Property Market Insights- October 2022

Developing properties can be a very rewarding and profitable experience.  The process of taking buildings or land and releasing value through creativity is an experience which is full of ups and downs.  The thing is, you can manage and measure those ups and downs by making sure the due diligence element of your plans is enhanced with facts and data.

A lot of people talk about due diligence and data as if it is like adding sugar to a coffee.  It is just added if you like it, but not strictly necessary.

I think of data and due diligence as the coffee beans – if you don’t have them you don’t have coffee to drink.  They’re essential.

Let me try to explain.  Let’s assume you are creating apartments from a commercial premises.  At the time of writing this, the market has been hit by a jump in mortgage interest rates.  And as a result of this, the stress testing of mortgages is now at 8%.  In most instances, this means the rental income from the new apartment would need to cover 125% of the interest payments at 8%.  If it doesn’t, you can’t get the mortgage at the value you want or need to develop.

Now let us consider these points:

1                 Can you find locations to convert which have higher yields

2                 Can you quickly see if the areas value and rents are climbing or falling

Potentially the best areas for you to invest in right now are those areas with highest yields.  With some mortgage interest rates being 7%, you really need to be ensuring your completed development yields 7%, or else a) you won’t make any profit from renting it and b) it will be very hard to meet mortgage stress tests. 

So yield is important, but so too is how inflation is affecting rents and values.

If you are going to develop a site, or even perhaps do a simple refurbishment on one house or flat, the value and rent when you buy it will alter over time as you do your upgrades (add value). 

If the area is falling in value (and mark my words, some places are and will be soon), your job of developing and making profit is much harder.  If the market is buoyant and growing (yes, there are lots of these areas emerging right now too), making a profit is much easier.  Again, without understanding and measuring this, how do you know?

When I visit networking groups and present at events, I ask the room what the highest yielding areas are, and also the highest growth locations.  Without exception, every time I ask, I get answers, all of which are different and none of which are correct or factual.  Because worryingly we don’t make it our business to know.  We’ve had it easy for years with low interest rates and could make money and often momentum invest everywhere.  That’s all changed, overnight recently.

So how do you do this?

First of all, don’t use Land Registry sold prices.  They are very useful, but not for this process.

You need:

Current asking rents / Current asking prices

This gives you todays approximate yield in an area

You must not :

·        Assume all areas are the same.  They aren’t

·        Buy in the cheapest areas.  More expensive areas often have higher yields

This means you consider the areas that are more likely to be profitable and more mortgageable.

Check out these postcodes in and near Swansea.  These are the top 12 yielding locations and property types:

As you can see, there is a variety of asking prices, locations and types of properties.  Yet most people don’t even know how to collate this data!  It takes anyone about 20 seconds if they use Ultimate Property Dashboard.

Next up is whether an area is rising or falling in value.  DO NOT ASSUME that all areas rise or fall at the same rate.  There is massive variance.  Again, most people quote and use land registry prices but this is again pointless because the data is too old.  You need to know whether an area is rising or falling right now, today.

You do this using asking prices and asking rents again.  And you can do this manually searching portals for data and then making spreadsheets, or you can let software do this for you.

You need to measure:

Average asking price this month in an area

Average asking prices for past few months in an area

Difference up or down

This tells you if the market is hot or not.  I used to train people to do this manually once per month and it would take about 4 hours for a region or city area.  Nowadays, I just tell them to use Ultimate Property Dashboard again, because it does it for every UK postcode area.  Here’s a few examples of this:

2.            Evaluate a specific property area and type

In this chart for a Manchester postcode, asking prices are falling and if you use land registry data you would likely be basing your decisions on much higher growth earlier in the year.

Finally, when finding development sites, many of us look for sites which are suitable for commercial to residential conversions, title splits, planning gain and opportunity to refurbish for added value.

I automate and search every online listing for keywords and phrases to find these types of deals.  In the current market, the average investor spends 4 hours searching for deals per week (UL investor survey August 2022).  To fully search every deal and compare it to 50 keywords in 10 postcode areas manually, takes about 6 hours per week.  So most people don’t check the whole market every week.

I use data and software to check over 50 postcodes I like to invest in every day, not every week!  Ultimate landlord checks every property every day for all of us.  And it researches over 900 keywords, images and phrases to find leads.  This includes both residential and commercial portals, not just one or the other.  You can too, and you need to in the current market.

So please make your life easier and more certain in these uncertain times by plugging data and software into your business process. 

John Penquet

Market Data Expert

Get John’s latest Market Data and see a free demonstration of his data software Ultimate Property Dashboard using this link or QR code:  

bit.ly/3U3Oa8s