A Fairly Traumatic Year

Property Investor News January 2009

Andrew Binstock reports on the highs and lows of the auction scene in 2008.

Last year was a fairly traumatic year, not just for the entire property industry, but for the economy in general. Much has been written about this over the past 12 months and from an auctioneer’s perspective, contrary to what certain people assume, it’s been just as tough for us.

As an auctioneer for Sutton Kersh both in Liverpool and London where we are a relatively new and small auction house, I have been able to see the entire story unfold before my eyes standing on the rostrum as both David and Goliath.

At the time of writing this, we currently have the lowest Bank of England (BoE) base rate since 1939 at 2% and already the effects of this are evident. Buyers with cash (predominantly professional dealers and investors) who have been unwilling to get their chequebooks out for most of 2008 are dusting them down and are now actively looking to put their money into bricks and mortar again.

With it now feeling imprudent to leave money lying around in bank accounts that are paying so little in interest, investing in property is back in vogue although it has to be at the right price.

Cash is king and those with it are having their pick of the best deals. With vendors becoming more desperate and wealthy property buyers looking to do business, we, as a firm, have witnessed a recent spate of deals being done outside of the auction room as buyers make it known that ‘you deal with me today or risk losing me’. While this threat carries little weight in a bouyant market, in today’s economy only the bravest of vendors will call the buyer’s bluff. I predict that this will continue well into 2009 with vendors only too delighted to find a willing buyer who is in a position to exchange contracts there and then. Adopting the ‘I’ll try my luck in the room thanks’ approach is a luxury few vendors can afford.

But without wanting to state the obvious, we are currently in the thick of an auction market whereby the most important ingredient that determines a property’s success or failure is quite simply what reserve price the vendor is willing to go down to. During my ten years in this business I’ve seen the times when complete fools were making a great living by buying at virtually any crazy price and still selling at a profit a few months later. Today, (sane) buyers are ruthless with their figures and only the smartest and shrewdest are making money.

The time of the amateur dipping his toe in, making £20,000 and thinking ‘wow, that was easy’ are gone for now. This year will continue to be a hunting ground for the professional property buyer and the savvy business minds. your average Joe, who has helped cause the hyper inflation we’ve seen in the property market in recent years, will probably stay away for the first half of 2009 at the very least.

From our firm’s perspective, the market began to dip in autumn 2008 and the decline has been steady and constant with month-on-month drops in house prices being well documented. In Liverpool, our 2008 results have remained comparatively strong in Merseyside with an average success rate of 68%. While this is down from the 82% we achieved in 2007, it is still an impressive statistic bearing in mind the lack of buyers in the market place in 2008. Prime stock has still sold well and our Liverpool office has been able to command much of the good quality Merseyside stock that has been put into auction.

In London, prime auction lots (repossessions and distressed corporate stock) are shared around a much greater number of auction houses. Nonetheless, our London results have been reasonable and our last auction of the year in December achieved a 62% success rate. We are yet to achieve the highs we reached in early 2007 but with our new partners, whom I cannot name yet, we expect to see a much larger number of quality properties being placed with us in 2009.

And most importantly of all, we have plans in place that will allow us to offer good quality auction lots from more banks and corporate clients which will be good news for our buyers.

No-one now thinks that this recession is going to go away inside the next 12 months and no-one expects house prices to miraculously turn around in the short-term but all we need is one giant headline in a major tabloid paper to claim ‘Property Prices on the Rise Again’ and for banks to open their hearts to the masses and start lending again for things to change. That’s not such a big ask is it?