A Question of Property - Ep 3 - Paul Mahoney, Stefano Lucatello & John Howard - Nova

A Question of Property – Ep 3 – Paul Mahoney, Stefano Lucatello & John Howard

Lucia France:

Hello everybody and welcome to A Question of Property, I’m Lucia France and joining me on the panel today we have John Howard, property expert of more than 40 years and author of three books on the subject. We also have Stefano Lucatello, senior partner at Cobalt Law, international property lawyers, and Paul Mahoney as well who is head of Nova Financial Group. So thank you guys for joining us. Good morning to you all. [crosstalk 00:00:32].

Lucia France:

Good morning, good morning. Okay, let’s get started with John, then. Your first question here today refers back to last week. So in [crosstalk 00:00:43] episode you intimated that you didn’t think the domestic housing market would it be that hard hit? Has your opinion changed since the economic forecast came out yesterday? And that’s for John.

John Howard:

I expect that, hi there, I expect their talking about the economic forecast from the government that said that the economy might shrink by one third. That’s what I expect they’re talking about. Well interestingly, I had a conference call this morning with all the people that work within my [inaudible 00:01:17]. And it was very interesting because we’ve hardly lost a sale during this downturn. So we’ve got sales that have agreed but haven’t gone through, and at the moment everyone’s very positive about coming out and wants to get on and carry on buying the property they’ve agreed to buy.

John Howard:

So I certainly think for the first six months or so, yeah, we’re coming at the right time of year, which is what I said last time. If we were in December, that might be different, but we’re going to be May, June, the sun’s out, people want to get on and move and I think that will carry us along for a while, but certainly that’s on the domestic side. On the normal house purchase, house, flat side. On the developing side and investment side, I think that could be very different and I think after six months everything’s going to get a bit tougher. Yeah, so I haven’t really changed my opinion at the moment is the answer to that.

Lucia France:

Right. Okay. So we’ll wait and see-

John Howard:

Ask me next week, it might change.

Lucia France:

Everything’s changing all the time at the moment, isn’t it-

John Howard:

It is. And we’re all looking at our crystal ball at the end of the day [inaudible 00:02:27].

Lucia France:

That’s right.

Paul Mahoney:

Yeah, and economics is all guesswork, isn’t it? There’s two sides to any economic argument. And just because one person has said this might be the economic outcome, it doesn’t really mean anything. And I think I mentioned it last week, in fact, generally the media has proven to almost always be wrong about these things.

John Howard:

Sure.

Lucia France:

Yeah, yeah.

John Howard:

May I also say the Bank of England, because if you remember with Brexit they said, oh, well, as soon as we voted out, everything was going to be a disaster, and it wasn’t at all. So absolutely right.

Paul Mahoney:

There was a mention of, I think there was a mention of a 30% half price drop following Brexit. And prices continue to rise.

Lucia France:

Yeah.

John Howard:

What do they know? What do they know?

Lucia France:

Stefano, any thoughts on that one?

Stefano Lucatello:

Well, I mean, my initial thoughts are that this period of isolation will continue for another three weeks at least. That takes us to probably mid-May. I think there will be a lot of people who will be putting their properties onto the market and as the usual adage goes, cash is king, and whoever’s got cash to spend, I think will be able to. I think we’ll find a glut of properties on the market in the next month or so. The people being desperate to sell, for whatever reason, whether they can’t pay the mortgage or whatever, they just want to get out.

Stefano Lucatello:

I’ve had a lot of people saying to me, I’ve had enough of this when this isolation finishes we’re all going abroad, which is great news for me as an international property lawyer. The market is still there. But I think, I hate economics, I’m a lawyer I deal with hard facts, and I wouldn’t want to say where we’d be in a month’s time. I think if we have this same talk in a month’s time, I think John’s views may be different. They may not be different, but none of us, I don’t think, can really know.

Stefano Lucatello:

And I don’t think the people who think they know, know either. At the top of the government, [crosstalk 00:04:22], they prognosticate and at the end of the day I think it’s just put the finger to the wind and hope that it’s in the right direction. Let’s see where we are in a month’s time. Let’s hope the markets are picked up. Let’s hope we’re out to these crises and let’s hope that, for everyone’s sake, that economics is picking up and [crosstalk 00:04:42] fight the battle.

