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In the January 2010 Issue of Property Investor News
Auction Round Up
Sutton Kersh Auctions held its latest auction on 8th December 2009 at the Crowne Plaza, Liverpool. It sold 35 lots of the 59 offered, giving it a success rate of 60%, and raising £2,204,500.
James Kersh, auctioneer for Sutton Kersh, said: "Eventually we were pleased with the result as the after-sales were good but we were disappointed with what we sold in the room. However, this wasn't really much of a surprise to us as the demand wasn't what we wanted it to be during the marketing period before the auction. I don't think that 60% is bad for a regional auction house in December as this is always a tricky time to sell property. In essence, the year has finished how it started, difficult!"
Lot 1: A vacant, three-bed mid-terrace house, located in Aigburth, Liverpool, had a guide price of £75,000 and sold for £97,000. The property requires some modernisation.
Kersh said: "This is located in a popular residential area. This property sold well because it was cheap and once the refurbishment is carried out there is good potential to sell on for a higher price or to let or live in.
Comparable units on the Rightmove website have advertised rents of £575pcm which will give the investor a gross yield of 7.1%.
Lot 10: Located in Birkenhead, Merseyside, a three-storey recently built detached block consisting of nine two-bed apartments sold for £546,000 against a guide price of £500,000. The property was completed in late 2008. The property is fully let on separate ASTs producing £53,000pa which gives the investor a yield of 9.7%.
Kersh said: "This residential investment sold well because it is already income producing. The overall investment value is attractive rather than the capital value of each apartment individually."
The catalogue featured a number of regulated rents but many didn't sell.
Lot 29: Located in Liverpool, a mid-terrace, two-bed property let on a regulated tenancy at £192pcm did not attract any bids but is available at £35,000.
Kersh said: "Regulated rents were not as popular in the last auction. I think one of the reasons why is because they are not easy to fund nowadays as they have a very low income. Demand certainly fell off the cliff in December. Maybe people wanted to sit an auction out and wait for the New Year as no one in the room seemed keen in this type of stock. We are currently dependant on cash buyers or those that have their own source of funding. No doubt there are some good deals on the market but some properties won't sell even if they are priced cheaply as there are problems, still, with funding and this isn't going to change any time soon."
Kersh believes that 2010 will be quite similar to 2009, in that people will still be cautious when buying property. He said: "We need to get the right stock at the right price and then there will be lots of demand for property but we are also facing problems of stock coming to auction as we are seeing a lack of volume. Development land is not selling as finance is scarce on the ground but good quality well-let stock with good angles is selling."
Strettons in association with Edwin Evans held its latest auction on 16th December 2009 in the Grand Connaught Rooms, London. The auction had a success rate of 71%, selling 56 lots out of the 79 offered, raising £9,229,000. However, Philip Waterfield, director of the company, believes the success rate will increase to 74-75% by the end of January, raising almost £10m in total.
Waterfield said: "Our seventh and last auction for 2009 showed mixed results but it was by no means a disappointing sale, especially compared to some other recent auction sales. This was really an extra auction as normally we only have six auctions per year so as long as we break even we are happy! Despite the cold weather, bidding was warm and many sold prices were at least +10% above guide price."
The catalogue had a mix of residential and commercial lots. Waterfield said: "There were more residential lots than commercial and generally the residential side sold well but so did a few of the commercial lots."
Lot 12: A freehold commercial investment located in Chingford, East London, had a guide price of £325-350,000 and sold for £430,000. The three-storey building comprises of a ground-floor shop, let to Carphone Warehouse, with internal access to a two-storey upper part used for storage. The tenant has a ten-year lease which started in March 2006 at a rental of £24,500pa with a rent review in 2011.
Waterfield said: "There aren't that many commercial investments around that are affordable, less than £0.5m, and these appeal to investors as they can often buy these units using their own resources and banks are also willing to lend on these units. This was a major PLC, Carphone Warehouse, a strong covenant and it's in a popular local parade where shops will always be tenanted so in my opinion the buyer can't lose.
