A curious juxtaposition in the modern world of politics (although isn't every thing associated with politics a contradiction?) is that politicians urge bankers to lend more.
Banks will lend if they have security, the most common form of which is property. Even stocks and shares can ultimately be based on the value of property- see Sainsbury's as an example.
However, new guidelines mean that banks cannot lend heavily to property and most UK banks are trying to divest their property loan books to bring their ratios back into balance. So if a bank is heavily exposed to property and they are supposed to be reducing the risk associated with that, how on earth are they expected to lend more money which will contradict the edicts from the FSA/ BoE?
We need to realise that the country's economy is based on land and property and those of us whom earn a direct living from it are not pariahs. (The least popular members of society are sometimes viewed as estate agents, solicitors, bankers, developers and builders!!).
We do want banks to lend more, and make more normal profits. Let them do this and don't shackle them with knee-jerk targets. If they get it wrong, let them go bust as does any firm that gets it wrong.
Profit is the reward for risk. Interest rates for both savers and borrowers reflect this: There is no safe investment that pays a return.
Friday, December 30, 2011
Commercial Property: Positive Outlook
Commercial Property: Positive Outlook: We decided to stay open between Christmas and the New Year and it was worth it. We have had a steady stream of enquiries and have let a shop...
Positive Outlook
We decided to stay open between Christmas and the New Year and it was worth it. We have had a steady stream of enquiries and have let a shop and some office space. As a result, there was no void for the landlord of the shop which will help his business model. Because we prepared some in house leases, the tenants have already moved in.
Now I accept that the commissions will not turn the commercial world on fire, but the process goes to show that if you want things to go well, and you put in the hard work, it may well happen.
This is going to be our theme for 2012; let's not wait for government to bail us out, because they won't (the general feeling is that they protect the status quo and want to protect various sectors deemed as crucial). We are going to be to proactive and try and help ourselves. Despite the recession, there is business out there -we just need to find it! For example, there are growth industries that want office space and retailers that are doing well. These companies will do even better with our competitively priced space.
2012 will be the year when we worked hard and moved on, rather than dwelling on the past.
Now I accept that the commissions will not turn the commercial world on fire, but the process goes to show that if you want things to go well, and you put in the hard work, it may well happen.
This is going to be our theme for 2012; let's not wait for government to bail us out, because they won't (the general feeling is that they protect the status quo and want to protect various sectors deemed as crucial). We are going to be to proactive and try and help ourselves. Despite the recession, there is business out there -we just need to find it! For example, there are growth industries that want office space and retailers that are doing well. These companies will do even better with our competitively priced space.
2012 will be the year when we worked hard and moved on, rather than dwelling on the past.
Wednesday, December 21, 2011
Renewable Energy
I have yet to meet anyone who actually thinks that the Climate Levy Charge is a good idea. Additionally, I have yet to find anyone who thinks that the current dash towards green energy is a sensible move. No doubt proponents are out there, but we are paying a very high price, both domestically and professionally for these follies.
The main issues are that;
1) Green energy is not that green. Take a solar panel for example. Has anyone actually worked out how much energy it costs to make it versus how much it gives back over it's life span? Similarly with a wind turbine. Add in installation and servicing costs, they are not that energy creating.
2) The lifespan of the equipment. What kit do you own that still works after ten years? Maybe the odd bit, but it is probably less than 10% of what you bought ten years ago. When these suppliers sell you turbines or solar panels, they omit to tell you that there is a 50% chance your investment will be worthless in ten years time, which is the benchmark payback period. In other words you are just paying yourself back the original investment and destroying the capital. To help the matter along, we all pay higher bills.
3) Why should we pay higher bills for targets that few other countries bother with? It is just making us more uncompetitive.
It is not very fashionable to be in the anti green lobby, but I do feel that some of us should stand up and be counted.
The main issues are that;
1) Green energy is not that green. Take a solar panel for example. Has anyone actually worked out how much energy it costs to make it versus how much it gives back over it's life span? Similarly with a wind turbine. Add in installation and servicing costs, they are not that energy creating.
2) The lifespan of the equipment. What kit do you own that still works after ten years? Maybe the odd bit, but it is probably less than 10% of what you bought ten years ago. When these suppliers sell you turbines or solar panels, they omit to tell you that there is a 50% chance your investment will be worthless in ten years time, which is the benchmark payback period. In other words you are just paying yourself back the original investment and destroying the capital. To help the matter along, we all pay higher bills.