John Howard:

Stefano, you don’t think my opinion has something to do with the fact that I’ve got 35 million pounds worth of property on the market at the moment. Do you by any chance?

Stefano Lucatello:

Possibly.

Paul Mahoney:

If we’re talking about there being two sides to the economic argument, Stefano mentioned he thinks there might be people selling off of this, but then there are people buying off of this as well. [crosstalk 00:00:05:05], it’s almost impossible to buy at the moment, and therefore there’s without doubt going to be some form of pent up demand on the opposite side of the equation.

Stefano Lucatello:

[crosstalk 00:05:15] said to you, Paul, I said that we had lots of the properties on the market. Next month, if we do the same talk again in a month’s time, we’ll find, I think, that the market will be flooded and there will be a glut of properties on [crosstalk 00:05:26].

Paul Mahoney:

No, but I’m saying the opposite, Stefano. You’re saying there’ll be a glut, I’m saying there’ll be a glut of demand, which will soak up that glut.

Lucia France:

Yeah. Well, like we say, none of us are fortune tellers. I think we’ve [crosstalk 00:05:39], so we’ll just have to wait and see on that respect, but Stefano talking about people moving abroad after all of this isolation situation is over. Your question here today is from somebody about to go to Italy to see a plot of land that the owner says they can build a house on. They say, “I want to build a kit house on a plot of land. What do I need to do to make sure that I can build the kit house on the plot of land I have seen? And secondly, once I’ve done this, what are my rights to stay and reside in Italy permanently?” So, advice there.

Stefano Lucatello:

Well, let’s take the second part first, which is what are your rights? It all depends when this guy decides to move across. As it stands at the moment we’re in a transitional period, deal is being done, and if you move between now and midnight on the 31st of December, 2020, being in the transitional period, nothing will change. We are, although we’re out of Europe, we’re still in the transitional period, which means [crosstalk 00:06:38] we have all the benefits that we would have had had we stayed in the European Union.

Stefano Lucatello:

So for the moment, all he has to do is go across there, register with local police, if his intention is to stay there for more than three months, which it is, 90 days, get his residency. And if he does that before the 31st of December, he will accrue European Union rights and he will not be disadvantaged in any way, shape or form in whatever is agreed after the 1st of January, 2021.

Lucia France:

So before the 31st of December this year he can be an EU resident.

Stefano Lucatello:

Yeah, there’s no problem. He will take with him EU rights as they currently stood until we came out of the European Union, theoretically. We’re not out, we’re in the transitional period. After the 1st of January, 2021, I don’t think any of us knows what’s going to happen. We believe that things won’t change too much, except for the procedures and the paper applications that one will have to go through to actually get what you can get now much more easily.

Stefano Lucatello:

But bureaucracy being what it is in France and Spain, especially in Italy, it’ll take its time. But my advice to the guy is to move before 31st of December this year and to apply for residency, if you can’t move permanently, but to apply for residency, do the application. So that he brings with him his current EU rights. With regards to the other bit, nice question, kit houses. Becoming much more popular nowadays because of the cost of building, and the fact that the people in Estonia and in Germany they have some fantastic kit building companies that have done very, very well for themselves and they’re selling at great prices.

Stefano Lucatello:

So ideally you find yourself a plot of land and then you get the guys to come and plop the kit house down for you. The things that he needs to understand, the due diligence, he can’t just go out there and plunk a house just because it was a kit house, because it will be a permanent structure. Because it will be embedded into the ground so it will be a permanent structure. So the first thing, he needs to turn it upside down, literally. He needs to go out there, and just because this guy said to him that he can put his house there because it’s a kit house, it doesn’t mean anything.

Stefano Lucatello:

The law is, in Italy, that you have to go out and make a planning application. The first thing to do is to do a search on the land and to find out whether the land actually is residential land, and whether a house can be built on it. So the first thing he needs to do is do a search, see what it says. Then make an application, a preliminary application, to the planning authorities in the area and see what they say. Then go with the plans. Because it’s a kit house, he will already have his plans from the makers, so he can go along initially with those kit plans and say, “Look, this is what I intend to put on the land. What do you think about it?”

