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Is now the right time to invest in property?

Probably not if you need a large mortgage.
Definitely if you are a cash buyer

When is the right time to invest in property?

According to the graph below, prices started going down in the greater London on the fourth quarter of 1989 until the first quarter of 1993, a total of 26% over a three and a half years.

The best time to buy would have been on the 2nd quarter of 1993, when not only prices were at their lowest, but they had just started rising and mortgages were readily available.

If you would have bought in 1991, at 7% below 1989 market prices, you would have seen the value of your property decrease by another 19% by 1993.

So in the case of the last recession, the best time to buy was the second quarter of 1993.

Today in March 2009, according to the land registry graph below, half a year in to the economic downturn, the prices have come down by 13% in Kensington and Chelsea compared to the height of July 2008.

In the last recession, property prices in London fell between 1989 to 1993, that is over three and a half years, by 26%. Everyone agrees that this recession will be much harder.

Is it reasonable to suggest that property prices will come down by 30% before the market bottoms out? Is it also reasonable to suggest that it will take longer than three and a half years for the prices to start rising again? There are very few mortgage products available for buy-to-let.

The ones available demand expensive set up fees, high interest rates and large deposits. In that case it could be argued that today is not the best time to buy a residential property.

The best time would be when prices would have fallen by the hypothetical 30% and when finance would be readily available.

If not now, why are we sourcing properties for investment?

Because if you can buy properties now at around 30% below the 2008 prices and achieve yields of above 6%, you are effectively buying at the right time.

Except that in this case, you don’t need to call when the market bottoms out. You will be insuring yourself against the risk of a bad call.

For example in the last quarter of 1991, it looked like the market had bottomed out. Prices had decreased for two years, with the usually strong third quarter markets seeing the highest drops in 1990 and 1991.

If someone had speculated on the purchase of a property at that time, in effect ‘calling the bottom’ of the market, they would have been incorrect. They would have then seen the value of their property go down a further 19%.

But why should a vendor sell his property now below today’s current (13% off 2008) prices?

Well a number of vendors will need to sell their properties because of the current economic climate that we are all aware of. These people will need cash quickly. Cash in this market is king.

A cash buyer will be able to purchase a property in today’s market at way below market prices. If Coutts de Lisle were a sales estate agent, then our aim would have been to sell properties at 13% of 2008 prices.

As an acquisition agent, our aim is to acquire properties for you at way below that margin.

What if it takes 10 years for the market to bottom out like in Japan with interest rates staying next to zero?

1. You would have bought at prices in 10 years time.
2. Your cash will work for you at yields above 6%, compared to next to zero interest rates in the bank.

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