Commercial Property Investors, keep putting in offers to change the market!
To all commercial property investors, I don’t have to tell you that we are in a period of inflationary times and to curb that interest rates are rising. This means that borrowing is far more expensive at the moment…
Alongside that, commercial property prices have been rising sharply due to historically low yields… we’ve seen 3.5% on offices and industrial, and even retail I’m seeing 5% being used. Development is also becoming more expensive… again inflation, so profit margins are becoming narrower and narrower. If you’re a cash buyer then the market is a good place for you to be right now as you have negotiation power and can move quickly.
But for the rest of us, we have to start adjusting our deal analysis to cope with the changes.
The 3 Options
- Either we accept this changing market and take lower returns so our net yields will be down in the 1-2%
- We can look at our forecasts on these properties and push up the expected rental growth to show a big increase in value… but we are betting on a change rather than guaranteeing it
- Or we can negotiate the price down and be prepared to walk away if it doesn’t hit our goals
Option 3 is ours and the market’s best bet. The commercial property market is due to a correction and whilst we may not be successful on every negotiation we go into, we can be safe in the knowledge that most other investors are in the same boat and therefore if we try offering at a price whereby we can maintain our goal returns slowly prices will start to reflect the market as it is at the moment.
So, this is my call to all commercial property investors, don’t give up… keep offering. It’s the only want to change the market.
Also, note to all investors who tell me they are staying away from the market because it’s risky… our job is to stick it out when the going gets tough, that’s exactly our job as investors. It’s time to double down and make the market work for us. No panicking, just simply and methodically moving forward!
I’m Negotiating on a Commercial Property
I’m back at it again, negotiating on another commercial property. My strategy stays the same, secondary towns with good transport links and tenants that are going to be in the property for the next 2-5 years. The uppers aren’t being used, but the whole building is let to tenants on an FRI lease, which means I can try and take the uppers back in a couple of years’ time, redevelop and then increase the value of the property.
This particular property has just come back to the market because the previous purchaser didn’t know what to do with the VAT. In that time the landlord has had an extra 6 months of rent and has run down the term so it means there is less value so I’m trying to get a significant discount… we’ll see!
Always remember this with commercial property negotiations, the less time a lease has to run, the lower the value. Make sure to negotiate on that!!
Daily Mail Breaking Tax Break News on Residential Property
An article in the Daily Mail (I know!!) suggests that the Government want to change incentives to get more first time buyers on the housing ladder:
- Cutting SDLT for the elderly to downsize
- Cutting Capital Gains Tax for Landlords who sell to first-time buyers
I’m really not sure that either of these solutions is the way forward. If an elderly person downsizes they should have more money in the bank to pay for SDLT because it’s assumed that the house they are moving to would be cheaper and for landlords, why would they sell if they are making a good profit? It’s cheaper to keep a property than to sell and go again, especially if they purchased years ago before the additional 3% came in!!
There is a need for more incentives, such as help with moving costs for the elderly and helping them relocate to places with good infrastructure, amenities and most importantly where their friends and family are. Also, what do they do with all their stuff from these larger houses… Government owned storage perhaps?! Basically, the move has to be seamless and in no way for the benefit of anyone else but the person moving (That’s right Government, no benefit to you!!), otherwise I can’t see this scheme being taken up.
Is this realistic?
How will all of this be managed?! How do you know whether you are truly selling to a first-time homeowner or not? What will the classification be and will there be a registry? Would first time buyers even be able to afford the property that the Government want to come to the market?
This seems to be clutching at straws. The Government need to take the approach that they did with businesses during the pandemic… instead of bounce back loans, how about first time housing loans. The Government loans 100% of the value of the property and also guarantees the loan and the interest paid by the buyers will go into a pot that will support any defaults in mortgage payments. After two-five years it will then be mandatory for these borrowers to move over to high street banks, if they can’t afford to do this they have to sell the house and repay the loan (too harsh?).
Changing CIL to IL under the Levelling-Up and Regeneration Bill
The idea behind the Community Infrastructure Levy (CIL) was to raise money for the development of infrastructure in the area where development was taking place… however, it wasn’t enforced in every area and there were varying rates and ultimately it didn’t work well.
So the Government are trying again with the infrastructure levy (IL), this time the levy will apply to all developments and it has been suggested that it will be a % of the land value uplift (although this hasn’t yet been agreed). Each Council will be able to set the % that they charge and so again it will vary from area to area… but the hope is that Councils can raise some money to go towards affordable housing and generally cheering up areas which are in need of regeneration.