Raising the Stakes: Phil Spencer on how to beat the market
You don’t just want a house that will increase in value, you want to beat the market. Phil Spencer tells you how your home is your most valuable asset and should be regarded as a business investment whether you intend to live there for five, 10 or 15 years.
The secret to making money is buying what nobody else wants to take on, and turning it around. You may need to speculate to accumulate, but developers are doing it all the time.
Developers, however, need to make an immediate margin, while you may not be planning to make your return for a few years, so the odds are in your favour. I’m talking about outperforming the market here not just following an upward price trend, but in genuinely creating value. How do you spot it and what do you buy? In order for the value of the property you choose to outperform the market trend, you’ll need to buy something that you can either improve in terms of internal layout and fittings, a property that you can increase in total square footage or a property in an area whose popularity increases during the time you live there. The very best opportunities combine all these key elements. Remember: location is important. This remains the unalterable truth: you must get it right to stand the best chance of profiting on your resale.
It is often true that the next area to come up is likely to be next-door to an already popular area. Most buyers will be prepared to compromise on their ideal location in order to buy a larger property adjacent to their favoured position – hence the ripple effect. Even in highly developed and mature markets it is still possible to find a few postcodes that are surrounded by more expensive property on all sides. If the architecture in these areas is strong but the area has historically been considered shabby or unfashionable, then the anomaly in values is likely to correct itself at some point.
Think how areas change over the years; for example, London’s Chelsea used to have a reputation for bohemian living and was where young sculptors and artists went to live. Struggling artists wouldn’t be able to afford it now. Today, Hackney in east London has become the Chelsea of the 1950s, with the largest concentration of creative people anywhere in Europe. The architecture is strong, the transport is good and there’s even some green space – I wonder what the next 15 years holds for E8? As well as the arty set, look out for areas where the government is spending money. Cardiff is a recent example of a place where government-incentivised investment has had a positive effect on property prices. Urban regeneration schemes – such as the one in Liverpool at the moment – will enhance trade, travel and retail, as well as housing. More people will want to live there and demand pushes up house prices. London’s Elephant and Castle is to have 1 billion spent on it, which will contribute enormously to the surrounding area in years to come. There are plenty more examples on both small and large scales.
It doesn’t always work straight away though. The development of London’s Docklands area in the 1980s wasn’t successful at the time because of a long delay in transport improvements. As soon as it was easy to get there and a few other amenities arrived, the area took off and is now firmly established. Transport links are absolutely central to identifying up-and-coming areas – look for improvements to road or rail. In addition to transport facilities, for an area to go up in value there need to be good schools and shops – although these tend to develop once prices have already climbed. In urban areas, a 10-minute walk is the maximum distance to live from key amenities. Your final profitability is likely to decrease the further people have to walk to catch the bus.
When you’re house-hunting, keep a careful eye on the retail units and watch out for subtle changes in trade. A small increase in the number of consumer-led businesses such as boutique gift shops, a new bar, restaurants or a cafe (as in French cafe, not steamy-windowed workmens caff) could be a sign that things are on the move. These businesses prefer to stick together and one new one could well attract more. They also tend to appear where the demographic is starting to have disposable income which they spend locally and on improving their properties. All good news. Which brings me to the next thing to watch out for if you’re trying to pick a new area. If you’re noticing builders skips and scaffolding outside houses, it shows properties are being improved and developed, which is often the first indicator of a market for a better product – get in there before it becomes a flood.
Large-scale developers have their own research teams, so if they start buying up plots or building blocks of flats it’s got to be a good sign. The same formulas can be applied to relatively out-of-the-way places. There’s recently been a noticeable increase in the number of people owning second homes and you can do extremely well buying in these areas before they become saturated. Property owners in coastal towns such as Aldeburgh in Suffolk or Whitstable in Kent are enjoying the fruits of predicting a trend.
Pay attention if you come across a property on a large plot could you gain planning permission to build in the garden? Could you knock down the existing property and start again? Keep an eye out for the opportunity to develop outbuildings or garages. To increase the likelihood of outperforming the market, you’ll need to be highly proactive in sourcing the opportunities that combine many of the elements I have commented on. There are best in breed examples in all areas, at all price brackets and in all property styles – these are the ones you want to find. Of course, they are also the ones that are likely to attract the most amount of competition from developers, investors and owner-occupiers; subsequently they require the least amount of phone calls, advertisements and viewings to sell. So you need to keep your ear to the ground. And remember: any property can be a good deal – if you buy it at the right price.