Property Summits Online - Episode 2 - Nova

Property Summits Online – Episode 2

Our M.D. Paul Mahoney is a regular panel member of this popular discussion event.

 

Marie Parris:

Hello, my name is Marie Parris and welcome to part two of Property Summit, where we’re going to be talking about looking forward to 2021. We had previously spoken about what we have done in 2020. On my left. We have Richard Bush, John Howard, and on my right, we have Tony Gimple, Nicholas Wallwork and Paul Mahoney on live link, from Australia.

Marie Parris:

So looking ahead for 2021. Out of adversity comes opportunities. So Nicholas, I’m going to start with yourself. What do you think is going to be the main property opportunities and strategies of 2021?

Nicholas Wallwork:

Yeah. Good question. I’m sure there’s quite a few and I think it depends on your own experience, what you consider to be an opportunity. Our primary business is property development and specifically conversions. So we’re looking forward to seeing some good, new, fresh stock come to the market. In a kind of unfortunate way, there will probably be more offices available, some out of the edge of the town center retail that would be appropriate for residential conversion, and quite a lot of fresh stock.

Nicholas Wallwork:

We’ve had the permitted development rights in, for a good few years now. And that’s meant that a lot of the existing offices, the really ones ripe for conversion have already been snapped up and developed. So actually stocks are kind of a little bit low on the conversion side and it’s got quite heated in recent months, as that stock is gone away, basically it’s been snapped up. So what we’re looking at now is, hoping for, more lovely lush stock coming to the market that’s right for a residential conversion. So that’s what I’m looking out for.

Marie Parris:

Okay. What do you see one of the strategies generally for 2021?

Nicholas Wallwork:

I mean, I think the fundamental strategies can stay the same. I mean, it depends what market you’re in, you’ll know your market. And I’m not going to change our strategy, we feel we’ve got an excellent strategy. We build equity into our buildings, we’re being property developers, we’re adding value. I think, key to any strategy is adding value. So I’m going to continue to do that by developing old rundown buildings, offices, commercial buildings, into lovely new apartments, adding value. And that value will give you more buffer if the markets do have a little dip, some people are predicting. I think there will be a little dip, but I think we’ve got a really strong year ahead. So, it remains to be seen how unemployment effects things, but…

Marie Parris:

What sort of dip do you think that we’ll have?

Nicholas Wallwork:

Well, I think it’s going to be regional dips, personally. I think overall my gut feeling is the sort of average price in the U.K and in strong areas, areas with good transport, good employments and a diverse business, big business areas, those will do well and increase the most, but I think the average is going to go up slow but sure. I don’t think we’re seeing a boom and I don’t think we’re seeing a massive overall dip, but I think there will be regional dips where there’s specific industries that have been hit by COVID.

Marie Parris:

So nothing is massive as 30, 40% is what?

Nicholas Wallwork:

No, I don’t believe so at all.

Marie Parris:

Okay.

Nicholas Wallwork:

Not at all.

Marie Parris:

John, what do you think?

John Howard:

Well, thank you for asking me next, because I’m going to take Nicholas to task a little bit in what he said. Do you honestly believe Nicholas, that the property market in the U.K will not have any downturns in any areas next year?

Nicholas Wallwork:

No, definitely there will be regional downturns.

John Howard:

Okay.

Nicholas Wallwork:

And I was being probably specific to short-term market, 2021 where sort of, is the theme of today, of the show.

John Howard:

Yes, no, is. Yeah.

Nicholas Wallwork:

And I think it’s going to take a bit longer for any recession to kick in, overall as an average, kind of price.

John Howard:

You don’t think when the Chancellor Exchequer says what he said, that we haven’t even started the recession yet.

Nicholas Wallwork:

Well, exactly, it’s not going to start in the first part of 2021.

John Howard:

I think he meant the other day.

Nicholas Wallwork:

The other day.

John Howard:

I mean, I’ve been survived three property recessions, and this is very different I accept that too, to any others that I’ve been involved in. And I cannot see-

Marie Parris:

How does it differ John?

John Howard:

… Sorry.

Marie Parris:

How does it differ?

John Howard:

It differs because in the past, and Tony and Richard will bail me out I’m sure. I mean, in the past there’s been an economic disaster or which of is this time, to be fair as well, but there’s been, this time there’s no lack of lending, there’s no lack of borrowing, which I think has a big effect. Secondly, this time round, there are so many people that want to get into the property market. And that’s the difference between when I started 40 years ago now, is that the demand and the interest in property that, that’s why we’ve got property summits. There’s so much interest and demand, and it’s very important that these people get the right education, and the right advice, depending on what they want to do. So it is different. It is very different, but what I’ve seen the market drop 30, 35, 40%.

Marie Parris:

And how long did it take to recover after that?

John Howard:

It takes probably three years to recover, [crosstalk 00:05:31].

Richard Bush:

Some areas still haven’t recovered.

John Howard:

And in some you could argue, I mean, just, we haven’t going to go back too long.

Richard Bush:

Since 2008. Yeah.

John Howard:

2008, 2009, I’ve got properties that aren’t worth as much as they were in 2007 now. Still, and I need to know what I’m doing.