"Commercial property needs to be in an affordable price range as banks will now expect investors to put in around 50% loan-to-value unless it's for a blue-chip investment."
Lots 15 and 16: A large pair of freehold, vacant houses with planning permission for four flats, located in Bow, East London, attracted no bids. Each house had a guide price of £500-600,000.
Waterfield said: "In this market, larger lots like this one are too frightening and interest in this area has petered out since we won the Olympics. It needs a medium-size developer who would probably need to get funding from banks but many lenders just aren't lending on development sites. However, some banks are saying that if you buy the site outright, they will fund the development. People prefer a nice, clean site to ones like this lot that needs re-configuration."
Other popular buys included:
Lot 40: Located in Stoke Newington, North London, a freehold building with 16 rooms, of which one is vacant, and the others are arranged as either bedsits on ASTs or offices sold for £375,000 against a guide of £300,000. The property currently receives an income of £83,559pa which gives the investor a gross yield of 22.3%.
Waterfield said: "This is a very high rented property. The bedsit-side of it is almost at 100% occupancy and the offices may not include all services which you will find in other services. This is very intense management unit which some people do enjoy. It's a high yield but realistically it should be valued at 75% of the total rent as voids of 10-15% should be expected at any time. This is much like a HMO/hotel arrangement where there is a high amount of wear and tear."
Lot 42: The freehold to a tenanted double-fronted shop and tenanted two flats above it in a parade of shops and 'take-aways' in Streatham, south-west London, was guided at £275,000 and sold for £387,000. The total property currently receives an income of £68,620pa which gives the investor a yield of 17.7%.
Waterfield said: "As the flat is above and is sandwiched in between shops, this property may be a headache to an investor as the shops may be affected if anything goes wrong with the flats such as a water leak, plus it will be difficult to fund. Each two-bedroom flat attracts rent of £250pw which sounds expensive for this area. However, it sold for £100,000 above the guide price. In essence, the lower the reserve, the more it will likely exceed to it as a low reserve attracts bidding competition. This will appeal to people who like to fully manage their properties as this is a lot of work as are all mixed-use lots."
Lot 70: A one-bed flat in Hackney, East London, sold for £170,000 against a guide price of £90-100,000.
Waterfield said: "There are little pockets in Hackney that are unusually popular and this location, Graham Road, is close to an Orthodox Jewish community. This main road has become more gentrified and more expensive lately as it leads to Islington and the City. The receiver wanted to sell it so the guide price was pretty low. It's an affordable location and is an affordable price for a Zone 2 property and would appeal to a young couple."
A few life tenancy properties also featured in the catalogue, of which most sold.
Lot 63: A three-bed modern semi-detached house in Moulton, Northampton, had a guide price of £75,000 and sold for £65,000. The property is on a life tenancy.
Waterfield said: "A life tenancy is simply for the life of the person who lives there and cannot be passed on. You don't get many of these coming to market nowadays and generally they aren't in popular locations. A local investor would probably have bought it such as a farmer as it's a nice, steady income. Life tenancies are regarded as one rung above ground rents."
Ground rents were also popular buys.
Lot 81: Located in Walthamstow, East London, the ground rent on six self-contained flats and a parking space sold for £24,000 against a guide price of £10-11,000. The annual income is £950 which gives the investor a yield of 3.96%.
Waterfield said: "A bank once described ground rents to me as 'bomb-proof' which is probably why they are still popular buys!"
Waterfield concluded: "In a cynical way, I hope 2010 is not fantastic, as if it is then undoubtedly more repossessions will come to the market. I suspect that the first half of this year will be pretty similar to 2009 in that people are quite cautious. The second half of the year will probably be the 'honeymoon' period after the upcoming general election."
Core data in this summary supplied by the EI Group: www.eigroup.co.uk
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