3) Why should we pay higher bills for targets that few other countries bother with? It is just making us more uncompetitive.
It is not very fashionable to be in the anti green lobby, but I do feel that some of us should stand up and be counted.
Tuesday, December 20, 2011
Labour's legacy for the commercial property market
One of the most detrimental aspects of Labour's tenure was that it created a sense of dependency on the State.
This has been especially prevalent in the commercial property market, particularly with offices; quangos, local authorities and health authorities all used up their budgets and took large amounts of space on, driving up rents. Now they are shedding this space, leaving the market with a large overhang. There are few tenants on the horizon for this excess.
The real impact has been on our expectations, insofar as we now expect to be rescued/ helped by the government, or at the very least, be led by them. We desperately need to start believing in ourselves and look forwards. It is pretty clear that there is no help from government (the have too many issues of their own). Let us break this cycle of dependency and go out there and create jobs, wealth, opportunities and happiness!
As valuers, stop trying to cover your backs and down value everything. Take a prosaic view of the market and let purchasers buy and vendors sell. Carpe Diem, or even Carpe Noctem. Please.
This has been especially prevalent in the commercial property market, particularly with offices; quangos, local authorities and health authorities all used up their budgets and took large amounts of space on, driving up rents. Now they are shedding this space, leaving the market with a large overhang. There are few tenants on the horizon for this excess.
The real impact has been on our expectations, insofar as we now expect to be rescued/ helped by the government, or at the very least, be led by them. We desperately need to start believing in ourselves and look forwards. It is pretty clear that there is no help from government (the have too many issues of their own). Let us break this cycle of dependency and go out there and create jobs, wealth, opportunities and happiness!
As valuers, stop trying to cover your backs and down value everything. Take a prosaic view of the market and let purchasers buy and vendors sell. Carpe Diem, or even Carpe Noctem. Please.
COMMERCIAL PROPERTY- CHRISTMAS
As business peeps, do we really need to shut down for Christmas? I accept that a festive period is important, but 2-3 weeks of closure? Is that really necessary?
It is an excuse for not paying, non decision and general lethargy. After all, in reality it is only a double bank holiday with the associated festivals and celebrations. I do admit to enjoying Christmas and feel that the significance of the holiday is diluted by the extended break, which can extend from 20th December until 5th January.
Times are hard and we all need to be more decisive. Have a break, ease your conscience and let's try and move the economy forward.
Oh, and while we are at it, can we all try and be a bit more resolute?
Onwards and upwards.
It is an excuse for not paying, non decision and general lethargy. After all, in reality it is only a double bank holiday with the associated festivals and celebrations. I do admit to enjoying Christmas and feel that the significance of the holiday is diluted by the extended break, which can extend from 20th December until 5th January.
Times are hard and we all need to be more decisive. Have a break, ease your conscience and let's try and move the economy forward.
Oh, and while we are at it, can we all try and be a bit more resolute?
Onwards and upwards.
Friday, December 16, 2011
Banking
Before you blame bankers for being greedy, most of them earn less than £40k a year. I accept that there are some very successful gamblers, sorry bankers, who make, lose and earn fortunes. However, this blog is about the day to day bankers.
In a hypothetical world, would you lend money to you at a few hundred basis points? Nope. Categorical.
What % of borrowers default? If you think 1%, then at 1% over base, a bank will break even, but they have costs, branches, staff and need to make a profit. Historically they have always charged about 3% over base rate (300 basis points) for good borrowers: Like development, a third for cost, third for profit and a third for purchase. In other words, not much. The rate usually swung out to 4-5% for the speculators. probably a fair rate considering the associated risks.
We are addicts and have to wean ourselves off these cheap fixes, which will help the professional landlords. When money was expensive (8-10% in total) , I would never have considered an investment unless it paid 25% return. In 2006, returns were at 5% and we sold out because you couldn't make a profit. Another cliche, sorry, is that too many cooks spoil the broth.
Expensive finance, and falling prices, are good for the professional landlord who takes the long term view. Yields will increase as the amount of landlords fall, causing rents to rise. The market will no longer be characterised by every man and his dog and we can go back to making some real cash that does not rely on a rising market.
Back to the bankers. You would not want to risk everything to lend to speculators at an effective negative interest rate, would you? No. Don't expect them to either.
Very painful advice to take, but let's keep the pressure on them just in case they do, eh?
