From The Sunday Times

June 21, 2009

How to plan for better times ahead

Figures suggest the worst is over for the housing market, and there are various steps you can take to reap the benefits

Lucy Denyer

Suddenly, the housing market doesn’t look quite such a bleak place. Recent weeks have seen a flurry of positive data — on everything from an increase in the number of buyer inquiries to a narrowing of the gap between asking and sale prices — prompting many analysts to suggest that the worst may be behind us.

Not everyone is convinced, of course. With the broader economy still in poor shape, any recovery is likely to be patchy — and fragile. It also risks being choked by a rise in interest rates, which could be sharp if, as many fear, the government and the Bank of England’s attempts to reinflate the economy fuel inflation.

If you are bullish about property, however, what can you do to take advantage of any upturn — and still not end up out of pocket if prices take a little while longer to rise?

BUYERS

Buying off plan

It might have been synonymous with the worst excesses of the boom, but could it be time to buy property off-plan again? The housebuilders Taylor Wimpey say they are noticing increasing numbers of people doing just that, while Andy Finch, a partner in the northern residential department of Knight Frank estate agency, says he has received several inquiries recently from investors. The advantages of buying a development before it has even been built are obvious — if you think the market is picking up, that is. “It’s a meaningful way of securing an appreciating asset,” Finch says.

They are not easy to find, though. “While we are pushing on with new developments, I see no logic in selling them off-plan at this stage, because you are selling them at the bottom of the market,” says Bob Weston, chairman of Weston Homes. That said, “if somebody is prepared to do it, the purchaser’s going to get a good deal”, he adds.

Choose carefully, avoiding city-centre blocks and locations where developers are struggling to sell existing flats. Weston suggests going for family homes, which will always be more in demand. Whatever you buy, make sure the developer is covered by the National House Building Council. This will protect your deposit if they go bust.

Buying land

Land values have fallen more sharply than house prices in the past 18 months, good news if you want to buy a plot and build your own home. “There is more land available than there has been for the past decade,” says Tim Doherty, managing director of the Self Build and Renovation Centre in Swindon. “The moment that the green shoots start to become a reality, we’ll see developers starting to move back into the market and the opportunity for individuals to acquire a plot will be reduced.”

There are two options: buying land without planning permission, which is cheaper, but riskier, or picking up a plot with consent in place (either “outline” or “detailed”), which will be more expensive, but safer.

This is a good time to build, with skilled labour cheaper and easier to recruit than in the boom years, and self-build mortgages relatively easy to get hold of. Alternatively, you could just sit on the land and sell it on without building on it.

Buying near developing transport links

There is a lot going on in the world of railways: in December, commuter services will start running the high-speed rail link between London St Pancras and Ashford, Kent, slashing journey times to half an hour; next year, the first part of the East London line extension will open. There is also talk of reopening lines closed as a result of the Beeching report in the 1960s.

Anyone hoping to take advantage of such infrastructure improvements must always ask the same question: to what extent is the uplift already reflected by prices? Not much, it seems. “In a buoyant market, transport infrastructure changes will be factored in. In poor markets, it takes longer,” says Yolande Barnes, director of research at Savills estate agency.

Be careful, however, not to overestimate the importance of such links. Barnes cites the electrification of the eastern line from London to Scotland in the 1980s. This put Grantham, for example, within commuting distance of the capital, but those who rushed out and bought there didn’t make an enormous profit. “It’s still a long commute,” she says. “You must be careful not to overhype what such links and new infrastructure will actually mean.”

Buying at auctions

Auctions are not the place for bargains they were a few months ago, when sentiment was at rock bottom, but you can still pick up property for less than you would pay with an agent. “We have a huge selection of stock, a lot of which is unmodernised, which you don’t find in the private treaty market — so buyers can purchase with the opportunity of adding value,” says Gary Murphy, head of residential auctions at Allsop. “We’re able to provide a broad selection of blank canvases.” A number of websites specialise in repossessions and other property that they claim is being sold for less than the market value.

SELLERS

If you don’t have to sell, then, at the risk of stating the obvious, don’t — but if you are planning to trade up, bear in mind that if and when the market recovers, the extra money you’ll have to find will increase in absolute terms. In the meantime, there is a lot you can do to add value to your home and magnify the effects of any upturn.

Get planning permission

You don’t have to do the work yourself, but having planning consent in place could help to tempt prospective buyers into paying more — especially if the property is a bit tired and likely to appeal to those looking for a renovation project. “If the property’s already in good condition and you get planning permission, it doesn’t necessarily add anything, because people won’t want to ruin the look of the property,” says James Pace, head of Knight Frank’s Chelsea office. “But if it needs a lot of work anyway, having planning permission and party-wall awards in place can help a buyer to visualise what can be done — and can help if the property is listed.”

You can always go halfway, says Richard David, a director at Snell David architects. “With planning approval, providing you implement part of it, the remainder remains valid for ever,” he says. So, for example, you could fill in the side return yourself, but leave a prospective buyer to dig the basement. Just don’t overdo things and make the property top- or bottom-heavy. “There are instances where people get too much planning permission for a house and nobody sees the value,” Pace warns.

Extend the lease or buy the freehold

If your property is on a relatively short lease, this could be the time to extend it, as the amount you will have to pay — although usually determined by a complicated formula — will be related to the value of your property.

Tom and Sophie Whittaker want to sell their two-bedroom flat in Putney, southwest London, but think they should try to extend the 71-year lease first. “It could increase marketability,” says Sophie, 30, a solicitor. “It’s a good time to do it, because of lower house prices and therefore lower premiums.” They expect to pay between £17,000 and £22,000, but estimate it will add up to 15% to the value of the property, which they bought four years ago for £250,000.

Jamie and Lucy Matthews, from Kennington, south London, are going one step further and buying the freehold for the three-storey terrace in which they own the top flat. They are paying £7,000; several years ago, it was valued at £13,000. The owner of the other flats are happy to stay as leaseholders.

“The value it will add is not much in itself, but it means we can grant ourselves permission to extend into the loft,” says Jamie, 27, a computer analyst. He believes this will make them a £10,000 profit once they have paid for the works. It will also allow them to take control of the building, smartening up the exterior and common parts — which should help if they want to sell.