Stefano Lucatello:

They will then say yes or no, hopefully yes. If they do, then he’ll have to go for a formal application, a formal planning consent, and a [foreign language 00:09:34], a certificate of urbanization, which gives him the planning permission to do whatever he wants to do, and he will then have five years from the moment he’s granted to do it within which to do it. He’ll then have the equivalent of a building inspector coming out to see him and he will then certify that everything’s being done in accordance with the rules and the plans.

Stefano Lucatello:

And then he will be given the permission, everything will be done and dusted, and that will count for the future. The kit house will come with 10 years of guarantee, almost like our NHPC agreement that we have in the United Kingdom. The maker and the builder will give you a 10 year guarantee as to any major or minor, two years for minor, 10 years for major defects. So it’s very, very good. But the main thing to do is not just arrive there with a kit and plunk it on a piece of land just because he thinks he can do it. He needs to turn it on its head and do all the usual due diligence.

Lucia France:

[crosstalk 00:10:25] going back to the original point about the residency, do you think that there will be any extension to that as a result of the Covid-19 situation?

Stefano Lucatello:

Well, people are debating at the moment whether this is something like force majeure, which is something out of our control, and therefore people will have to extended periods of time. I haven’t heard anything official from any government or authority that the period, the transitional period, will be extended in any way, shape or form.

John Howard:

Can I jump, yeah sorry, can I just jump in there? A couple of things, one is that what I’ve been told, and I haven’t got the ear of the government certainly of course, but I’ve got the ear of one or two MP’s and bits, and I’m being told that there is no way Boris is going to extend the deadline. They’ve got the deal, that’s what what we’re offering, if they don’t like it, we’re out. Which is probably a good thing [crosstalk 00:11:24].

Stefano Lucatello:

I don’t think you’re going to get any extension whatsoever. I don’t think we’re going to get any extension whatsoever. I think Covid is not somethings that will come into the pot for an extension. I think what will happen is, as John says, 31st December will come, we’ll go in and that’s it. 1st January, 2021, there will be a new set of rules. It’s interesting that each country, Italy, France, Spain, and Portugal, are each taking slightly different views.

Stefano Lucatello:

Spain is being exceptionally detrimental towards any Brit who it has, in the last two months, be making application for an NIE number, the alphanumeric code which you need, tax code which you need to be able to buy a property in Spain. They’ve stopped issuing them for the last 10 weeks and it’s impossible now to do anything and English people who want to apply are being physically refused application time. Any other country, and we’ve tried this out with an EU person from Italy who went to Spain, she had no problem whatsoever. It’s just there is a physical ban against processing anything from the United Kingdom at the moment.

Lucia France:

Wow. So just out of interest, if somebody does have an NIE number already then, does that mean their residency [crosstalk 00:12:38]

Stefano Lucatello:

You’ve got to remember that the alphanumeric code in whichever country of Europe you apply in, and once you’ve got the alphanumeric code, it means that you are on the tax system for that country. You can do whatever you like. It’s a lifetime number, so nothing changes. Once you’ve got it, you’ve got it.

Lucia France:

Yeah. Okay. Great. Right lets move on-

Paul Mahoney:

[crosstalk 00:12:56] nations disagreeing with each other, that’s no surprise is it?

Stefano Lucatello:

They all have different interests to guard, Paul.

Lucia France:

No change there. No change there. So Paul, we’ll move on to your first question for today. “Paul, I’ve been watching your webinars and enjoying them very much. Do you still …” [crosstalk 00:13:13], that’s good. “Do you still think that purchasing up in Manchester will be the right thing going forward? Or will you be looking at other areas of the country as well?”

Paul Mahoney:

Okay. Well, thank you for watching the webinars and I’m glad you’re enjoying them. I don’t think anything … I assume they’re referring to the current situation or whether that’s changed, where is a good place to invest? And I don’t think too much has really changed with regards to the markets or what’s a sensible approach to the market? We consider the whole of the UK, we’re not married to Manchester in any way, shape or form. We like certain parts of Manchester for property investment, the same way as we like other areas like Birmingham and Liverpool.