Nicholas Wallwork:

Would you argue as a general rule that your comment about sort of they’ve lent 300,000,000, that’s got to have an effect?

John Howard:

Got have an effect, doesn’t it?

Nicholas Wallwork:

Isn’t the chancellor, isn’t the government just going to hide that away within flight?

John Howard:

All right, I’m-

Nicholas Wallwork:

It’s not going to help property investors to have true assets, they’re printing money, massive inflation, is not going to help property investors, they’ve got that sense.

John Howard:

… I would agree with you this time round, they’re not going to do what they did 2009 onwards to 2017 [inaudible 00:06:12]. I can’t see them doing that, they never learned, really, that was very tough. And I think, the present Tory Party are very different to the one before. So I think you’re right. I think it’s going to be spread over a much longer period of time.

Nicholas Wallwork:

I totally agree with you.

John Howard:

And maybe some someone of my age may not need to worry about it. You need to worry about it. And Paul does that.

Marie Parris:

Richard do you think interest rate is going to go up, do you think? I mean, we’re going to have to at some point, and that’s going to be a real crunch for a lot of people.

Richard Bush:

Personally, I don’t think they will for a few years. I mean, they’re globally low and globally the issue is pretty well the same. And therefore I imagine they’ll keep them low globally, so that we all recover at the same rate. One of the things that I think is different now to 2008, nine is-

John Howard:

Or 1990, or 1986.

Richard Bush:

All the other, going back to your first recession in the 30s, the difference is, this is, it happened very quickly and there’s potential for the recovery to be very quick. And that’s what they’re hoping, isn’t it? That it’s going to be a sort of V-shape recession rather than a U-shape recession. And I personally think that that is what will happen. The businesses that are suffering at the moment are low capital businesses, they’re shops, they’re restaurants, they’re cafes, and they will recover, and they will recover, I think quite quickly. So I personally don’t see that the reaction to this is going to be interest rates. The reaction is going to be-

John Howard:

Sentiment.

Richard Bush:

… a slow, continued investment, and we will recover. And I think we’ll recover quite quickly. There will be unemployment, but I think it will come back quite quickly.

Marie Parris:

But cash is king. So if you don’t have cash to circulate and you can’t sort of deal with the debts that you have, you’re eventually going to go under there, aren’t you?

Richard Bush:

As a business and as a country?

Marie Parris:

As a business.

Richard Bush:

Oh, of course. Yeah. That’s true. But, businesses have had support that they’ve never had before.

John Howard:

But it’s got to be paid back.

Richard Bush:

It’s got to be paid back, but it’s the time to pay back is quite long and the interest rate on it is quite low. So actually I think a lot of those businesses, some of them won’t recover, but a lot will.

John Howard:

I mean, you have survived a few recessions like me. So do you, as Tony has, the more experienced one of is in terms of age, we’re used to interest rates of 10 or 12, 15% and all sorts of nasty things that happened. And you clearly don’t think this time round, it’s going to be like that?

Richard Bush:

No.

John Howard:

No.

Tony Gimple:

No, right.

John Howard:

No. And I have to say, I’m now thinking less so than I did early on in the year, that actually next year is going to be okay. I can’t see any increases in values. And I think London is very vulnerable.

Richard Bush:

Yeah.

Marie Parris:

Paul, let me bring you on that. What would you say?

Paul Mahoney:

Look again, I think your take on this and how sort of bullish or bearish you’re going to be about it, depends on what your strategy is. And I think I can see why John has the take that he has, because John does deals, he’s usually in and out of something within, I wouldn’t… Correct me if I’m wrong, John, but a few months to a couple of years, you try to get in and out of a deal, usually, unless [inaudible 00:09:24].

John Howard:

I hope so, but not always.

Paul Mahoney:

Yeah. If that’s your strategy, you need to be pretty confident in that six to 18 month period. And if things go wrong, you lose your shot. But, what we do as a business is much more mid to long-term and therefore it really doesn’t matter. All of this doesn’t really matter when we’re talking mid to long-term. Brexit, COVID, they’re short-term speed bumps. And, I quite often get asked, can you make money in the short-term, in a market like this? And absolutely you can, but it comes down to the individual properties in individual locations where you are buying, because some areas will do really well, even in a bad market. Because of specific driving factors to that property and location, such as new infrastructure, gentrification, all sorts of things that can happen in locations, even if the overall U.K property market is going backwards.

Paul Mahoney:

And I think that’s, what’s a little bit silly, is you quite often hear people commenting on, well, what percentage is it going to go up and down by this year, the overall market? Because we don’t invest in the overall market. We invest in, most of us anyway, individual properties in individual locations. And if you pick those really well, you can still do well. And therefore, I got asked yesterday, for example, by a client, “These numbers that you’ve run for me, they don’t seem to account for any COVID or Brexit dip.”

Paul Mahoney:

And I said, “Well no, that’s not true, they do, because we’ve run it at 5% growth, projected 5% growth per annum on average, over a 10 year period. So even if there is a dip, which no one knows if there’s going to be, or there isn’t, but if there is, let’s say there’s a 5% dip next year, you’ll make that up over the next three to five years and some.” So I suppose, from a buy-to-let perspective, good properties in good areas with good driving factors and a focus on rentability in the short-term, so long as you’ve got a tenant you’re safe.

