February 2010 Archives

I had a chance to meet Duncan Fretter of Pure Acquisitions last week. He acts as a buying agent for real estate buyers. This is a familiar service in the US and in other markets, but somehow has never caught on here. I suppose the reason is down to the opaqueness of charging: a selling agent never has to ask for his client for a cheque, even though he charges, typically, many thousands of pounds for his service. A buyer's agent has no choice but to disclose a cash sum, and probably has to ask for some kind of bond or deposit. Although this is irrational: it's all money, it probably does scare off a lot of buyers.

Apart from finding the right property, filtering out obvious duds, Duncan can negotiate a realistic price. I am sure that even now, in street-smart Britain, there must be buyers who pay the asking price for properties. Even a five percent discount would easily save several times Duncan's fees.

You can find out more about the service here.

Writing something original and readable that does not infringe the privacy of my friends or family is far too much like hard work. So I'll do what magazines usually do: print a questionnaire.

In this case I will not tell you what sort of person you're going to marry, but you will get to see the stats on those who have already taken part as long as you click some random boxes.

Read This article by Simon Jenkins.

He points out that banks and bankers have done very well indeed out of the bailouts that have characterised the response to the 2007 credit crunch.

I agree with everything that Simon Jenkins says, but I think we have to examine how we got into this mess. We have given quantities of money to the banks that are enough to bankrupt the country. This is because banks have huge influence, which is linked to the fact that they get such favourable treatment from the government. From the banks' point of view this is a virtuous circle. From the point of view of the rest of us, it is a disaster. The massive regulatory burden makes it very difficult for new startups to challenge the banks, which lead to their supranormal profits. These excess profits do not need to be paid to shareholders, because they have nowhere else to go: they are captured by the employees, who individually become enormously powerful. It was not entirely a coincidence that Gordon Brown just happened to be at a cocktail party with Victor Blank, chairman of Lloyds TSB, when he was told that HBOS needed rescuing.

This would not matter so much except in that the state has developed taxation to an extraordinary degree, so that now it is quite feasible for the government to hand over about a tenth of the UK GDP just to prop up a few banks that should have failed. One hundred and thirty-one billion pounds is a lot of money in anyone's language: more even than it costs to run the NHS for a year!

Most governments live in a kind of parallel universe where there are no tradeoffs. They seem to believe that taxes can be increased without limit without compromising the ability of the productive sector to pay. Just listen to Peter Mandelson talking about all the jobs he is creating by increasing government spending on this and that, and try to catch the point where he admits that by increasing taxes and reducing the post-tax income of individuals, he will inevitably destroy jobs, now or in the future.

The problem with democracies is that they work by bribing electors with their own money. Or in the case of the Greeks, the taxes of of rich neighbouring states. The problem is that, eventually, this state-sponsored Ponzi scheme collapses in sovereign default or rampant inflation.

This letter written by the hyperactive Don Boudreaux suggests an explanation of why democracy seems so difficult to get going, and why all attempts to impose it seem to fail.

Boudreaux writes:

Mr. Stephens is mistaken. Democracy neither brings modernity nor is an essential element of it. The fountainhead of the western freedoms and institutions that Mr. Stephens rightly admires was the fractured and overlapping jurisdictions that emerged in western Europe following the collapse of the Roman empire. The happy, if unintended, result was an inability of any one authority (say, a prince or a pope) to exercise complete sovereignty over the populace. From this fractured sovereignty the rights of man slowly sprung, and only much later did democracy as we know it develop.

I am no historian, but this explanation seems promising. It is quite clear how those in power will never willingly give it away. In the UK we have the perennial spectacle of the opposition party promising to reform the electoral system whenever they are out of power, only to think better of this once they seize the reins of power whereupon reform suddenly seems altogether less urgent. In the same way, referenda, promised while in opposition, suddenly are undemocratic as they might bind the hand of a 'democratically' elected government.

Libertarians are frequently misrepresented and misunderstood. The contributors at Cafe Hayek try to make the case. Take a look. You will not see mainstream politicians or media putting the libertarian case. Ever.

I still have quite a bit of money tied up in UK residential property and I am still interested in metrics which relate to this investment. I wrote the other day that information about yields is hard to come by. In fact I mis-spoke, as findaproperty.com has some excellent data available on its website here. Essentially yields are now (and have been) at around 4.5% throughout the UK, the only places where you can get a significant uplift being Scotland and the North East, where I would guess that the extra hassles and lower credit quality of the tenants entirely nullifies the yield advantage. In fact, given the overwhelming dependence on the public sector in those two regions, this premium seems very modest indeed.

I went to the London Property Network event in Piccadilly last night. It was my first time, and I think I'll go again. The drinks (for the West End) were reasonably priced, and there was a sense of energy (or perhaps just desperation) amongst the participants. I met a number of interesting providers, some of whom I could imagine doing business with, others of whom were simply too good to be true, including one who claimed that he could find me a property yielding 12%, locally in the UK.

