Property Tribes - Ep3 Property Topics Going Head to Head with Paul Mahoney - North vs South - Nova

Property Tribes – Ep3 Property Topics Going Head to Head with Paul Mahoney – North vs South

Vanessa Warwick:

You are joining us for day three of property topics, Going head to head it’s powered by Nova Financial and I’m joining the all this week is Nova MD, Paul Mahoney, and Paul and I wanted to create this week to show that robust debate is one of the healthiest ways to learn and grow. And that it’s very important to take in a lot of different inputs. See the logic behind that person’s opinion, and also actually look at the credentials of the person, making the opinion, see if there’s any agendas there and then form your own view. And that really is the healthiest way to learn. And as I said, at the beginning of the week, Paul, I will often actively seek out people that don’t agree with me because I want to test my opinion. And actually one of the things I do is actually look at house price crash, which is quite notorious site, but they have some very, very strong opinions and some very long and robust debates. And I learned so much just from seeing such an extremely different opinion to my own.

Paul Mahoney:

Yeah. I agree. Getting out of your comfort zone sometimes is a really good thing, hearing other people’s opinions. Even if you completely disagree with them, thinking about them and trying to understand how they’ve come to that opinion. Now, sometimes that’s going to be very difficult, but yeah a friendly debate like this is always a positive thing, I think.

Vanessa Warwick:

Yeah and certainly there’s no need to take it personally, if someone disagrees with you. It’s not a personal thing, if it’s done in a professional manner and people debating with you, you should welcome the fact that they are actually paying with their attention to your argument. And coming back with counter arguments, they’re actually doing you a favor to help you learn.

Paul Mahoney:

Absolutely and look that this is obviously the beauty of property [tribes 00:02:04]. Everybody gets a say and everyone gave their opinion on that say. And I’m sure there’s going to be lots of opinions about these discussions.

Vanessa Warwick:

Well that’s what we want. We want to fire up those differing of opinions. Now we’re going to talk today about North versus South. This is a very recurring topic on property tribes. Now, where I’m coming from is I’ve been a landlord for 17 years. Most of our stock is in London and the Southeast and holiday lets on the South coast. We do have a couple of properties up north one is a two bed flat in Chapel, Allerton in Leeds. And the other is a four bed house in Manchester in the outskirts, Ashton-under-Lyne. so I am going to be speaking again from personal experience here and Paul, I am in favor of the South. My reasoning behind this is it’s where the wealth of the country is concentrated. It’s far more highly developed up North that the density of housing is much higher.

Vanessa Warwick:

Whereas up North, you have got lots of brownfield sites, industrial areas where new apartments and so on can be built. And I’ve always found that the quality of my tenants in down South has been higher than the ones that we’ve had up North. Now I’m just giving anecdotal evidence there from my own experience. So over the 17 years, the stock in London and the Southeast, it has performed better overall. And in terms of less voids, et cetera, less difficult tenants than the stock we have in the North. So what have you got to say to that?

Paul Mahoney:

All good points and I understand you’re coming from your own experience there. Look, I think so predominantly my personal investments and through Nova, we are more focused on the North. Believe it or not, there is more to this country than South of Watford. But in saying that we also like to have our cake and eat it. And what I mean by that is we try to focus on the most robust locations in the North. So I would agree with you that there are scenarios in the North that, that wouldn’t tick our investment due diligence boxes. However, the UK has been through a pretty substantial shift over the past five or six years from what I’ve witnessed. And that is more of a shift toward places like Birmingham, Manchester, Liverpool in numerous different ways. That’s foreign direct investment, not just going into London, but going into those cities.

