Deal Or No Deal

10 March 2011

In the current climate with great uncertainty in the property market and amidst general global economic turmoil, many investors, developers and casual buyers are uneasy about investing their hard earned cash in anything that isn't gilt edged secured. In times when nothing seems secure or guaranteed, most investors are reluctant to sink their money into property following the disastrous past three years of frenzy and slide in values. The days of using the age-old expression,"as safe as a house", are long gone. Nobody could miss how tough things are in the local market with the media drip-feeding daily reports of another company in administration or latest bankruptcy statistic.

That said, many are questioning whether we have reached the bottom of the market and is now the right time to buy? During the boom, many casual buyers or established business operators were forced out of the market due to excessive prices being paid by speculators and developers for property and land. Most were unable to compete with these buyers and in hindsight they were the lucky ones.

In today's market, we have seen a massive drop in values, and in extreme instances, we are seeing residential land values on a par with agricultural values; commercial investments offering double-digit yield returns and the average residential property at between 30 – 60% of their peak values. An example of the plunge in values is echoed in a property that I sold in 2007 for in excess of £2m. The site was sold back then based on an "indicative" scheme (without planning permission) for an apartment development: the same site today (still without planning) is available at circa 10% of that purchase price.

Based on my daily experience, supply outweighs demand and is likely to remain this way for some time to come, however, there are deals happening involving individuals who believe the time and price are right. Thankfully, most of these buyers are not subject to finance, which is obviously attractive to vendors. Buyers in this privileged position are benefitting most from the irregular market conditions, but as we know, the market will slowly recover.

In the meantime, the key consideration for purchasers and specifically lenders in the Northern Ireland market will be affordability and having the means to service debt.

During the boom period, buyers were prepared to take a view on such issues as planning, Title and Covenant and so forth in order to secure a deal. Most solicitors, bankers and property consultants will be able to provide a tale or two on properties secured against in the boom that are now virtually un-saleable upon closer scrutiny. In today's market, a complete reversal in approach is now the norm. A further effect of this market is that deals are now protracted and the unscrupulous act of "chipping" instead of "gazumping" is now customary. The days of a buyer taking a short-term view are long gone and any purchaser today should be basing their purchase on a medium to long-term hold.

There's no denying that the property market is in a poor place and 2011 holds no signs of increased demand or restriction on supply, however, for the brave-hearted, and well advised with accessibility to cash or credit, bargains are there to be availed of. Eventually, normal service will resume in the property market, so buyers should be sifting through the vast volume of product circulating and taking advantage of the opportunities that exist.