The event was a mixed bag, with providers outnumbering investors by a big margin. This was nice for me as an investor, but most of the services did not entice me. The sorts of thing on offer were:

1. overseas investment, especially in Brazil,
2. property sourcing agents promising to find distressed sellers who would be happy to sell their property for 75% of the correct market value,
3. people still pushing lease options
4. people offering to magic away tax liabilities,
5. some very well established professional services companies offering block management, ground rents investments, lease renewals etc.

Interestingly I met absolute no mortgage brokers, which was a great surprise to me.

New BTL investors now seem to be pushed all the way into HMOs, because only with those can the yields support the sort of penal rates charged by the lenders. My own experience of HMO ownership is almost entirely negative, so I won't be joining the crowd, as usual.

If anyone fancies coming along to the next event, drop me a line and we can meet up, there, or before. It's probably advisable to eat first as there is no food provided, or available to purchase, and eating isn't really compatible with networking.

"Buy-to-let is absolutely dead and will never return" say the Wilsons in this article from the Guardian. The interesting thing is that the Wilsons are now making more profit and paying more tax than ever before, because they can borrow at 2% and receive a gross yield of 5% and a net yield of 3.75%. Their article is interesting because it gives some figures for yields (5%) and all-in maintenance costs (1.25%) which are based on fairly long-term experience, and not based on the fevered imagination of an agent trying to sell a new-build flat. There is a substantial industry of statisticians working on UK house prices, but there is an almost total absence of reliable statistics for gross and net yields, which, for buy-to-let investors, is the absolute key for profitable investment. The reason for the Wilson's pessimism is that although they are significantly cashflow positive now, they came close to bankruptcy when they almost could not re-finance their empire, which seems to be very highly-geared, and are concerned that if base rates rise to 'normal' levels - 3.5% their total cost of funding - about 2% above base - will destroy the economics of their investments. Obviously this assumes no appreciable capital appreciation, which does seem to be the prediction of derivatives markets, and most market commentators. But their track record is hardly spotless, is it? I'm not saying things are not bad, but it is not entirely clear that they are catastrophic. The Wilsons are not stupid. They avoided flats, they saw through the price rigging of 'gifted deposits' that most developers were playing, they avoided large family homes and preferred older tenants and they stuck to places around their base in Ashford in Kent. The most curious thing to emerge from the series of articles in the Guardian is that flat dwellers are much more likely to commit murder than those who live in houses. Even though only a small proportion of the Wilsons' portfolio in flats, all of the four murders that have been linked to tenants of theirs, all were in flats. Curious!

Google News Archive Search is a truly wonderful thing. I can't quite believe that so much archive newpaper material is available, free of charge, delivered magically to a computer near you.

I did a few searches and came across this article about the origins of Stevenage New Town. I knew that the local lord of the manor, Lord Lytton, was adamantly opposed to the development, because he had a large area of his estate forcibly taken from him by the process euphemistically known as a "compulsory purchase", and more accurately known as theft. It seems that he was not alone.

What I found slightly surprising was that it was necessary to come in a fleet of twenty four official cars. It was even more surprising that Lewis Silkin's car had had the air let out of its tyres to let him know what the ungrateful locals thought of his plans.

I always slightly struggled to understand why the 1945 government was not re-elected. It obviously had a huge support initially, supposedly stood up for the common man against the forces of reaction and was free of corruption and run by one of the outstanding prime ministers of the 20th Century - Clem Attlee. However, its collectivist mania caused at least one industry - sugar - to fight back hard against nationalization (e.g. here) which may have persuaded voters that with another five years of Labour, Britain would end up abolishing private property entirely.

A former landlord who staged a "smoke in" protest at the grossly illiberal smoking ban which is a result of the 2006 Health Act has now gone to prison (as the result of a refusal to pay fines arising from allowing smoking on his premises). Old Holborn is running a campaign to pay Nick's fine and thereby release him from prison. If you go to this page on his site you can read all about it and contribute.

I occasionally went to a bar in Singapore. Its walls were heavily nicotine stained because people frequently smoked there. The interesting thing is that it was, and I have no doubt still is, to smoke indoors in a public place in Singapore. However, even with the draconian approach to enforcement for which Singapore is famous, the barman felt perfectly relaxed about allowing people to smoke because he knew that everyone who drank there was aware of what was going on and had a huge choice of bars nearby where they could drink in a smoke-free atmosphere. How sad it is that the UK health fascists cannot tolerate such an approach.

I actually think that in some ways the longer Nick stays in jail the better, because it will highlight how bad this act is, but I feel sorry for the guy, so perhaps you'd better cough up. I have done so. At least your money will do no harm, unlike the money raised by that useful idiot Bob Geldorf in Live Aid, which, like so much aid money and charity that is given to Africa, principally was used to buy guns.