In a hypothetical world, would you lend money to you at a few hundred basis points? Nope. Categorical.
What % of borrowers default? If you think 1%, then at 1% over base, a bank will break even, but they have costs, branches, staff and need to make a profit. Historically they have always charged about 3% over base rate (300 basis points) for good borrowers: Like development, a third for cost, third for profit and a third for purchase. In other words, not much. The rate usually swung out to 4-5% for the speculators. probably a fair rate considering the associated risks.
We are addicts and have to wean ourselves off these cheap fixes, which will help the professional landlords. When money was expensive (8-10% in total) , I would never have considered an investment unless it paid 25% return. In 2006, returns were at 5% and we sold out because you couldn't make a profit. Another cliche, sorry, is that too many cooks spoil the broth.
Expensive finance, and falling prices, are good for the professional landlord who takes the long term view. Yields will increase as the amount of landlords fall, causing rents to rise. The market will no longer be characterised by every man and his dog and we can go back to making some real cash that does not rely on a rising market.
Back to the bankers. You would not want to risk everything to lend to speculators at an effective negative interest rate, would you? No. Don't expect them to either.
Very painful advice to take, but let's keep the pressure on them just in case they do, eh?
Fourth Reich
Whilst it is a very dangerous matter to address, does anyone else think that we are seeing a backdoor takeover of Europe by Germany? Or has it always been the case and no one realised? As the largest and most productive economy, they were always going to have the biggest voice, but are we seeing the point of no return?
As the old economic adage goes, there is no such thing as a free lunch. What price will the other 25 countries pay for the teutonic help?
Nonetheless, something has to be done or we will experience another jolt to our expectations and associated economic contraction. Or maybe....... if the Euro does fold, the cost is already priced into the market and the collective sigh of relief from 200m Europeans will provide an impetus, as our expectations think 'finally over' and get on with living. What is rational behaviour?
As the old economic adage goes, there is no such thing as a free lunch. What price will the other 25 countries pay for the teutonic help?
Nonetheless, something has to be done or we will experience another jolt to our expectations and associated economic contraction. Or maybe....... if the Euro does fold, the cost is already priced into the market and the collective sigh of relief from 200m Europeans will provide an impetus, as our expectations think 'finally over' and get on with living. What is rational behaviour?
HIGH STREETS
High Streets are clearly suffering from the onslaught of the Internet. However, there is a misconception that this is because it is easier to shop online. In reality it is due to prices online, being cheaper than those on the High Street.
Many people love going out and meeting people and do this, primarily in city/ town/ village centres. Buying from a shop is generally preferable because you can see the goods before you buy. There is a tipping point when this benefit is outweighed by the price. We are approaching this level, whereby the internet retailers have such a price advantage that more and more people shop online. [I am not ignoring the minority who will prefer the convenience of shopping on the inter web!].
We are nearing a level of perfect competition, with price information publicly available, and so the price differential comes down to input costs. Parking now, thanks to the financially challenged local authorities, costs as much as postage; people are actively put off going out because of these very high charges. We are increasingly finding that parking now costs at night too. We should remember that parking charges were there to introduce a form of rationing, so we all got a fair chance to park. Now it is strictly revenue raising.
Shoppers are put off from going to stores because of parking charges and now look at malls (free parking) and the internet. However, the High Street is further at a loss as their rents and rates are so high. Now, if a local authority/ government really wanted to protect the High Street, they would remove Business Rates. There is a curious juxtaposition here as they claim to want to protect the High Streets (often not allowing development and change of use plans) but tax the occupiers out of business.
As a commercial agent, I often come across situations where the rates payable are higher than the rent. The traders get nothing in return, apart from an army of inspectors!
I propose two things to get the High Streets active again, free parking for two hours and no Business Rates for A1 retailers. If the Local Authority has to tax, then please provide something in return....
I estimate that the average High Street in the East Midlands probably gives the Local Authority some, £100-200,000 per annum and they don't even get a bin!
Many people love going out and meeting people and do this, primarily in city/ town/ village centres. Buying from a shop is generally preferable because you can see the goods before you buy. There is a tipping point when this benefit is outweighed by the price. We are approaching this level, whereby the internet retailers have such a price advantage that more and more people shop online. [I am not ignoring the minority who will prefer the convenience of shopping on the inter web!].
