Patrick's Property Politics

Lovely Jubbly Jubilee!

Tuesday 24th May 2022

By Patrick Bullick

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Our beloved Queen has been our Monarch for 70 years!

1952 – 2022  even Rodney, of Only Fools and Horses fame, would know that.

What you (and Rodney) might not know, is that whilst doing some research for a project some years ago, I discovered Prime Central London properties had roughly doubled in value every 10 years since the 1950’s when the Queen came to the Throne.

Until 2015 that is - since then the prices of Prime London Property have ‘gone sideways’. Partly because of the terrible taxation policies of Her Majesty’s Treasury.

Clearly, it has not been HRH’s fault. Gordon Brown and George Osborne were the main culprits amongst the Chancellors' but Treasury mandarins do appear to pride themselves on stopping a fluid London property market, plus their ability to thwart any attempt to create a dynamic post-Brexit economy.

Since 2015, we have also had a few disruptive things going on. Let me remind you. The Scottish Independence Referendum, the Brexit Referendum, Brexit Negotiations, Brexit itself, Corona Chaos and now the Russian invasion of Ukraine. This last event seems to actually be producing an upward tick in central London property transactions, which will have a knock-on effect on prices through lack of supply.

I have not done a detailed comparison between returns on central London property vs other asset classes. However, it is my observation over the years that Stockbrokers and IFA’s, and indeed most financial journalists, typically suggest equities keep pace with property, if you re-invest the dividends into those same stocks and shares.

However, they tend to fail to take into account the effect of gearing on the actual return on capital employed, when investing in property. Property produces income which can service interest on debt. Banks happily lend on property but are far less keen to lend against equities. It is possible but only in specific circumstances. Plus, generally they will lend a far higher proportion of a property’s value than they will on a portfolio of stocks and shares.

Imagining property values in Central London revert to their historic norm, let me give you a very rough worked example-

•  Buy a Central London property for £1m.
• Borrow £500k.
• Therefore £500k capital invested.
• A decade passes.
• Based on historic performance - possible property price after 10 years - £2m.
• Sell property to pay off debt.
• Net £1.5m.
• Return on capital employed - 200%.

Now, I know that is extra-ordinarily simplistic, and there will be costs and some hassle along the way, plus past performance should never be taken as an indicator of future performance etc etc…

... but try getting that sort of return on stocks and shares.

Probably best to hold it in a company structure so interest can be offset against income before tax.

None of the above is financial advice - for that you need to ask someone qualified, like an IFA. But they won’t like it and will advise you to stay in stocks and shares which they can manage for you.

Pot, Kettle and Black I hear you say. True we would get some fees from you along the way if you buy property.

Raise a Jubilee toast from the cup of compromise and invest in both.

PB

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