Island Investor – eighteen year property cycle

PHUKET: The holiday season is fast approaching and some of us will soon be heading back to colder climes to enjoy the festive period with our loved ones. Many of you will remain in Phuket enjoying your Christmas dinner in a tropical climate, whilst for those of us jetting back to the UK we hope to be able to put aside the economic woes that are sweeping the region and enjoy a well earned break.

It has been some time since my last visit to UK shores and things have changed significantly in the past 12 months primarily due to the financial constraints that many are suffering under. Let’s not forget that it is not all doom and gloom though as from every crisis that we are forced to contend comes at least one opportunity for prosperity.

So with my Santa moniker firmly undertaken I wanted to bring at least a little cheer and good news to expatriates in Phuket and beyond. What could this be you may wonder? Well when I say the UK property market many may be reluctant to agree, but if we scratch beneath the surface we can find some nuggets of joy that could prove extremely profitable in years to come.

As with all aspects of life and financial asset classes the UK property market moves in cycles and after speaking to friends and former colleagues in the industry I have undertaken some research. We all know that the UK is witnessing steady declines in overall value and when harnessed with banks squeezing us on finances, you could be well within your rights to look at me blankly when suggesting this represents an area of opportunity. For those doubters, please stay with me and I will reveal all!

In short we are talking about using property as an investment. Let’s take emotion out of the equation and focus on the income and growth opportunities that many expatriates could feast themselves on thanks to the UK property market. To highlight this let’s look at the 18 year UK property cycle:

The UK goes through incredibly consistent property cycles of around 18 years, where prices climb broadly for 14 years and then decline for 4 years, before starting the cycle all over again.

If we look at recent property booms and busts:

1955 – 1973. With the war years over returning veterans and affordable mortgage rates creates higher property demand and prices rise.

1974 – 1992. With the stock market crash of 1973, more investors turned to property to look for returns thus creating a further property boom. With the introduction of right to buy schemes, this created a further surge and the demand for property continued to rise.

1993 – 2010. Gordon Brown enters the treasury and the UK sees consistent house price growth, however due to rising prices many people are priced out of the market. The credit crunch hits in 2008 and average house prices fall dramatically.

2011 – 2029? OK, so let’s look at the UK housing market this way. As mortgage lending is at an all time low, how do you make that all important first step up the property ladder? You rent your property. The UK rental market is currently in very high demand and this presents an opportunity. Housing prices are low and rental demand is high. This means that over the medium to long term you could potentially receive capital appreciation and an income yield of anywhere between 5-10%.

Of course this is not for the faint hearted, however a little investment could be one of the best things Santa could bring you this year.

For more information contact alyman@montpeliergroup.com.

— Anthony Lyman