Paul Mahoney:

The conversation around debt and the cost of that debt increasing, we need to remember we’re in a historically low interest rate environment, debt is never been so cheap as it is now. So even if the cost of that debt doubles, historically, that’s still a low interest rate scenario. So-

John Howard:

Yeah. I mean that-

Paul Mahoney:

… it’s still quite affordable.

John Howard:

It is.

Paul Mahoney:

And is-

John Howard:

What you’re saying Paul is absolutely right for your type of investor.

Marie Parris:

For buy-to-let.

John Howard:

For the buy-to-let type of investor, I don’t disagree with that, a bit boring. But I don’t disagree, and we’ve said this on many occasions, but for sort of the sort of deals that I do where, I’m looking now for part finished development, which I’ve just bought in Birmingham, other sites that are part finished where the bank have gone bankrupt. And by the way, one or two small banks are going bankrupt already, and some developers are going bankrupt. So, this is my jungle if you like, and this is where my eyes light up, because I can make more money, myself and my investors in a difficult market than I can in a hot market. Because in a hot market, anyone can do it, it’s easy. In a difficult market, a challenging market, the experience that I’ve got and other people around this table have got, comes to four.

Marie Parris:

So how would you help, let’s say a investor who’s perhaps bought some properties, went on to develop a few flats, probably four flats in a house. They now have some land and they’re thinking about building on that. What sort of advice would you actually give them? Because I know that you have got lots of connections and your funding is really great. Not other people have that sort of access to that. So what sort of advice would you give to somebody like that?

Tony Gimple:

Before you answer that John, can we stop using the word investor?

Marie Parris:

Okay. What would you like me to say.

Tony Gimple:

Wel, we’re running property businesses? John’s a property developer, it’s his full-time job. Richard is effectively funding businesses. Nick is developer, landlord, he’s running a business, he’s not just investing in it.

Marie Parris:

You’re going on semantics a bit. For me-

Tony Gimple:

No. It’s-

Marie Parris:

… For me, I have to say though, if you’re doing buy-to-lets, whatever, a business, what is a business? A business is solving a problem for a profit.

Tony Gimple:

… Yes.

Marie Parris:

So if I’m using that term, but what’s your point, I mean, that you want to make?

Tony Gimple:

I think the point is if we are as an industry, moaning about how we get treated, particularly by various Exchequers, for tax purposes, treating us as passive lazy investors, living off other people’s rents. If we keep using that term, investor, as opposed to professional property businesses, with them we can’t expect to be treated as a business or to be taxed as businesses.

Richard Bush:

The two things aren’t mutually exclusive, you can be an investor and a business at the same time.

Marie Parris:

Yes. I agree.

Tony Gimple:

Correct.

Richard Bush:

I’m going through with the word in the first-

Marie Parris:

Yeah.

Tony Gimple:

Yeah. At the end of the day. When we come out of and we will come out of COVID, and there has been a reset, people have realized what’s important to them as individuals, hence why, we’ve seen a lot of pickup. There’s a lot more humanity out there than there ever was. And the beauty about living in a broadly liberal democracy is we can influence a political agenda and to a degree we can influence how we’re taxed. So yes, one can invest in a business, but being at a business as opposed to just checking money at stocks and shares are two very different things. And, in our constituency, in our audience, yes, there will be some really passive investors, balancing and diversification, but the vast majority, I think of the people we talk to, whether it’s buy-to-let, whether it’s development, what have you, want to build a long-term business for themselves, for their families, for the next generation.

John Howard:

I think that’s right, Tony, but what I would always, and we always say this, whether you’re a more passive investor with Paul saying on buy-to-lets over the next 20, 25 years or whatever, it is a business and you can lose money if you don’t do it right. This isn’t for the faint-hearted, none of it is for the faint-hearted. And in terms of property developing, it’s all about risk and reward. How much risk are you willing to take? How you can negate that risk by knowing, by having the experience to know, to set the deal up, like we said last show, “Set the deal up right in the first place to avoid the pitfalls that can happen, and anticipate what the market is likely to do, and make sure that you are an out before you have an in.” I want at least two, if not three outs at the moment before having in, because I don’t know what the market is going to do. So I want to have a bigger margin than I would normally have.

Marie Parris:

Right.

John Howard:

And I want to have at least two, possibly three outs before I’m in. And if I can do that and I know what the worst scenario will be, then I’m happy to still trade in this market, but it’s a dangerous game to be trading in a market that you don’t know where the bottom is, dangerous. And it’s really only for the experienced people to be involved in it, in my view, when you’re trading and developing. And I see, the biggest worry I see with people who I speak to, is they have no fear, they see no danger.

Marie Parris:

Right.

John Howard:

And that scares me and worries me. So I’ve got these joint venture people come to me now, people who want me to invest in their deals, which is something we just started doing. And I see no fear, no danger. They see no danger.

