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Supply Exceeding Normal Levels Since Stamp Duty Cut

Stamp Duty Cut Homesearch Properties

New listings are on the rise and stock is quickly shifting since the first month of the Stamp Duty holiday but there are already fears about how long it will last.

Analysis by property website Home.co.uk found supply of new sales instructions is “exceeding normal levels” and properties are being quickly snapped up close to asking price, but separate research by RICS warns this may not last into next year.

Home.co.uk’s research based on agency listings found London agents were the busiest with the total of new inventory in July up 45% annually

The east and south-east of England regions were not far behind with new instructions up 29% and 30% respectively.

Despite an overall uplift in monthly supply of 22%, the UK total of stock for sale remains 9.1% lower than a year ago.

Average asking prices are up 3.3% annually to £319,039, according to Home.co.uk, which said 13% fewer properties on the market were reduced in price last month compared with July 2019, suggesting vendors remain both confident and patient.

This confidence was partially reflected in the latest RICS Residential Market Survey for July.

Increasing numbers of surveyors are now reporting more enquiries, instructions and sales since the Stamp Duty threshold was raised at the start of July.

However, while 26% more predicted an increase rather than drop in sales over the next three months, 10% thought activity would decline instead of rise on a longer-term outlook of 12 months.

Respondents expressed concerns about the prospects for the UK economy and the impact this will have on employment as the furlough scheme expires in October and the Stamp Duty holiday ends next year.

The research was also conducted before the UK officially entered recession.

Simon Rubinsohn, chief economist for RICS, said: “The strong impetus provided to the housing market is evident both in the results of the RICS survey and many of the anecdotal comments from respondents.

“However, it is interesting that there remains rather more caution about the medium-term outlook with the macro environment, job losses and the ending or tapering of government support measures for the sector expected to take their toll.

“Significantly, some contributors are now even referencing the possibility of a boom followed by a bust.”

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How will the property market fare as the economy enters recession?

London Property Sales In Recession Homesearch Properties

So, the U.K. is officially in recession. And not just any recession but ‘the deepest recession since records began’.

The Office for National Statistics said gross domestic product (GDP), fell in the second quarter of 2020 by 20.4% compared with the previous three months, and that is the biggest quarterly decline since comparable records began in 1955.

It cannot be said that the news came as a shock given that the economy substantially shut down in March as a result of Covid. But the decline in GDP is worse than any other EU country or G7 country in the same period.

Commenting on the figures, Nick Leeming, Chairman of Jackson-Stops, said:

“Sadly, this economic announcement hasn’t come as a surprise.

“A large share of our economy is focused on services, hospitality and consumer spending, and with the UK in lockdown from mid-March usual activity levels within these areas simply couldn’t be sustained.

“What’s promising however is that the latest figures from the ONS do indicate that the economy is showing some green shoots of recovery, and just last week the Bank of England revealed that the economic shock triggered by the coronavirus pandemic will be less than initially feared.

“The property market has proved resilient post the market reopening in May and buyer confidence is still high.

“As soon as estate agents were given the green light to return to work we saw the pent-up demand from when the market was closed translate almost immediately into sales.

“This, combined with the stamp duty holiday and many buyers wanting more space in their homes following the lockdown, is causing a spike in transactions across our network. Whilst today’s figures are bleak, even if in line with expectations, this sentiment is certainly not translating into the housing market.

“There is no denying that stamp duty has encouraged more buyers into the market; 41% of our clients at the end of 2019 believed there should be a wholesale reduction in stamp duty across all price brackets. Meanwhile, over a quarter wanted Government to abolish stamp duty on all homes under £500,000.”

David Alexander, joint managing director of apropos, commented:

“Once the decision was made to put the country in lockdown it was inevitable that the economy would enter recession and GDP numbers would show an enormous fall.

“The key issue now is how quickly the economy can recover. Although the quarterly figures are poor, the monthly data shows that the biggest decline occurred in April with some recovery already occurring in June. This could point to a V-shaped recovery.”

“The sales and lettings market have been remarkably buoyant with the increase in the SDLT threshold having a clear impact on buyers.

“The private rented sector has also been remarkably resilient, and we have seen a large increase in new renters since lockdown was eased. This may be temporary but is welcome. Construction has obviously been heavily hit but again may recover more rapidly than some are predicting.”

“The next hurdle will be the levels of unemployment. If they rise suddenly then this could clearly stall the economy and have a consequent impact upon the property sector.

“The success of the Chancellors’ measures to preserve jobs in the services sector (such as the Eat out to help out scheme) will be crucial in determining how rapid the rise in unemployment is and its consequent impact on the wider economy.

“I remain cautiously optimistic at the moment and believe the recovery will be quicker than expected.”

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A Guide To Renovating For Higher Profits

A Guide To Renovating 10 Homesearch Properties

3 Levels Of Renovation And Profit Margins

This brief article will guide you through the different levels of renovations that can be carried out on a property and the impact your decision-making process might have on your profit margins. It will also briefly touch on the perils of bad due diligence and planning during a renovation project (overcapitalising vs under-capitalising). It will also give you an idea of what can be done in order to maximise profits while sticking to a given renovation budget.

3 levels of renovation

Before going into the concept of profits and return of investment let’s see what types of renovations a property might need in order to make some profits.

Renovations project can be divide in three broad categories: Refresh, Refurbish, Remodel/Extend
A) Refresh – aka Basic Cosmetic Refurbishment

This is the simplest and often quickest type of renovation to undertake. It simply improves the appearance of a property at superficial level.

Generally speaking, a cosmetic renovation is, as the name suggests, a renovation that improves the physical appearance of the property. It might involve repainting walls, painting cupboards and woodwork, updating flooring, replacing taps and doors hardware, updating light switches and sockets, and undertaking some landscaping work.

