According to the Royal Institute of Chartered Surveyors property prices will rise by 6 per cent this year due to lack of supply in housing. The Bank of England also forecasted that house prices will increase by around 0.5 per cent a month for the first six months in 2016.
These findings are music to the ears of property investors waiting for some capital growth on their current properties and those who are planning to enter the property ladder this year.
If you belong to the second group, I bet you’re asking- “Where should you invest your money this 2016 to maximise the benefits of this expected price growth?”
Should you consider London, perhaps?
Ed Stansfield, a property economist at the consultancy Capital Economics, claims that there will be 0 per cent growth for house prices in the capital this year.
While the rest of the country may enjoy rising property prices, this will not be the same for London because domestic issues aren’t the only factors affecting house prices in the capital.
Steve Keen from Kingston University points out that London is a global city that enjoys heavy investment from buyers in China, Russia, and Middle East. Thus, any movement with these foreign markets may have an impact to London property prices.
Despite these conservative outlooks, if you’re really intent on buying property in London, then better stick within the commuter belt like Reading. Savills predicts that properties within this area should rise on average by around 3 per cent.
What about the North?
Richard Sexton, director of the chartered surveyor e.surv, says the north is brimming with property hotspots for 2016.
In fact, 27 per cent of all housing approval was seen in Yorkshire last November and it’s expected to rise in the coming months. In addition, there are many cheap properties for sale in North-East, Yorkshire, and Humber compared to others areas- making it a definite property hotspot for first time home buyers.
Maybe it’s not the location..
The previous opinions tell us that location drives property prices, but what if the supply for these locations run out. Can you still buy into a property hotspot? Yes.
“Most investors pick up houses in hot spots to get capital growth, but little do they know that they’ll have to first spend money on capital, stamp duty taxes, and other costs before they can get the capital growth they want,” according to Rick Otton – an experienced property investor in the UK and other international markets.
That is why Mr. Otton prefers to redefine the term “hotspot”. For him, a hotspot is where you can buy a house with the best terms – e.g. with the lowest initial investment – which will then increase your chances of making a profit down the track.
“Rather than spending 50 or 60 thousand today hoping for capital growth that may or may not come, I’d rather look for motivated sellers and buyers in my area and help them create a win-win agreement which benefits all parties,” he added.
For those who have heard Mr. Otton speak on investing, his strategy is all about negotiating flexible terms. So for instance, the traditional model of payment is to shell out 10-20 per cent deposit for a house, and then you borrow the remainder from a bank. But not everyone can afford 10 – 20 per cent. But what if the deposit could be spread in 3 months? How about 6 months? How about a year? How many more people can afford the 10 – 20 per cent deposit? That’s just one example of flexibility. There are other forms of flexible payment terms, but you get the picture.
There’s no right or wrong strategy when entering the property market, but based on my experience it’s wise to choose a strategy that allows you to make a profit without spending too much money to get in. See you again in my next post!