Marie Parris:

That puts you off them, because-

John Howard:

And that worries me. It worries me. There is danger everywhere and you should be fearful, and they’re not. And that’s dangerous.

Marie Parris:

… Does that not just come with experience though?

John Howard:

You can argue that comes with experience, but people think,

Marie Parris:

because we are property developers, we’re investors, developers, whatever you want to call us, we take big risks. We don’t take big risks, at all. Paul takes no risk at all in his game. We take some risks, Richard takes some risks.

Marie Parris:

Paul is sitting happy in Australia.

John Howard:

He’s sitting happy in Australia. But the risks we take are controlled risks and the odds are stacked up in our favor. We’re not blindfold walking across the road, bang, that’s not going to happen, because we’re organized, we’re disciplined, we know what we’re doing.

Nicholas Wallwork:

The key thing John as I know is about having a plan, A and plan B, and a plan C-

John Howard:

Absolutely.

Nicholas Wallwork:

… before you go ahead and-

John Howard:

In a difficult market we’re coming into.

Nicholas Wallwork:

… Yeah.

John Howard:

Very important. Be cautious.

Marie Parris:

Okay.

Paul Mahoney:

I think it’s important just to provide a little bit of clarity there John, there’s definitely still a little bit of risk in buy-to-let property investment. And people need to be aware of that too. So to say, “There’s no risk in it,” is the wrong thing to say, but I get where you… There’s a bit of exaggeration in the terminology you use there.

Marie Parris:

So Tony, I read something recently, I think that you had written and it’s following on from what you said previously, that you do feel that they should be some sort of landlord rebellion, standing up to the government. Were you serious about that?

Tony Gimple:

Yeah. I am serious about that.

Marie Parris:

I mean, because we do seem as though we’re getting a bit of a raw deal, especially the majority of investors, business people who have, two, three properties, four properties, whatever.

Tony Gimple:

The private rental sector provides a massive amount of homes for people who either need to rent or want to rent, everything from people who are running social businesses, halfway houses, people who are dealing with refugees, people who run properties, those who have falling out of the nets somehow, through to co-living, HMO’s, student accommodation. And why should we be treated as living off somebody else’s fat? We’re not. If you lookup how much is put in to property businesses, how much risk is taken, how much revenue, direct and indirect is collected, suddenly, to treat us as some kind of pariahs and parasites is wrong. And it’s about time the sector had one real voice, and stopped being passive about how it’s treated.

Tony Gimple:

I mean, in essence, if you were in buy-to-let, and you’re taxed on your turnover. Not on your profits.

Marie Parris:

Which is totally unfair.

Tony Gimple:

It’s totally unfair. It is the only business in the world-

Marie Parris:

Absolutely.

Tony Gimple:

… that’s being treated like that.

Richard Bush:

But Tony you’re not contradicting yourself, on the one hand, you’re saying that if you’re a property investor, you should treat it as a business and run it as a business.

Tony Gimple:

Business. Yeah.

Richard Bush:

And the tax changes were to say that if you own a property, you should run it as a business and pay tax like a business would?

Tony Gimple:

Yeah.

Marie Parris:

But he doesn’t make the rules?

Tony Gimple:

No.

John Howard:

No.

Richard Bush:

No.

John Howard:

No, he doesn’t make the rules. But, I mean, and again, I’ve had some, I won’t say is fan mail about this, because it wasn’t fan mail. Because I’ve said, “Look, at the end of the day, I cannot see what’s wrong with the government, wanting everybody to be regulated and being put into a company,” because that way some people have abused the system, that’s the truth. They’ve abused it by not paying the tax they should do whether it’s a capital gain on a second home or third, or fourth home when they’ve sold them, or not pay the tax on rent. So I mean to change that, the government’s policy is to have in a limited company, any return that way they know what everyone’s doing. Now, I’m pleased about that, because I pay a lot of taxes every year. I’m pleased about that.

Marie Parris:

You do a lot of deals.

John Howard:

Yeah. Well, hopefully, but I’m pleased about that, because it puts everyone on the same basis that the professional is already on.

Tony Gimple:

No, it doesn’t John. It doesn’t.

John Howard:

Well, I disagree.

Tony Gimple:

No, it doesn’t. Because if-

Nicholas Wallwork:

If you cannot afford that advice, then you’re not on a level playing field, you could argue.

John Howard:

Or should you… If you own flats-

Tony Gimple:

… Well that’s-

John Howard:

… then you should be able to pay the advice, to be honest with you.

Marie Parris:

Oh, I think that’s a little bit harsh.

Tony Gimple:

Yeah.

Richard Bush:

But if he really has a business, you should be paying tax on your [crosstalk 00:23:17].

John Howard:

Exactly.

Tony Gimple:

… Yeah. Yes. But they don’t treat them the same way. John is trading in business. So he’s fully treated as a trading business, particularly when it comes to inheritance tax, he gets business relief.

John Howard:

Most of those companies just hold stock.

Tony Gimple:

All right. But you’ve got a land bank, which again, is simillary treated. If all your limited company is doing or in the main is collecting rent for 12 months or more, on the one hand, you’re treated as a company. So you pay corporation tax and ROI, and all the rest of it, dividend tax. But when it comes to inheritance tax, you are treated as owning an investment business and you do not get business relief.

