A very common question at the moment due to uncertainty created by COVID-19, previously Brexit and the potential economic fallout of both.
I’m often quoted as saying that property investment is much more about “time in” the market rather than “timing” the market and I’m a very strong believer of that. This is because, if you are buying desirable properties in good locations, there is never really a bad time to buy when taking a mid to long term view, so long as you are very confident in the rent-ability of your property.
The key fundamentals for having confidence in demand regardless of the economic cycle are;
- A large tenant pool and strong tenant demand
- A broad range of industries and employment
- Infrastructure and new infrastructure spending
We want to be ticking as many of the boxes as we can so far as what potential tenants and future buyers want and need when it comes to renting and buying properties. If we can have confidence in these points, then we are much safer.
At the end of the day, the two main risks with leveraged property investment is having a tenant and being able to service your mortgage. Therefore, if your property is always easily rentable, at the right rent and sufficient to service a higher interest rate than is currently available, then you are safe.
We therefore want to invest in locations with as much depth as possible in all the above-mentioned fundamentals. Generally you’ll find that the focal point for depth is the centre of and surrounding areas of major cities and the further you go from these focal points there becomes slightly less and less reasons for people to want or need to live there and therefore they are thinner markets that can struggle a lot more in bad economic times.
The opposite of what we want is to be investing in a location that is driven by one industry or even one company because if that industry or your company struggles or leaves, so too does your demand whereas if you’re investing in a diversified location and one industry or company struggles others will fill the gap.
Some examples of good areas that offer great investment opportunities, at decent prices and a diversified range of industries are the central and close surrounding areas of Birmingham, Manchester, and Liverpool. I would not necessarily just buy any property in these areas but in the right areas and at the right price, they offer a great investment potential regardless of the direction of the overall market.
Perhaps some areas will drop in value over the coming 102-18 months due to job loss and longer term economic fallout which deflates demand but we always look for locations that offer driving factors external to the overall market.
For example, Digbeth is an area that we use as an example location of how micro-climates within the UK property market can do well regardless of the overall market direction. Digbeth has been a somewhat under-loved area of Central Birmingham and is circa 20- 30% cheaper than other locations. it’s somewhat comparable to Shoreditch and Stratford in London 5-10 years ago. It has three major factors that will contribute to it’s growth. Smithfield Market which previously cut Digbeth off to the city centre has been demolition and is being developed by Lend Lease, a £1.5B mixed used scheme which opens up the whole area to easy commutability to the rest of the city. Curzon Street Station, the new HS2 station just a few hundred metres away, improving commutability to London and the Northern cities. Lastly, The Commonwealth Games in 2022 and we saw what the Olympics did to underloved areas of London. Combine these factors and we believe that regardless of the economy and the general property market direction, Digbeth will do well.
If you would like qualiﬁed, frank and honest advice about a mid to long term property investment strategy, contact Nova Financial Group on 0203 8000 600, www.nova.ﬁnanical or info@nova.ﬁnancial