Investing in housing/apartment/flats?

[TheAnimus]

erm, no its not. Because your looking at outliers only. London might be the financial capital of Europe but I hope your not doing maths here.

If you look at their postcode trend tool (click house prices in my area) to get a large enough sample size, then we look at the distrabution you will see its very noisy to begin with, so lets just use a simple trend line, oh whats that, 3-5% drop... oh my.

Reposessions never really went that high either.

Even then not 100% sure I like their data sample, its better to look at land registry sale prices before saying people lost money.

Don't get me wrong, asking price, mortgage amounts etc are really interesting indicators, but they are not a golden source by any stretch.

[Kumagoro]

Unlike past crashes they have dropped the interest rates to virtually 0 which has in my opinion
allowed most people to just about manage. As long as they keep it there house prices are not
going to drop down at a fast rate.

[theoldgaffer]

i think you're better investing in a house tbh. house prices are likely to go up. if you renting, its dead money. you aint gonna get that back. a mortgage will be more per month etc, but you sell the house and get more/a proportion of it back, hopefully out weighing the rent you would have payed

[Saracen]

The market didn't collapse? Are you kidding? The decrease in value was less apparent in more affluent areas but for city centre apartments or less desirable areas prices went down sh*t creek. At one point you could buy a 2 bed terrace somewhere in West Yorkshire for as little as £50k whereby prices prior to the crash was around £105k - 120k. We were just very fortunate that the recovery in the property market was fairly swift in comparison to the early 90s.

The housing market tracks the commercial market fairly well and let me tell you, commercial property prices was seriously messed up. We are seeing a recovery in the commercial sector though, particularly for prime stock. Secondary stock, not as much.

And regarding the OP: Buy is always better than renting provided you have the initial capital for a deposit and can maintain mortgage repayments. Yes, there maybe times where you have to spend a bit of CapEx on the building for repairs but generally speaking this shouldn't be massives of amount provided you don't buy a property that's not structurally sound and that you actually look after your property and not treat it like some student hall. Other things to consider is that mortgage rates are very favourable at the moment and unlikely to remain at these levels for the remainder of 2011!

No, I'm not kidding that it didn't collapse. It panicked certainly, and there were some substantial geographic variations, but no general collapse.

For example, take the Nationwide House Price index for Greater London. Prices were rising until about Q2/Q3 2007, and then the slump hit. Over 07/Q3 to 09Q2, prices dropped about 18%. To be exact, Nationwide quote 18.69%. Is that a collapse? Not in my opinion it isn't, no.

And from that same 07/Q3 base, after prices stabilised and started to rise. We're currently about 12% (11.81%) down on that base point.

And, by a strange coincidence, if you look at that nationwide index for the UK as a whole, over that same period, you get exactly the same 11.81% figure. Area by area, some (North, NorthEast) are worse, and some (typically Southern around London, outer Metro area, etc, are as low as 6-7% for the period.

As for the "crash" in the (very) late 80's/early 90s, you have to be a bit careful with that, too. It, like recent events, was a bubble. So yes, prices plummeted .... but only after having previously shown vast growth.

Look at UK average prices from 89Q2 and it took about 9 years for prices to drop, then recover back to those 89Q2 levels.

But, if you start 88Q2 to 89Q2, you'll see a 27.2% increase.

So, 89Q2 saw the start of a significant price reduction, and in my area, it hit about 45%. And it took most of a decade to recover. But that's taking the starting point at the height of the bubble, which is the worst possible start point. Take the start point just one year earlier, 87Q2 to 89Q2 and you'll see, nationally an average 44.8% increase in house prices. Again, there's significant geographic variations, but that's the national average.

So, start the base line point in 87Q2 and when do we get back to break-even point? Actually, we don't, because of you start from 1987 (Q2) you do not see, at any point in that period, less than an 18.76% increase in house prices!

So was the famed late 80s'early 90s crash actually a crash? Over a period of time, it sure as hell was not.

If, and only if you bought in at the wrong point, i.e. more or less at the height of the market and before prices started falling, and then had to sell before prices resumed their steady upward trned, did you lose.

And I don't minimise the pain that people caught in that suffered. I know those that really got clobbered. One friend bought at the height, then saw repayments more or less double, and then lost his job. He ended up with repayments way beyond what he could afford on a property worth not much above half what he paid for it. Eventually, he posted the keys back through the Building Society's doors and caught a plane for lands foreign, and as far as I know, is still there.

