I would be jumping the gun if I proclaimed that the floodgates to the UK’s property market have re-opened. However, the expectations of buyers are edging ever closer to the demands of vendors, and banks are beginning to deal with portfolios of smaller properties, the fall in values of which have more or less been written off.
As a result, distressed properties are supplying a market that is hungry for new ideas.
To cash-rich buyers and developers, the words “administration” “liquidation” and “receivership” fuel anticipation of a bargain. The reality, however, is that banks and creditors are unlikely to offload a portfolio of strong-yielding assets for a fraction of its value. For years the market has witnessed a standoff between these camps while everyone else waits seemingly in vain for credit to begin flowing.
But it seems we are reaching a point of compromise and acceptance. The market is offering a wide range of properties from distressed situations which, for the right buyers, are capable of delivering a healthy yield – returns which far outweigh meagre interest gains.
Most lenders, investment banks and hedge funds have now seriously begun tackling their portfolios – providing much-called-for fresh stock to the market. With a significant chunk of their value already written off to market value, the properties are in the shops with more realistic price tags.
This means that there are deals to be done – but not for 10p in the pound. Anyone holding their breath and their cash with that in mind will almost certainly run out of time.
Vendors that are marketing these assets to overseas buyers are finding the practice both productive and profitable. Entities that are able to engage with an international audience of investors are successfully shifting larger portfolios of properties. Attracted by the value of sterling and better yields, US and Asian money is coming into the UK. Properties in London are proving particularly popular with foreign investors.
I won’t mention the words upturn, green shoots or optimism. The harsh reality is that the UK’s economy remains sluggish. But plenty of authors before me have issued words of caution, so I shall try not to repeat them.
Turning challenges into profit
Niche markets are developing for those with a particular skill for turning a challenge into profit. Areas of specialism include blocks of flats, land banks and large commercial developments delayed by expired planning consent.
The unique nature of accelerated property sales – where assets are derived from distressed situations – sometimes calls for professionals experienced in this genre. This is, however, not always the case. A distressed situation should not automatically reflect negatively on the assets. A Ferrari from a bankrupt entrepreneur is still a Ferrari.
Changing perceptions would benefit the market as a whole. We are still on a journey of realignment towards a market reflecting more realistic values. But where residential sales are, to an extent, influenced by human nature and the expectations of home owners, properties from distressed situations are disposed of at the mercy of lenders and investors. As a result, the moment where everyone acknowledges the real value of their own assets or of those they wish to buy, is here.
The past has been written off. It is time to invest in a realistic future.
Alistair Dickson is a partner at Begbies Traynor
