Property Investment Newsletter October 2007

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Oh Thank You Darling!

Yes thank you indeed for cutting capital gains tax to 18% from 40%, as property investors we can only applaud your wisdom and foresight.

Actually unlike some pundits it has taken us a while to assimilate this change, which will by the way come into effect from next April. One thing that is clear is that if you are thinking of selling at the moment and anticipate a large gain, you might be wise to put things off.

Supply and Demand

Of course if you do put things off for this reason, it is only logical to suppose that others will do the same. This will lead to a drop in supply of investment properties while the more favourable tax treatment will tend to increase demand. Hmm, decreased supply, increased demand, we wonder what effect that will have on prices? Which brings us to consider the reasons why the Government has chosen to make this unexpected change and what the likely effects on the market might be moving forward.

Why Now?

A cynic might conclude that the government is terrified that any weakness in the property market prior to an election would lead to summary defeat. This change may therefore be seen as a desperate attempt to pander to the property owning majority. So are there any losers? Well yes and think it only right that amidst our celebrations we spare a thought for them.

The Losers
The first group of losers are the highly paid hedge fund managers who were in the press recently because of the way in which they were able to use the taper relief tax rules to pay 10% tax on their huge profits. They were able to do this because up to now, anyone who held a business asset for two years and then sold it would qualify for a 75% reduction in the capital gains tax they owed, which meant 10%. I am sure no-one will be shedding any tears for these people but there is another more worthy group who are also adversely affected.

The Losers II

Legitimate business owners of the type who build real businesses, create jobs and indirectly are responsible for the prosperity of this country have also been given the royal shaft by these changes. From April anyone selling a business no matter how large or small will also see their tax bill increase by 80%. We are sure this will go some way to make up for the loss of tax revenue resulting from the huge reduction for most of us but we can’t help thinking that it is unfair and unwise to penalise entrepreneurs in this way.

Rental Income

Choices are very fortunate in that in addition to our property investments and acquisitions business, we are also real estate agents selling and renting property on a daily basis. Given that we manage around 2000 properties in Surrey, Sussex and London, we are in the unique position of being able to see trends as they emerge. Lately we have noticed a significant increase in rents.

Going Up

The reasons for these increases are to do with supply and demand. As the price of property and interest rates have risen, it has become cheaper for people to rent than to buy. This has meant more people looking to rent which has of course driven up rents - as these increase, the attractions of buying become more apparent and so the cycle continues.



A popular Myth and a big thank you to China

One of the popular fallacies promoted by the media is the idea that property prices have forced the cost of mortgages to unsustainable levels as a percentage of income from an historical point of view. The reason this is not right is because the cost of goods and services generally has been falling rapidly in recent years in real terms, which has lead to a far larger portion of a person’s income being left over as disposable income.

This disposable income has then been mopped up by rent or mortgage costs. Thanks are due to the Chinese amongst other nations for providing us with an endless stream of cheap high quality consumer products. It seems there is some kind of elastic law of economics (Gordon's Law?) at work here, something like ‘no matter how much a person shall earn that person shall never have any money left over for savings’.

Bargains Galore and some Glittering prizes that have lost their shine

So what we have here is a very interesting and opportune situation for the property investor. On the one hand we have had the sub-prime mortgage crisis threatening to send the whole economy to the wall, instead of which it has merely shaken some bargains out of the property bargain tree.



For years we have avoided large over hyped city centre developments in places like Liverpool and Manchester and yes, even in some parts of London. Our reasoning was and is simple; all the froth in the market was spilling over into these projects. This is where the pure speculators and get rich quick merchants have aimed their attention. Of course the result has been that while on the surface prices have appeared to rise, once these developments are completed and off plan commitments are called on, supply outweighs demand and prices collapse.

An ill wind blows nobody any good

Of course what was to be avoided back then is to be sought after right now. It is indeed an ill wind that blows nobody any good. While these properties were poor value they can now be purchased for up to half price. Already we are seeing parcels coming to the market at very attractive discounts and we are actively seeking the right deals to pass on to our clients.


Good Timing – Buy Low, Sell High (Or don’t sell)!

It sounds obvious, but the secret of successful investment is all about good timing. Buy low and sell high, the profit being as much in the purchase as it is in the sale. That’s why we have been so careful over the past years because with a rapidly growing market it is so easy to be sucked into the hype and end up missing the point. The point being that for most of us, buying property is not a game or a gamble.

Buying property as an investment represents the only viable way for us to achieve financial security and avoid poverty in old age. For this reason we take our responsibilities very seriously indeed and for this reason you can be sure that by using our services you will increase your chances of achieving your goals.

So we have not been surprised that the recent unsettling events in financial markets have not led to a downturn in interest in our services, quite the reverse. More and more people have been sensing that now is a good time to be out there looking for a property to buy as an investment because bargains are around.

Buy below Market Value – No, really below market value

Our main UK strategy has been to attract sellers who want to sell fast for whatever reason and to negotiate significant discounts to market value which we then pass on to our clients. In order to attract these sellers we have to advertise and market to them. Type ‘property wanted’ or ‘sell property fast’ into Google and you will see Choices comes at the top of the search results time and time again.

No surprise then that we are seeing a significant increase in these types of property enquiry. Given current market conditions we are able to negotiate even more favourable discounts, allowing our clients to capitalise fully on current conditions which may not last much longer.

Looking Overseas

Just as we have avoided over hyped UK city centre projects, we have also avoided over hyped overseas holiday homes. Instead we have identified emerging Eastern and Central European city centres as the property hotspots of the future and have been successful in identifying two significant opportunities so far with more on the way - watch this space.

Yours sincerely

Choices Acquisitions and Investments
01342 840000