Tony Gimple:

So you’re either a proper business, a proper company, and get treated exactly the same way as the corner shop. So either you-

Richard Bush:

Then Tony is not what you should be campaigning for though, is that the businesses are treated-

Tony Gimple:

Equally.

Richard Bush:

… Like businesses are treated equally.

Tony Gimple:

… Absolutely.

Richard Bush:

Not that we go back to the point where-

John Howard:

That is the campaign.

Tony Gimple:

That’s also the campaign.

John Howard:

And I will support that campaign 100%.

Richard Bush:

… Absolutely.

John Howard:

Absolutely right.

Tony Gimple:

Yeah.

Richard Bush:

Yeah.

Tony Gimple:

Yeah. There has to be-

John Howard:

Absolutely right. Yeah.

Tony Gimple:

… As opposed to the way-

John Howard:

Level playing field.

Tony Gimple:

… A level playing field, as opposed to the bear trap that Georgia Osborne’s set up, which is a very good way if the current chancellor actually wants to, and doesn’t need us to tell him that we’re not putting ideas in his head, he’s smarter than all of us combined.

Nicholas Wallwork:

Yes. He is.

Marie Parris:

How do you think things are going to the domestic market going forward, then? Next I’m going to talk a little bit beyond the next 12 months, where would it be?

John Howard:

Well, I’m slightly biased because I’ve got some [inaudible 00:25:20] agencies as well. I see the domestic market being, okay. I see it’s two different markets. I see it’s the domestic market where if you want to move home, move home. If you already own a home, actually buying a more expensive home at a discount, you’re better off. And if you haven’t got a home and it’s where you want to live, or your home, isn’t a business, your home is where you want to live and relax, and enjoy yourself. And actually, I don’t think it makes any difference at all going forward domestically. And I think the domestic market will be okay. First-time buyers, the government obsessed, rightly so, with getting people a housing ladder, because they know, that if someone owns their own house, they’re far more likely to vote Tory than they are Labor, that’s what’s it’s about. Home ownership.

Marie Parris:

Do you see [inaudible 00:26:07] being extended, being on the 31st this month?

John Howard:

I see, [inaudible 00:26:10] doing us all a favor and may change it slightly, but I don’t think that they’ll get rid of the holiday. I believe that will stay in place in some shape or form. I think they’re going to bring in a 95% mortgage for not just first-time buyers, I think they’re going to subsidize it in some way. Nationwide now, I think they’re now doing 90% mortgages again. So I see the domestic market being okay.

Nicholas Wallwork:

Not just for first time buyers as well.

John Howard:

Not just for first time buyers.

Nicholas Wallwork:

As in buy-to-let [inaudible 00:26:39].

John Howard:

So I’ve been told. Yeah. We’ll see. Maybe I’m wrong, we’ll see.

Nicholas Wallwork:

I don’t see that.

John Howard:

But-

Marie Parris:

No?

Nicholas Wallwork:

I hope I see that.

Richard Bush:

And occupiers-

Nicholas Wallwork:

But I don’t think so.

Richard Bush:

… but they won’t be in buy-to-lets, I don’t think.

John Howard:

No in buy-to-lets.

Nicholas Wallwork:

Not buy… All right, did you mean, second home, or what was it?

John Howard:

I mean, yeah.

Nicholas Wallwork:

Okay.

John Howard:

So what I’m… Yeah, I mean, home ownership.

Richard Bush:

We we’re moving to-

John Howard:

Yeah, moving into a second home. We’ll be able to get nine to 5% in [inaudible 00:26:59].

Nicholas Wallwork:

I got you now.

John Howard:

The dealing market. If you want investment dealing, whatever you want to call it, that’s very, very different. There’s people out there paying 15, 18% interest on corporate deals. I can’t do that, It’s not sustainable. So that market, you only need it to slow down slightly. And like we said before, the paper, we’ve been papering over the cracks because the ones who were in trouble, they’ve just been pushed on a further six months, because they’ve had loans.

John Howard:

And because the market is been a bit better than it should have been and so on, but they will be problems going forward for some developers, especially the inexperienced ones who have said, “Oh, well, I’ve been bullish about the values that think they’re going to get.” And all the rest of it, there will be some carnage out there. And some of us, hopefully we’ll be able to take advantage of that. Now, some people watching this show will say, “Well, that’s very harsh and unfair.” But most people money out of property, out of someone else’s problem. You need to be able to solve that problem for them or for the bank. That’s the truth. Especially, at auction.

Marie Parris:

Yes. Let me turn it in a slightly different way, in terms of what you’re saying. Let’s say that you are that developer, that’s having some problems.

John Howard:

Yup.

Marie Parris:

What could they do financially? How could they save that development for themselves, for their families? What could they do? What would you advise?

Richard Bush:

It depends on their situation,-

Marie Parris:

Of course.