Paul Mahoney:

And I suppose they’re probably the three main cities we’ve predominantly been focusing on, but not because we’re tied to those cities, just because they have strong fundamentals so far as what drives positive growth and change in a property market. But also just livability, gentrification, et cetera. So I don’t think anything’s changed. I think we talked specifically about Manchester, central Manchester has gotten very expensive. If you go back four or five years, we’ve had some properties that have grown in value by about 60, 70% in that timeframe.

Paul Mahoney:

Which is great if you bought them back then, but not great if you’re trying to buy now in central Manchester at 450-pounds-plus a square foot. In our view, that growth won’t really continue in those central areas. But there’s more cost effective areas very close by. You can go 500 meters away and save yourself 20% in cost. So still very much offering the facilities and amenities that that young, professional target market wants, and just a short distance away.

Lucia France:

Yeah. Sorry, John?

John Howard:

Sorry. I was just going to butt in and say what’s wrong with Ipswich?

Lucia France:

Who said anything was wrong with it?

John Howard:

[crosstalk 00:15:30] certainly less than an hour on the train from London now.

Paul Mahoney:

Oh God. There’s nothing wrong with Ipswich. But [inaudible 00:15:38] about places like Ipswich, for example, but of course there’s nothing wrong with Ipswich. But my argument would be, when you can invest in a large, major city, central location that has a very broad range of industries and employment facilities, amenities. Billions of pounds being spent on infrastructure, why would you not invest there versus Ipswich, for example? Where I’m sure there’s money being spent.

John Howard:

I can give you a few good reasons, Paul, to be honest with you.

Paul Mahoney:

I’m sure you probably can, John. But in my mind, investing is unemotional and commercially minded. And of course Ipswich, it probably is a great place to invest, but if I was comparing it to everywhere else in the country, being honest with myself, in my view, there’s safer investments, I suppose it would be my take.

Stefano Lucatello:

[crosstalk 00:16:31] John, the north has always been cheaper. I come from [Hull 00:00:16:36], if you were investing in Hull, I don’t know if you’ve invested in Hull, Paul at all.

John Howard:

I haven’t. [crosstalk 00:16:43] in The Avenues many years ago.

Stefano Lucatello:

The Avenues are fantastic.

John Howard:

Yes, very nice, that’s the only in Hull you want to invest in, in my view. Can I just also say, by the way … May I just say this, that TripAdvisor, they’re a massive company, they disagree with you, Paul, because they put Ipswich in the top 25 places to visit in the next six months. So there you go. In Europe. In Europe, that was.

Lucia France:

I think in the next episode we need John Howard’s top 10 reasons to move to Ipswich please. I think [crosstalk 00:17:13]. So you’re just basically saying, Paul, that the bigger cities are always going to provide that kind of stability in terms of your investment.

Paul Mahoney:

Well, I suppose what we look for generally is not just upside but also risk mitigation. So I think there is safety in centrally located, desirable properties. Because there’s always going to be a reason for people to want and need to live there, regardless of the size of the economy. And it’s quite relevant to our current scenario because everyone’s getting scared by these economic numbers that are being released and what impact is that going to have?

Paul Mahoney:

My take on that is if you’ve got a centrally located, desired property with all the right facilities and amenities around it, and therefore there’s very strong reason people want or need to live there, you’re going to have a tenant. So you don’t have to worry. There’s nothing to worry about. Even if the price of your property dips slightly, it doesn’t matter so long as you’re investing for the mid to long term, you’ probably still likely to do very well.

John Howard:

I think, Paul, your point about big centers with lots and lots of population in quality locations within that, it’s got to be the right. It’s got to be right, isn’t it? Ultimately, yeah.

Lucia France:

Okay. Thank you very much guys. Okay, we’ll go back to John now for your second question. This might be the last one for today, for this episode though. This person has just got planning permission to start building a pair of semi-detached houses. “Should I start work now or wait until things look a bit clearer?” Again, I’m assuming referring to-

John Howard:

Yeah, I mean it’s a difficult one because it depends whether they’ve got all the funding or … If they’ve got all the funding and they’re committed because they bought the site, then you could argue it’s two semi’s. It’s not the biggest development in the world, is it? So you could argue, well, if they build the two semis out and something does go wrong, because they’re semi-detached houses, they’re not like a big development. So because they’re two semis, if you can’t sell them, they could rent them.

