On September 15, 2008, Lehman Brothers filed for bankruptcy thus establishing a poignant marker for the 2008 global financial crisis taking hold, which many economists believed to be the worst global financial crisis since the Great Depression of the 1930s.
Doubling your money…
If I had taken a poll at that time about how sensible it would be to invest in the London property market around that time I probably would’ve been met more with laughter as opposed to a proper response. Yet if you had bought a London residential property around 2010, on average you would’ve nearly doubled your money by 2016 (and that assumes purchasing with no leverage!).
A unique circumstance?
The doubters will say that this is a one-off, a unique set of circumstances, but the story was similar for the start of the last 2 significant points of stress in the UK market that started in 1989 and 2000. History is no definitive predictor of the future but some of the fundamentals that drive London house prices are still looking strong. Organic population growth and immigration from outside the EU are still contributing to increasing housing demand, and the supply side is being hampered by labour shortages arising from wary EU migrants that would otherwise be part of the London building workforce, as well as traditional home-builders taking a Brexit-induced breather from meaningfully adding new units across the capital that would help to reduce the chronic shortages.
Waiting for the bottom often means missing the bottom.
It’s important to note that depending on what price point of the London market you focus on, you will see differences. For example, Prime London has effectively come to stand-still, despite prices falling 30% in some areas. Buyers are still not (yet) buying. I feel this is due to very pessimistic views focused only on Brexit and people waiting for the bottom. The risk of this is that you wait and miss the bottom. Typically for downturns and illiquid assets too many people try to call the bottom and miss.
The “affordable” part of the London property market is still moving, albeit with less of a spring than last the few years. It is the affordable part of the market that needs more units whereas there has been an oversupply of higher priced units over the last few years which has led to the current surplus of completed but unsold units across the capital.
Overall, a long-term investor should be less concerned about trying to buy at the bottom and should focus instead on value. If you’re getting a good deal today (even if you could get it a bit cheaper in a year or two) then it still makes sense to buy.
And finally, have you considered everything else?
There are of course other factors to consider, such as interest rates, mortgage relief, tax on property investors and other things the Government may choose to implement. A key potential fly in the ointment could be a Corbyn-led UK government. That would be quite an unknown entity, and would likely put measures in place to make the life of property investors, developers etc more difficult.
The adage of “no risk, no reward” tells you that you can’t expect to find an asset class that is a sure bet, but provided you do your research and make targeted choices (noting that some boroughs have already had a fair amount of Brexit pessimism priced in) I still think London is a good home for investor capital.