Richard Bush:

… what’s causing the problem. I mean, there’s no single solution, but there normally is a solution. And one of the things that Paul mentioned, the difference between him and John is that, John gets in and out, and Paul is there for the longer-term. And the obvious solution for many developers is rather than selling, is to look to hold on to them, if there’s still enough value in the development, to be able to refinance it and let it, and not sell it. But every single situation is different. There’s not a single-

Marie Parris:

No. I get that.

Richard Bush:

… not even John can come up with a single rule that’s right for every developer.

John Howard:

No. So-

Nicholas Wallwork:

And I’d like to see, on that note, building them and letting them, for developers, if they are trying to push this to institutional grade investors and bigger developers.

Richard Bush:

Yeah.

Nicholas Wallwork:

I’d like to see a more, flexible mortgage for an [inaudible 00:29:22], so you can get a little bit more of that value out, because it’s often kept to, with the main high street bank, 60, 65%.

Richard Bush:

Yeah. It’s worse now.

Nicholas Wallwork:

If you go to some more niche banks, maybe 70%.

John Howard:

But Nicholas, you’ve been very successful over the years, doing just that-

Nicholas Wallwork:

John, very kind.

John Howard:

… with your worker units and everything else. And that’s another thing you’ve been-

Nicholas Wallwork:

And that’s getting harder now, because they brought the minimum size requirements thing, so maximize the asset is getting harder and the loans are getting harder loan-to-value as well. So then it’s a refunding-

John Howard:

… What I would say is for some people, if they’re in trouble, the best things to do is certainly, don’t bury your head in the sand, go and see the lender, talk to them early, when you know they may be a problem. Not late when it’s all happened. I think Richard would agree with that.

Richard Bush:

Completely.

John Howard:

Go and speak to them, talk to them, discuss it because the worst thing anyone can do is bury your head in the sand because it doesn’t get any better.

Marie Parris:

Nicholas has built a rank going to be the thing that’s really going to take off. I mean, do all customers want to living small units and on top of one another?

Nicholas Wallwork:

Well, I’m glad you asked me that question. Because I felt we weren’t done on built a lot. I think it’s a really good subject. And I think it’s a-

John Howard:

I thought you would.

Nicholas Wallwork:

… big way the market’s going. I think micro-units is a different to build, so that, builds like, it can be any size apartment. So that was just a small four houses. Yeah. It could be anything. It’s just got to make sense that you can add enough value to refinance out most or all of your money so that you can keep building, without constantly draining other people’s capital or raising equity capital to continue business. That’s not going to work. So I think, it is a big part of the sector. I think it’s going to start-

John Howard:

Getting bigger.

Nicholas Wallwork:

… getting bigger. I’ve seen huge tower blocks going up in Reading and lots of other towns in the Southeast where the developers are keeping them and letting them out. And they’re building tower blocks to keep, it’s a huge part of the market.

John Howard:

And that’s of course, a very safe. If you can do it, that’s a super safe investment.

Nicholas Wallwork:

Yeah.

Richard Bush:

Yeah.

John Howard:

If you can do that, if you can get, my issue is, unless… And you’ve managed to do this on numerous occasions I know, but unless you’ve got some equities equity in the deal. And it all comes down to one thing in the end, all us are in the same boat.

Nicholas Wallwork:

Cash.

John Howard:

If the deal is right, if you buy it right, there’s lots of options. And if you get into trouble, you can get out of trouble, but then you have to buy it right in the first place, if you pay too much for anything. Just because a blank buys what you want them to, doesn’t mean it’s a good deal.

Marie Parris:

Yeah.

John Howard:

And that’s the issue. You need to know that there is real value. And my three golden goals are, one, you should be able to sell it immediately as you bought it at a profit without doing anything, because you should be buying it at a discount.

Marie Parris:

Right.

John Howard:

And then the other two are, you should be able to buy it with options, sell it at a profit, and buy with option, and let it, which is Nicholas’s great trick, and get most your cash back and move on. If you can’t do those three things, ask yourself on every deal, can I do those three things. If I can’t, I don’t do the deal. And if I’ve got joint venture partners and they come to me, and they can’t answer those three questions, I’m not lending them or giving them any of my money.

Marie Parris:

[inaudible 00:32:36].

Nicholas Wallwork:

I think key to, just add to that last point of John’s there, the letting of it, the letting side has multiple exits as well. We could be talking about-

John Howard:

Yeah. Absolutely.

Nicholas Wallwork:

… social market letting. That’s really hot at the moment.

John Howard:

And sell as the investment at the end.

Nicholas Wallwork:

Sell as a freely tentative investment, professionals, students, whoever your target market is, if you design that building to be able to be let to multiple different options, we would spec ours up to, a good high professional spec, so that we could actually let to the higher end of the market, corporate. So, small, Airbnb’s and the high-end corporate let stuff, or we can let it to social. Yeah. It’s over spec for social, but we’ve got all options.

Marie Parris:

What are the key factors in your business on the build to rent side that makes you successful?

Paul Mahoney:

Look, I think, first off we do a lot of due diligence on making sure we are ticking all the right boxes from a fundamental perspective that comes down to investing in the right location, with all the right driving factors that give us confidence in that location, moving in the right direction. You’re buying the right properties, off the right people and ticking all the boxes there that mitigate risks as much as possible. We take much more of a, sort of financial advisory, financial planning approach to property than most others. So, the difficulty that I’ve found in the property industry, especially for beginners, is finding the right people to rely upon as to what you should be buying. Because, you can’t go and talk with your locals, well, you can.

