With ongoing evidence that the London and South East markets may already be undergoing a correction phase, it is always worth observing behaviour in the property auction room to gauge where things stand amongst investors and traders. We spoke to Gary Murphy – partner at one of the UK’s largest property auctioneers Allsop – shortly after their mid-February sale (the first of 2018)…
As it’s now possible to watch Allsop’s auctions live online, it was interesting to see that there was a healthy level of sales happening in the room?
Yes, we were all quite surprised at how buoyant and vibrant the room was – particularly as there has been lot of concern about certain areas of the market cooling off. The enthusiasm for buying decent stock in the London and South East has not waned. I must say we had one of the best atmospheres in the auction room that I’ve experienced in my career.
Why do you think this is?
I think it’s because we’ve done a lot of work in getting our prices and stock right. We have committed sellers in our catalogue and, because pricing was set at realistic levels, we managed to create good attendance and serious competition. The InterContinental on Park Lane (London) is a new and bigger venue for us – and we were very pleased to see that the auction was standing room only.
Do you think that reserve and guide prices have reduced over the last few auctions (moving into 2018)?
We’ve been making more of an effort to ensure that reserves and guides are where we want them to be. For certain types of property, we find that we must be more aggressive and have the conviction to turn stock away that is not attractively priced within the marketplace. In such circumstances, we often advise alternative methods of sale. As I have been saying for years, it’s all about the price – if you place stock under the hammer at the right level, it will sell.
So, you’re generally finding that vendors have an over-estimated perception of what their property is worth?
Not necessarily, some want a bit more than what we think the properties are worth and won’t budge. Such stock typically doesn’t make the cut for the catalogue. Other vendors are more than happy to accept our advice immediately and we have regular clients such as housing associations and local authorities who absolutely trust our professional judgment. There are some vendors that need a bit of evidence-backed persuasion and comforting about the method of auction sale. We appreciate that it does take a bit of faith in the process on the vendors part to accept our advice.
What kind of advice would you be providing to property owners to give them a bit more realism about the value of their property?
We often tell them the story of optimistically priced lots in the past that have not sold. This often results in the vendor putting the property back in the subsequent auction with a lower reserve. We’ve often found that, because we’ve priced the property attractively and competitively, the bidding drives the price above the original reserve at the first auction.
It’s not necessarily the case that the property is not worth the price set the first time around, but more that you need a level of healthy competition to push the bids upwards. Seeing other people bidding against you has a psychological effect – if there are two or three other people after the same property, it gives you the confidence that it is worth at least what they are willing to pay for it. Any auctioneer can fill in a catalogue with properties that are overpriced but it’s about demonstrating that you’re offering property that has been prepared and priced properly.
I would be interested to know about your thoughts on the buy-to-let market in London and the South East as we move towards the second phase of Section 24 of the Finance (No. 2) Act 2015? Are you finding that people attending property auctions these days are predominately looking for resale / conversion / development opportunities or is the “traditional” buy-to-let model still compelling?
There are two different markets there. Generally speaking, private investors are largely looking for income and capital growth and not necessarily to develop and modernise property. Most buy-to-let investors prefer nice, clean assets that are securely rented out, generating income and located in areas that are not likely to drop in value. However, it is true that the market has suffered not only with the tax relief changes but also the Stamp Duty surcharge. Sooner or later interest rates are also going to start creeping up. This has put a few people off buy-to-let and led to more AST investments coming into the auction room.
I think it’s a shame because, on the one hand it’s still very difficult for many young first time-buyers to get a foot on the housing ladder for the many reasons we all know. They will still have to rent, and it therefore makes little sense to make life more difficult for landlords to enter and remain in the buy-to-let sector. Smaller landlords should not be discouraged as they are providing a necessary service. Nonetheless, there is a very healthy build-to-rent market so the void may be filled in that area to some degree.
Do you think this will filter through into rented property capital values in the auction room and beyond?
I don’t think so. It may deter other investors but, ultimately, the price of the residential investment is underpinned by its vacant possession value. Furthermore, if there are more people renting and less supply then rents are likely to rise. I do think however that the market dynamics will change, and investors may get caught out if they are not willing to adapt.
Lastly, how do you think the auction market will behave this year and next as we move forward with the Brexit negotiations.
I’m certainly more confident given the result of our first auction in 2018. Most people in the property industry are sick and tired of hearing the word “Brexit” – and want to get on with what they do best. Life goes on. There may be uncertainty, but I think we’ve recovered from that. Immediately after the referendum vote, the market seemed to step into the shadows for a couple of months. Since then, a growing realisation has emerged that the negotiations and exit terms are going to take some time to evolve. Property traders, developers and investors simply have to get on with things and move forward.