How to pick a winning property
Go back a few years and buying a house was an easy way to make big money fast. You could buy a nightmare house in the wrong area, and if you hung onto it for six months someone would be willing to pay more for it than you did. But times are changing, and while some properties are poised to soar in value, there are plenty that aren't.
Whether you are choosing a home or an investment property, if you want to make some money, the old adage 'location, location, location' has never been more important.
Picking the right area is vital in a slow market. House prices are falling and show no signs of improving anytime soon.
Making money in such a market is about finding an up-and-coming area that will outperform the market. Of course, this is easier said than done. A survey by Virgin One found that 43% of estate agents failed to spot an area on the up until prices started rising. If the professionals are having trouble, it doesn't bode well for housebuyers.
Keep your eye on...
Changes in transport
One way to stay ahead of the curve is to keep abreast of potential changes in transport. A survey by Haart estate agents put transport links at the top of the list of improvements that can boost an area. Jeremy Leaf, housing spokesman for the Royal Institute of Chartered Surveyors, says: "This might be a new rail system or bypass, changes to a road system or even something as small as alterations to a bus route."
There are plenty of transport developments in the pipeline. Leaf says: "People have been speculating about London's Crossrail, for example, about where and when that might happen. There has also been a great deal of interest in Ebbsfleet in Kent because of the new high-speed rail link to London." Keep an eye out for news of new rail links and bus route changes, and check the Highways Agency website for proposals to change local road systems.
Education is another big draw for buyers. A top state school, according to Haart, can add 11% to the value of a house. To stay ahead of other buyers watch out for new schools opening up or schools that have recently improved a great deal. The Department for Education and Skills will have details of new schools, while Ofsted inspection reports will show which general direction a school is heading in.
Regeneration of a run-down area or city centre, will also have a dramatic effect on prices. In Manchester, for example, in the run-up to the Commonwealth Games in 2002, much of central Manchester was rejuvenated. In the five years before the games took place house prices increased accordingly. Rises in the area hit 102%, compared with an average of 52% in the North West and 83% across the UK.
Pundits are predicting a similar transformation in parts of East London in the run up to the 2012 Olympics, such as Stratford, where a new transport hub will reduce the journey time to Kings Cross to just seven minutes. It could also benefit houses on the Jubilee Line, as capacity should increase 45%, and it will turn derelict land in the area into an Olympic Village, which will be turned into 5,000 new homes after the event.
Of course, it doesn't always take something this dramatic to improve an area. Peter Bolton King, chairman of the National Association of Estate Agents, cites Longbridge - the former Rover factory site - as being ripe for development, which he says "could have a substantial impact on house prices". The best place to find out about forthcoming regeneration is your local council.
Another, less quantifiable, boost for an area comes where a nearby attractive location becomes so desirable that many buyers are priced out of the market and start looking further afield. Bolton King points out: "It wasn't so many years ago that people wouldn't consider living in Brixton. But the areas people are interested in are widening as the most desirable areas become unaffordable. Brixton is now a hotspot."
Of course, being ahead of the curve is not always a comfortable place to be. There can be a long lag between the start of any development and subsequent improvements in an area. Peter Brunt of P Brunt estate agents in Bristol says: "There are lots of new developments out of town, and they tend to have local amenities built into them nowadays, but it takes about 10 years for somewhere like that to become desirable, when the infrastructure has had time to develop, the building has finished and the countryside has matured."
Look before you leap
You may prefer, therefore, to look at locations where house prices have already started to improve a little. To spot these, there are certain things to look for when you're wandering the streets. Bolton King says: "Look for plenty of skips and scaffolding. It means other people consider the area worth investing in. An increase in traffic wardens could mean more affluent people are moving into the area, with more cars, putting pressure on parking. It's also worth looking at the type of cars that are parked in the area."
You should also check out the condition of properties and the area itself. Freshly painted windows and doors, and litter-free streets show that people consider the area worth looking after. Areas with sofas in front gardens and broken windows should be avoided.
The high street will be fairly revealing. The Virgin One Cappuccino Test report revealed the three signs people look for on a high street are trendy bars, high street shops and a bookshop chain. The Haart research, meanwhile, says a quality food store could add 4% to a home's value, while high street facilities could add 3%.
Leaf says: "Companies do a lot of research on areas, monitoring footfall and certain socio-economic factors. When they move in it's often because of demographic changes that mean their target market has moved in."
Another thing to look out for is an increase in estate agencies. It's a sign that the professionals have spotted potential in the area. Perhaps the most important sign of all is that more people want to move in and the supply of housing is drying up.
Miles Shipside, commercial director of Rightmove says: "A buyer can monitor 'for sale' boards and check how quickly houses are selling. A shortage of supply over a sustained period shows occupiers don't want to leave an area, and buyers will have to pay a premium to move in."
Of course, by this stage it may be too late. The area may have already become prohibitively expensive. The key is to find signs of improvement before everyone else spots them, so that whatever happens to the rest of the market in the UK, you'll still be sitting on a winning investment.
All investment returns are measured against a benchmark to represent “the market” and an investment that performs better than the benchmark is said to have outperformed the market. An active managed fund will seek to outperform a relevant index through superior selection of investments (unlike a tracker fund which can never outperform the market). Outperform is also an investment analyst’s recommendation, meaning that a specific share is expected to perform better than its peers in the market.
Everything you own: all your assets (property, cars, investments, savings, insurance payouts, artwork, furniture etc) minus any liabilities (debts, current bills, payments still owed on assets like cars and houses, credit card balances and other outstanding loans). When you’re alive this is called your wealth; when you’re dead, it becomes your estate.
A property chain is a line of buyers and sellers (the “links”) who are all simultaneously involved in linked property transactions. When one transaction falls through – for instance, someone can’t get a mortgage or simply withdraws their property from sale, the entire chain breaks and all the transactions are held up or even fail entirely.