Paul Mahoney:

So overseas money coming in, more population growth going toward those cities rather than London, the transient population within the UK, completely shifting on its head, from people coming from the North to London, for the jobs and the higher wages to wages not rising, cost of living rising and therefore that shifting and people moving from London, the Southeast to the North for very similar wages and a much lower cost of living. And then also job growth and significant wage growth in all of those three cities, I’ve just mentioned. Now because of those things that has meant that those three cities over that timeframe has led the UK for property price growth, pretty much in that order, in various different ways in that order Manchester, Birmingham, Liverpool, or different one, twos and threes over those years. So they performed very well.

Paul Mahoney:

And it’s nice to see that because we started investing there five or six years ago, and back then, it was much more difficult to convince people to look away from London, but all of that has come into and is still coming into fruition. So I think when you’re focusing on major cities like that, in my view as somebody, well as a company, we spend a lot of time doing a lot of research and due diligence on the best possible locations and the best possible properties within those locations. And therefore, I suppose in some people’s eyes, we almost look a bit like a one trick pony. Three trick pony focusing on those three cities. But that comes down to the fact that whenever we assess a new location, we struggle to find one that stacks up based upon things like population growth, strong tenant demand, a broad range of industries providing a broad range of employment.

Paul Mahoney:

That’s a key point, I think, because especially in the current market, when we’re looking at risk of unemployment rising, after the furlough scheme, if you’re investing in a location that driven by one industry or even one company, that’s a very high risk. Whereas you look at Manchester selling there’s 95 of the footsie 100 companies have a substantial office there, now. That’s very broad and diversified. So facilities, amenities, and infrastructure, we’re ticking boxes so far as what people want and need to, sorry, what drives people to want and need to live in your property. We have an abundance of those things that gives us confidence in demand and reduces risk and makes the properties much more sustainable. So that’s what makes us comfortable with those locations. Now, when we compare the likes of Boeing and Manchester and Liverpool to London, for example, on a numbers comparison, there is no comparison.

Paul Mahoney:

They are substantially better for rental income, net rental income, and you could argue potential for capital growth over the coming years. Coming from a financial planning background, a very common disclaimer is that past performance is no indication of future performance. And I’d say that something that’s probably quite relevant to the UK property market, because yes, London has every reason in my view to be expensive as it is. Now some people will disagree with me on that. There’s a reason London’s expensive and that’s because lots of people want to buy here. It’s all about supply and demand and that’s, what’s driving those three that I just mentioned as well. But in my view, there’s a lot more potential to be had there, based upon affordability.

Paul Mahoney:

The average property price in Manchester is about five times. The average income, the average property price in London is about 12 times the average income. So half is affordable if you like, as in Manchester. So that’s why we like those cities. You’ve got higher rental yields. In the right locations you’ve got very low vacancy rates in those sort of city center areas, I just mentioned. And comparatively, you’ve got much more going into those cities then for example, in London, there’s lots going into London, but it’s already very robust. So it’s hard to make a big impact.

Vanessa Warwick:

No, I agree with you, Paul. And I think, I am going to come your way a little bit on this one, because I think that COVID-19 lockdown has actually maybe amplified a lot of the trends that you spoke about of people moving up North and big companies being up there, lots of infrastructure, projects, bringing work to local people up North.

Vanessa Warwick:

I think there is a shift in that direction. And also, only today we’ve heard that rents in London are actually in decline. Maybe because of post COVID-19 people thinking actually I don’t want to live in a city anymore. I can work from home more. I’ll take a slightly longer commute because I’m only going to be going into the office two days a week. So it’s such a fluid situation at the moment post-COVID.

Vanessa Warwick:

And I think we could have this conversation in five years time and we might see that things have changed very drastically from even where we are now. And one thing I will say though, Paul is people, you do get newbie investors who are seeking that Holy grail of capital growth combined with high net yields. They might be based down South. They go up, they see properties from up North that are sixty to a hundred thousand with these wonderful headline yields. And they can be quite seductive to see those kinds of things.