Paul Mahoney:

But if you go and talk with your local estate agent, they’ve got 10 properties on their book, they’re going to try to sell you one of those 10 properties. And even if they’re a really good guy and they say, “Look, I haven’t gotten anything that suits you,” and they send you off on your way down to the next local estate agent. So that can be difficult, for people that are starting out. So we obviously regret, that we don’t have a book or a list, so it’s all about sort of matching the best of what’s available for the individual. And I think that’s something that can be difficult to do on your own, especially when you’re just starting out.

Marie Parris:

Okay. Fine.

Richard Bush:

Nick mentioned, because it’s also related to what John was talking about, in that one of the challenges that people are facing this year, because lenders have reduced how much they’re willing to lend, is to refinance the development once it’s finished and then to let it out. And so you were saying that typically you would have been able to get a 75% loan to value on the exit finance. Now you’re down at 60%.

Richard Bush:

There are other options. So there are companies like ours and alternative sources of finance that are now available, that weren’t available before, that you can use to fill the gap between what lenders are willing to lend, typically are good rates at the moment, because they’re low loan to value, with additional finance from investors who will share in the profit and share in the income. So they’re kind of sharing the risk as well. So that’s one of the differences, 10 years ago, we didn’t have that option in the last recession. Whereas those options are available because of alternative financing.

Nicholas Wallwork:

It’s kind of mezzanine, almost a mezzanine-

Richard Bush:

[inaudible 00:35:44] mezzanine [crosstalk 00:35:44].

Nicholas Wallwork:

… Ongoing, investment mezzanine financing.

Richard Bush:

Yeah.

John Howard:

And what I would say is, in the last 10 or 15 years, the amount of these bridging top companies, there are 100s of them. I mean, in the old days, there was like two bridging you companies you could go to 30 years ago and you only went to them as a very last, last resort when someone hasn’t completed, when they should have done or something like that. Now there’s, many of these banks charging a lot of interest. And the one thing I would say, please don’t use them like a clearing bank. Like the old fashioned banks were, they’re not, they’re expensive. And you need to know when you can exit, before you start signing up, don’t try and treat them like a normal bank, because they’re not, and they’re very expensive. If you go over the criteria, the time criteria they get even more expensive.

Nicholas Wallwork:

Yeah.

Marie Parris:

Yeah. And some of them can be very ruthless anyhow, aren’t they?

John Howard:

Well, it’s secondary lending. And it’s better I be aware.

Marie Parris:

So, what are going to be the telltale signs for going forward in 2021, that we can see that things are starting to move in the right direction? Who wants to lead with that?

Tony Gimple:

I’ll probably lead with that one.

Marie Parris:

Okay.

Tony Gimple:

So the people are beginning to realize that there is a vaccine on the horizon, it’s been flagged that come Easter, we should be able to get back to some degree of normality. There’ll be people realizing that any tax changes won’t necessarily come in 2021, but they may come in ’22 or ’23. People have got this drive to get back to normality or a new normality. They still want to own their own homes. They still want to be self-sufficient that, I mean, the market is going to recover, it always does. It’s just a question of when and time. Yeah. There’s been, a hell of a lot of doom and gloom, and it’s been scary. The dystopian society brought about by some non-man-made or man-made,-

Richard Bush:

China made.

Tony Gimple:

… China made. [inaudible 00:38:31] the term fall off your head Nick, I know you’re into conspiracy stuff. No, I’m sorry. All joking aside. Yeah. Stuff happens, we are at the end of the day, only human. We’ve survived, we’ll continue to survive until the next meeting or set up, the extinction event going. And people now have, actually a better heart and they’re just going to get on with it. So are there any real telltale signs? Yes and no.

Tony Gimple:

I think, look into the risks, look into who you’re going to get into business with, particularly with individuals. Where’s your exit route. What happens if they have a life-changing event, don’t sweat it, get on with life and be a good human. And that’s where you will see the signs coming through.

Marie Parris:

I just wonder if we can say that, everything’s going to be all right, when we’re in a situation that none of us have ever experienced before?

Tony Gimple:

What if we do?

Marie Parris:

I just wonder how you say that with so much clarity really?

John Howard:

Says that with so much clarity, I know.

Marie Parris:

What do you say, Richard?

Richard Bush:

Well, I think it depends whether the question is about, the economy as a whole, or about the property market?

Marie Parris:

What are going to be the telltale signs? What are going to be green shoots that we’re going to know, “Oh, we’re on the way up?”

Richard Bush:

Well, it depends what you’re talking about. If you’re talking about the property market itself or whether you’re talking about the economy upon which the property market is in alliance,-

John Howard:

Yes.

Marie Parris:

That.

Richard Bush:

… they’re two very different questions.

Marie Parris:

Answer them both, briefly.

John Howard:

Two minutes.

