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Monday, October 27, 2008

Worried investors!? Time for property

Investors who have lost faith in the banking system and stock market are increasingly turning to property as a safe haven for their cash according to a recent article in the Times.

This to me makes sense - when you can't trust the banks, valuations on stock markets no longer make sense and billions can be wiped off the value of companies because a trader manages to spread rumours about the financial strength of a particular sector- who do you trust? Shares in some companies will inevitably end up the hands of vulture funds leaving many investors out of pocket whilst banks will know doubt seize the undervalued assets in many of these companies at an opportune time.

This brings me back to the real value of residential investment property. Whilst values are falling and will do so for some time, the facts remains that once a landlord has secured a good investment their destiny is in their hands. They are not in the hands of crooked bankers, incompetent and ineffectual politicians and regulators. As long as a landlord services their buy-to-let mortgage then lenders will keep their distance and allow a landlord to carry out running their business in good times and bad.

This probably explains why estate agents have identified a growth in interest from cash buyers, who want something tangible for their money rather than depositing it with banks they no longer trust. The trend is emerging in all corners of the property market, according to one nationwide agent, from high-end mews houses in Knightsbridge to dilapidated two-up two-downs in the East Midlands. Lindsay Cuthill, head of the southwest London office of Savills estate agents, said:

“Ten days ago a wealthy, well-known businessman seeking to buy a mews in Chelsea told me, ‘I feel my money is safer here than in the banks’.”

Robert Billson, head of Savills in Nottingham, said: “There are people with £50,000 who would rather buy a derelict house and board it up for a while than put their money in an Icelandic bank right now.”

Buyers with cash are in a stronger position to negotiate price reductions than those who need mortgages.

Mark Dampier, head of research at Hargreaves Lansdown, an independent financial adviser, said: “With property, you can feel it, touch it, see it and live in it – you know it cannot be taken, so there is some degree of logic to buying now as opposed to depositing in banks if you have the money, although it might all end in tears.”

I agree with Mark's sentiment. Sometimes the only person you can trust is yourself!

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