Vanessa Warwick:

But again, I always say, remember that the running costs of a hundred thousand pounds a tourist house in outskirts of Manchester, that might achieve 450/ 550 a month rent. Those running costs similar to a two or three bedroom house in Guilford in Surrey, where I live that might cost 400,000, but brings in to 2000 pounds a month rent. So these are all things to consider, but I guess, when you’re buying a new builds properties, that is what you advocate at Nova. You’re not really going to have too many repairs and big capital replacement costs maybe for the first 10, 15 years or so.

Paul Mahoney:

Yeah and look, I agree with you on that point as well, with regards to seeking out the really cheap, potentially really high yielding properties in the North, you’re right. There’s lots of properties in the Northwest, for example, you can buy them for 50, 60 grand and on paper, the yields might be 15%, but the vacancy rates are much higher. The maintenance is much higher. The quality of tenant is much lower. So the likelihood of actually getting that 15% is it’s probably not going to happen. Well, it’s not going to happen. So you need have to much more account for those things as well, over in comparison to for example, renting a city center flat to a young professional, where you can almost be a hundred percent confident they’re going to pay you rent. And they’ll probably look after the place because they’ll value it.

Paul Mahoney:

If you tick all the right boxes. So there’s a big difference. And I think sometimes people, use a broad sweeping brush when talking about the North and the South. And sometimes people talk about London, like it’s the only place in the UK. And obviously we know it’s not, but also it can throw everything into one basket. The average price we’ve been looking at in the North has been around 200 or 250,000 of late. And for that we’re talking high quality central located properties that are giving, 5 to 7% yield. So that in our view is where you want to be in the current market, especially. A client gave me this example, the other day. We were talking about investing in central locations and he said, well, what if everybody stops working in this city center?

Paul Mahoney:

Or there’s a big exodus out. And I said, well, that might happen in the short term. But there’s going to be some sort of progression back toward working in central areas, at some point I would have thought. And I said also based on previous experiences. So if we look back to 2009, what happened in 2008 is there was lots of job loss. There was lots of redundancies and companies shutting down and where we struggled the most was your smaller cities and towns. And quite often those people that lost their jobs. They had to flock to where the majority of jobs were, which was city centers. And they’ll still be the majority of jobs in city centers, regardless of any sort of exodus. And he said to me, Oh yeah, actually, I was living in Essex in 2008. I lost my job and I had to go to London.

Paul Mahoney:

So the example tied in perfectly to what actually happened to him in 2008. But another good example I think is, and one I often use is I look at the graduates working in our office in the city of London, they’re on an average graduate wage. For them to save the deposit and have enough income to buy a property in London within the next 10 to 15, 20 years, it’s almost unreachable. Whereas they could go to the Manchester city center, buy a pent house, two bedroom apartment for 300 grand, and live it up in, in the most desirable location in that city. Whereas you can buy very, very little for that in London. So you can see why these young people are going to, or staying in those areas more so than they have in the past.

Vanessa Warwick:

Yeah, no, I think these are all very good points. So I would say probably that not all that glitters up North is gold, but there are some golden nugget properties to have up there. And it’s a case of understanding how to research them, knowing the locations very well, et cetera, et cetera. And of course again, as we’ve said all along it mitigates risk to have a variety of different property types, it’s that age old adage of not having all your eggs in one basket.

Paul Mahoney:

Yeah, exactly. Right.

Vanessa Warwick:

Yeah. No, it’s very interesting times. Okay. So we’ve got two more days to go off our property topics going head to head week. That’s it for today’s installment. If you’ve been watching us on YouTube, please do hit the subscribe button, click the notifications and slam on those likes. We do appreciate it. And if you’d like to discuss this with the property tribes community, then please come across to propertytribes.com. And we welcome everybody’s thoughts on this topic as to whether it’s better to invest in the South or the North. But I think what Paul and I’ve teased out is actually, it’s not a case again of one size fits all and it’s good to have a mix. Fantastic, okay. Well, we’ll see Paul again tomorrow. Thanks for watching for today. And we’ll say goodbye for now.

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