Richard Bush:

Okay. Well, the economy is going to get worse, there’s no question about that. How worse and for how long is the question? The market I think is behind that. So I think the market is going to be not too bad until the middle of next year. And as the economy demonstrates how low it’s going to go, then the market will follow it. And perhaps not as bad, because at the end of the day, we’re still very, very short of property. And that, whoever’s buying them. Someone will buy them and someone will rent them out, but that doesn’t demand for housing. So I’m more worried about the economy than about the property market.

Marie Parris:

All right. Interesting.

Richard Bush:

And I actually think, we’ll probably do quite well within the property market, even though the economy is suffering and people are unemployed and so on. So I think it depends what you’re talking about.

Marie Parris:

But, some people-

Richard Bush:

We’re really going to put… Yeah.

Marie Parris:

… Some are going to be losers though.

John Howard:

Exactly. [crosstalk 00:40:53].

Nicholas Wallwork:

Of course.

Marie Parris:

I mean, look at how many claims there are for possessions of properties? I mean, I know those of landlords that just haven’t got the money and tenants are not paying, and I’m not talking about-

Nicholas Wallwork:

But that could be homeowners that have lost their jobs.

Marie Parris:

Absolutely.

Nicholas Wallwork:

It could be occasional landlords.

Marie Parris:

So they’re all going to be losers.

Nicholas Wallwork:

Yeah. There will be losers. There’s always a losers and winners.

John Howard:

I think the one-

Marie Parris:

Where’s the green shoot? Give me one hope of green shoot that I’m going to see to know, aha, we’re nearly there.

John Howard:

… I always say that car sales relate to property sales.

Marie Parris:

Okay.

John Howard:

So when you see the car sales going back up and then very low at the moment, I know it’s electric and it’s not easy.

Marie Parris:

I can say.

John Howard:

It’s not quite how it used to be, but car sales happen quicker than property. So when you see the car sales improving, when people more converse about buying a new car and everything else, then property follows. Look at the auction market, where the auction market is the best barometer of any property markets. It happens quickly and first, then the rest of the market follows. The one thing I would also say, yeah, in defense of the property market is that, sadly, a lot of people losing their jobs, but are they the sort of people who were likely to buy a coffee next year or not? And then sadly, most of them are not the sort of people who would have bought a copy next year anyway.

John Howard:

So I do think that there is an underlying strength in U.K property market, because of low interest rates, but I’m cautious to be too optimistic because we’ve got to be responsible. And if you listen to some commentators, they’re off the planet, “Oh, it’s going to be, go up 10%.” It’s just bonkers, it’s not going, that cannot happen. And I think as professionals, as Property Summits, we’re all professionals. And I think we have a responsibility to give sensible professional advice and that is, please be cautious next year.

Marie Parris:

Okay.

Nicholas Wallwork:

And if I can lead on from that, it’s picking your strategy very carefully.

John Howard:

Exactly.

Nicholas Wallwork:

What are you going to do now? Are you going to go and start an Airbnb short-term let model? I think it’d be pretty foolish to start that right now, in my opinion. Sorry Paul.

Marie Parris:

Of course. And I think we all agree with that.

Nicholas Wallwork:

Paul can comment on that in a moment, I’d love to hear his view. But, do we want to start a social housing block? And if that makes the numbers work and you can deliver some good quality… We actually needed accommodation-

John Howard:

That would be a good move.

Nicholas Wallwork:

… to those people in need, that could be an excellent business strategy, this coming couple of years. So, really depends what you want to do.

Marie Parris:

So property, business people really they’ve got to start thinking outside the box, haven’t they?

John Howard:

Yeah. And you got to anticipate what’s likely to happen.

Marie Parris:

Yeah. Paul, last word with you.

Paul Mahoney:

I think in the short-term let businesses is a good example of, when we made that business model, it was a good business model and nobody really saw COVID coming, and we’ll come out of it. We’ll make it work. But I suppose we’d… As, part of the reason will make it work, because we’re diversified enough that we’re making money elsewhere. So perhaps someone who’s just started out with, that’s their only business, would probably struggle to get through all of this, which goes to show regardless of how experienced or brilliant you are. Sometimes it’s just a bit of luck in business, things go against you and things go for you.

Paul Mahoney:

But going back to what I was saying before, about the longer-term stuff, like, we’ve had, over the past 20 years, the average property price growth in the U.K has been 5.5% per annum. Now that includes two recessions three, if you include the current one. So even if you bought in 2007 before the credit crunch, or in 1999, before the dot-com boom, and literally the day before, and then your property price went down the next day, it doesn’t really matter, so long as you’re going to have it with… Talking buy-to-let.

Paul Mahoney:

If you’re going to have a tenant, you can service your cost and you can see through any bad period, because longer-term but-to-let mortgages are very low risk, if they’re cheap, the rent usually more than covers them and therefore so long as you see at that period, you’re unlikely to run into too many issues.

Marie Parris:

Thank you Paul. So, Unfortunately, we’re out of time, but there you have it, you’ve heard it from professionals themselves, there is optimism, but you’ve got to be cautious. Hold your nerve, keep your property, but make sure that you connect with the guys at Property Summit. From me Marie Parris, I wish you a good day, bye-bye.

 

 

 

 

 

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