive

Keys to success

The real capital growth in property long term is made by combining the following four principles:

1. Maximum gearing – using unique negotiated discounts to achieve 80% loans with only 5-10% of your own funds invested.

2. Future “hot spot” sourcing – researching the best locations based on long term factors. Incito Property focus on key areas within London and the South East where demand exceeds supply long term.

3. Compound capital growth – getting growth on the whole value of the property over 10+ years, not just your investment funds.

4. Risk mitigation – understanding and budgeting for all the legal, financial and future risks.

For further details, visit http://www.incitopropertyinvestment.com/MarketBeatingCapitalGrowth.aspx


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