Negative equity was a very nasty trap for a large number of people and it wrecked a lot of lives and families. I don't underestimate that. But, the simple, cold hard reality is that all people had to do to avoid devastation was to ride it out. To keep the property, and to be able to keep paying for it.

So it wasn't just the housing market that caused the rampant misery, but the double whammy of the housing market and unemployment, or some other drastic reduction in income, like business failure. If you kept your job, or managed to keep a business afloat, you could (and a lot of people did) ride out a collapse in house prices, of the order of two to three times the size of the reduction we've seen as a result of the credit crisis .... so far, anyway.

Oh, and that 11.81% loss were currently seeing, if you pick the worst possible start date for the base point? When can we expect, ion current trends, to see that recover back to equilibrium? It depends where you live, based on last quarter's results. Yorkshire and Humberside saw the strongest growth last quarter, at 2.01% in the quarter. Northern Ireland, on the other hand, saw a 3.9% loss over that period. Greater London was 1.31% rise.

So given that were currently talking about London, the last four quarters have seen 3.37%, 1.15%, -3.62% and 1.31% respectively, we have a 2.09% rise from Q1 last year to Q1 this year. At that rate, prices will get back to the pre-cash level in about 5 years.

But again, that's picking the worst possible start date for the comparison. Instead, consider a different start point. If you compare 2009Q1 to to 2011Q1, we see, as a national average, that we've already seen an 8.46% increase.

Or, yet another way to look at it. I said the worst possible point to start a comparison was about Q2/Q3 1997, when you'd see today's prices about 12% down. Instead, start 18 months earlier and that 12% loss is then a 1.28% increase. Start a year before that and it's a 6.28% increaser, or go back another year and the increase today, over that date, is 16.8% increase.


So no, there has been no collapse. It only looks like one if you start at the worst possible time, and compare over the relatively short-term. What this should tell any sensible investor is that, as always, there can be market fluctuations and that if you are constrained to sell at a given point in time, you can get clobbered. If you wait and ride it out, you can mitigate those losses or even return to gains, though it may take several years.

But "collapse"? Not in any way. Even during the far bigger reduction starting in 89/90, at no point was my property actually worth less than I paid for it, though it did get pretty close for a while. And now, it's worth about 5 times what I paid.

Markets fluctuate. Investors know that, or they didn't ought to be investing. Home-owners ought not to not much really care what their house is worth, since it only really matters when either getting onto the ladder, or when selling up or seriously downsizing, because you've got to live somewhere and any paper gain in the value of property is exactly that, a paper gain until such time as you crystallise it and lock it in. Or unless they use the equity to remortgage and take the cash to finance a lifestyle (holidays, cars, etc) that they can't really afford, and that is a large part of why the country is in the mess it's in.

[Ulti]

First of all, many thanks to those that replied.

As I'm not directly speaking to my gf's mum and my gf is in China atm, it's not exactly easy to get the details right - but from what I know, her mum basically has enough "cash/capital" (whatever you wanna call it) to buy an apartment/flat or two. I'm not sure if she has more cash than this, but even if she did I think she'd rather spend/invest it in China (although I think the rise of house/land price is increasing at a decreasing rate) or simply save it and I think that's much wiser than investing in UK property right now.

I think the main reason why they want to get an apartment is that it's probably so much easier to find an apartment/flat close to "our" needs, i.e. close to transport links, grocery/supermarkets, LSE itself. Finding a house bang in central London isn't going to be easy, and it's definitely not going to be cheap if it's half decent.

I don't really want to go over the housing bubble as I have no statistics, nor have I lived long enough but from logic/economic knowledge, I'd see it as a sort of cycle where there are booms and busts. From a glance at the data that Saracen has given, it looks to me that the booms are greater than the busts, this might be due to the low, yet sustained growth that Britain has maintained. We can also see that we're in growth more than we are in recession too.

[Bugbait]

Depending our where exactly you buy in central London, a house that’s not in a dead spot (distant or poor transport links and far from amenities) could cost significantly more than an equivalent flat (easily over double). If I was investing in student accommodation (considered investing in Exeter a few years ago) I’d definitely favour a flat. The problem with a house is that it will most likely need multiple tenancy. Having multiple students under one roof is more likely to be disruptive for the landlord than one or a couple. A flat will open a broader market to purchase as well as for prospective tenants. Lower capital outlay as well, freeing up cash for alternative investments.

Corporate types and families are much more willing and able to bend over backs to secure a house, whereas my guess is that students would be constrained by budget. The best returns are for those who are willing and able to pay more whether it’s a rental or purchasing, ie. How many students would get into a bidding war for a property?