A-Guide-To-Renovating-01 Homesearch Properties

A-Guide-To-Renovating-02 Homesearch Properties

B) Refurbish – aka Higher Cosmetic Refurbishment

This level of renovation includes some or all of the basic cosmetic renovation items and adds to it the big ticket items within a property, such as the kitchen or bathroom. It might therefore include a new kitchen re-fit, new bathroom re-fit, new doors, skirting boards, mouldings, windows, roof, water drains, adding driveways.

A-Guide-To-Renovating-03 Homesearch Properties

A-Guide-To-Renovating-04 Homesearch Properties

A-Guide-To-Renovating-05 Homesearch Properties

A-Guide-To-Renovating-06 Homesearch Properties

C) Remodel/Extend – aka Structural refurbishment

This is the most involved level of renovation which generally aims at solving a current problem. For example, moving a bathroom to the upper floor from the ground floor, or enlarging a small kitchen into a family kitchen/diner, converting a loft space, converting a garage, and so on.

Structural renovation can be divided in two categories:

1. under the existing footprint of the property – for example work on the foundations, moving or removing walls moving electrical work, or redirect plumbing/

2. beyond the existing footprint (i.e. adding an extensionto the existing footprint) this level of renovation is certainly more complex and expensive than any of the above mentioned options, but it has its place in renovating for higher return on investment – for the right property in the right market.

A-Guide-To-Renovating-07 Homesearch Properties

A-Guide-To-Renovating-08 Homesearch Properties

Structural refurbishment generally aims at solving a current problem. For example, moving a bathroom to the upper floor from the ground floor, or enlarging a small kitchen into a family kitchen/diner, converting a loft space, converting a garage, and so on.

A-Guide-To-Renovating-09 Homesearch Properties

A Guide To Renovating 10 Homesearch Properties

Although structural renovations generally add value to properties, poorly designed renovations can have a detrimental effect and can detract from the existing spaces. As I like to say, it never is a case of “one fits all” approach and it is somewhat detrimental to create lots of smaller spaces in the attempt to add en extra bedroom… which nicely bring be to the next paragraph…

WHICH RENOVATION GIVES THE HIGHEST PROFIT?

Each of these depths of renovation has its specific qualities in terms of the work involved and the returns they can bring. There are positive and negative elements to each of them…. For example, a refresh and a refurbish can be completed within a short time-frame and in many cases without planning approval being required (thus positively impact on running/holding costs and cost of money) while structural renovations may take longer, require planning approval and a higher budget (thus negatively impacting on running/holding costs and cost of money). Equally though, the potential return on investment of the latter depth of renovation is potentially much higher (with the right design decision and in the right market conditions).

Again, one fits all approach does not exist and the basic questions for any of the options above are :

  1. What are the cost to do the work?
  2. What does it add in terms of equity and/or rental returns?

Two concepts that might help with deciding on the level of renovation to undertake are:

Overcapitalising

Even when you purchase the property at a great price, there is a danger you can overcapitalise during the renovation process. Overcapitalising, in simple terms is the process of improving a property beyond its resale value. It is important to mention that avoiding overcapitalising on a property is not just about sticking to a budget; it is also about planning well, being realistic and removing any emotional variable from the equation of the project.

Overcapitalising

The opposite end of the spectrum is the pitfall of overcapitalising the work you undertake. Overcapitalising occurs when a decision about an element of the renovation results in an area of the project not meeting market expectations or the quality of finish the property demands. Overcapitalising on a property could significantly jeopardise profit margins.

Due diligence and good design practice. both play an important role here. The first step on any renovation project is to understand what your market wants. Some of the things you need to consider include: number of bedrooms, number of bathrooms, living space, outdoor area, land size; Parking, quality of finish expected and overall appeal of the property.

HOW TO RENOVATE FOR HIGHER PROFITS WITHIN A BUDGET

There are three widespread believes around property renovations and profit margins:

  1. in order to make a property appealing to the broad market a developer must stick to neutral and basic
  2. producing a unique product costs more than designing a plain product
  3. creating an additional bedroom will always increase the value of a property

I personally do not believe that the three above statements are true. Instead, while I believe that deciding on the type of renovation to undertake on a property is an essential step that needs careful consideration, I would say that

  1. creating a unique product will increase profit margins as long as the unique product appeals to your target market
  2. it is the quality and type finish of fixtures and fittings that will determine overall costs (not the neutral and basic as opposite to unique and attractive)
  3. the work required is influenced by the property location, target market requirements, and ceiling price for that particular property

In broad terms I would say that

  • the work required when refurbishing a property is dictated by the overall decoration state of the property at the point of acquisition (and therefore a specific list of must dos, should dos, and could dos)
  • the type of renovation to undertake is guided by the primary exit strategy (i.e. a refurbishment to flip could be different from the refurbishment to undertake on a property that is intended to hold and let)
  • the quality and type finish for fixtures and fittings will be different in terms of aesthetic/appeal and durability/ maintenance depending again on your target market and your exit strategy

Budget is always at the core of your profit margins and budget should always include a contingency for any unforeseeable event.

One way of sticking to a budget while navigating though the decision-making process during a renovation project, is visualising alternatives and final results prior to undertaking the project itself.

A Guide To Renovating 11 Homesearch Properties

One way of sticking to a budget while navigating though the decision-making process during a renovation project, is visualising alternatives and final results prior to undertaking the project itself.

A Guide To Renovating 12 Homesearch Properties

A Guide To Renovating 13 Homesearch Properties

Visualising ensures that money is spent on the right elements and the budget is distributed adequately, prior to the project starting. Visualising also ensure that the market requirements are met, that communication with trades are facilitated, and that any contingency element can be absorbed into the project seamlessly and on time.

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