John Howard:

So in a way, it’s a pretty safe thing to continue with, I think I gave some advice, last week maybe, and said, “Look, if you have to start a development, don’t. Wait.” But that was more to do with people who have got a big … Perhaps building six big detached houses or something like that. But if you’re doing two semis, you’re pretty safe. The market might go down a little bit by the time they’re built, but as long as you’ve done your … You bought them right and as long as you can build them at a sensible price and then rent them. If you can’t sell them you can rent them and it washes your face, as it were, then I would say continue.

Lucia France:

Right. Okay. And Stefano and Paul, any thoughts on that situation? Should you start building now or wait until things-

Paul Mahoney:

The only thing that crossed my mind is the logistics of actually starting building now. Are you going to have the staff on site? Are they’re going to be willing to leave home, given the current scenario? That’s something that you need to think about.

John Howard:

Paul, what I would say is, with three weeks, probably, off coming out, maybe four weeks coming out, it takes time to set the site up and get going anyway. I would be more concerned about getting the bricks because most of the bricks … I learned this from Stefano, come from Italy of all places, bricks do. I didn’t know that. [crosstalk 00:20:43]. I didn’t think they did anything, apart from tourism, but clearly they do.

Lucia France:

Well, Stefano?

Stefano Lucatello:

Well there’s not more you can say to that is there, really?

Lucia France:

No. No

Stefano Lucatello:

They’re famous for Italian wine, pizza, fantastic women and bricks. Yes. Yeah, my view is that because of social distancing, and I haven’t kept my ear, I’m more afraid with what’s happening in Spain and Italy, than I am what’s happening on our own construction industry, I have to say for obvious reasons. But my expertise lies more in international property than English property. But I’m not sure. I mean, where are we with the construction sites? Are we able-

John Howard:

They’re allowed to be … Construction can carry on at the moment. It’s never been closed. Some that have closed sites, have closed mainly because, I think, of getting the building materials [crosstalk 00:00:21:31].

Paul Mahoney:

Most of the big sites we’re associated with have stopped. Most of the large scale sites we are associated with have stopped. Whereas it seems the smaller ones are still going.

Stefano Lucatello:

I mean one interesting, one closing thought on it, as a lawyer, is that there has been a lot of debate by construction. I was listening to a webinar yesterday from a construction law firm. There’s been a lot of debate as to whether we are now in a situation of force majeure, and what force majeure may do to building sites. Whether force majeure being something, an event which happens, which is totally out of your hands. You have no control over, which stops you, or theoretically stops you from continuing with whatever … fulfilling the contract, whether it’s a building contract or whatever.

Stefano Lucatello:

So there’s a lot of debates in the marketplace at the moment as to whether the big people, like [Langues 00:22:17] and all the others, are claiming force majeure because they are unable to proceed. Not because they don’t have the manpower, but because they don’t have the kit to do it with, so they don’t have the bricks, as John says, and the cement and all the other bits.

John Howard:

That’s really interesting because obviously these, especially these big contractors, they are sharp as hell. If they can get out of a timescale for any reason at all, they will do so. But interesting. If you take that a little bit further, does that mean that, potentially, you could argue the same with a bank on the interest or not?

Stefano Lucatello:

Well, it depends what your contract with the bank says. Your borrowing terms say with the bank. I would think that … I wouldn’t have thought that Covid-19 would factor as an event of force majeure. I mean, under English law, force majeure is a French concept, is a civil law concept, and it came into English law many years ago. But unless your contract says that force majeure can be an act which stopped … can be applicable because of an intervening act, you can’t apply force majeure. You can have a doctrine, what’s called frustration. Frustration of a contract, but you can’t have force majeure.

John Howard:

I thought I’d give it a try, thank you.

Lucia France:

Well that has cleared that up for us, guys. Thank you very much for this episode. We’ll bring that to a close now. If you have got any questions that you would like to ask any of our panel here today, then you just have to email, ask@aquestionofproperty.co.uk. That’s ask, A-S-K, @aquestionofproperty.co.uk. So, John, Paul and Stefano, thank you so much for your input today and we’ll see you for the next one.

 

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