We are nearing a level of perfect competition, with price information publicly available, and so the price differential comes down to input costs. Parking now, thanks to the financially challenged local authorities, costs as much as postage; people are actively put off going out because of these very high charges. We are increasingly finding that parking now costs at night too. We should remember that parking charges were there to introduce a form of rationing, so we all got a fair chance to park. Now it is strictly revenue raising.
Shoppers are put off from going to stores because of parking charges and now look at malls (free parking) and the internet. However, the High Street is further at a loss as their rents and rates are so high. Now, if a local authority/ government really wanted to protect the High Street, they would remove Business Rates. There is a curious juxtaposition here as they claim to want to protect the High Streets (often not allowing development and change of use plans) but tax the occupiers out of business.
As a commercial agent, I often come across situations where the rates payable are higher than the rent. The traders get nothing in return, apart from an army of inspectors!
I propose two things to get the High Streets active again, free parking for two hours and no Business Rates for A1 retailers. If the Local Authority has to tax, then please provide something in return....
I estimate that the average High Street in the East Midlands probably gives the Local Authority some, £100-200,000 per annum and they don't even get a bin!
Tuesday, December 13, 2011
As Christmas approaches, our thoughts turn to next year and what may happen. There are two central tenets to Economics; Supply and Demand and Expectations.
Many will be familiar with the concept of Supply and Demand but our interpretation of it is wrong, especially in property. Few properties are homogeneous and whilst there is a large overhang of supply, in virtually all property sectors, few landlords are willing to sell at the price which correlates to demand. Thus we have an imbalance between the supply and demand curves, where they do not currently meet and are almost parallel.
Where you are on either of these curves depends on your expectations; expectations are what people expect will happen. In boom times, prices go up because people think they will and it becomes a self fulfilling prophecy and vice versa in a recession. At present we are in a recession, despite the fact that not much has really changed over the last four years, banking issues aside: Local Authorities, Governments, Quangos are all spending more this year than last year, there are no massive jobs losses and the economy only shrank by 4% (Are you noticeably poorer with 96p in your pocket as opposed to £1?- nope)
If we can change expectations, and this is the responsibility of government and the media, then we will pull out of this economic contretemps quickly.
If government wants to move the economy forward, it should recognise the importance of property in the economy and rather than QE, (which really makes banks and bankers richer and exacerbates a bond, stock and commodity bubble) they could buy real estate and get us moving again: get rid of the auction overhang and let the Supply and Demand curves meet again. Then we will all be back in business.
Many will be familiar with the concept of Supply and Demand but our interpretation of it is wrong, especially in property. Few properties are homogeneous and whilst there is a large overhang of supply, in virtually all property sectors, few landlords are willing to sell at the price which correlates to demand. Thus we have an imbalance between the supply and demand curves, where they do not currently meet and are almost parallel.
Where you are on either of these curves depends on your expectations; expectations are what people expect will happen. In boom times, prices go up because people think they will and it becomes a self fulfilling prophecy and vice versa in a recession. At present we are in a recession, despite the fact that not much has really changed over the last four years, banking issues aside: Local Authorities, Governments, Quangos are all spending more this year than last year, there are no massive jobs losses and the economy only shrank by 4% (Are you noticeably poorer with 96p in your pocket as opposed to £1?- nope)
If we can change expectations, and this is the responsibility of government and the media, then we will pull out of this economic contretemps quickly.
If government wants to move the economy forward, it should recognise the importance of property in the economy and rather than QE, (which really makes banks and bankers richer and exacerbates a bond, stock and commodity bubble) they could buy real estate and get us moving again: get rid of the auction overhang and let the Supply and Demand curves meet again. Then we will all be back in business.
Commercial Property
I agree with some of the Portas report, but did it really take her seven months to state the obvious? The main problems with the High Streets are the local authorities: They tax businesses and give nothing in return, they extort through car park charges when malls are free and refuse to grant necessary planning consents as High Streets evolve.
Tuesday, January 18, 2011
Property Management
Chartex manages several properties and today is electrical test day. We have a great team of contractors who service and repair. Please contact us for a quote and see how we can provide you with 5* management.
Ripley.....
good deals to be had, office and retail. HQ of Amber Vally Borough Council and Derbyshire Police HQ, busy place, close to A38 and easy access to M1
London
Met with a couple of London clients today who have investments in Derbyshire, very productive and a great lunch venue. Are you looking for investments in the midlands - then call.
Sunday, January 16, 2011
Saturday, January 15, 2011
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