Saturday, February 04, 2006

Offplan investors "buy-to-regret"

IFAonline - BTL threat to banking profits
Friday 3rd February 2006: 11:00
By Julie Henderson

Fund manager George Luckraft is predicting there could be an imminent rise in the number of unsold or vacant buy-to-let properties, which will in turn make banking stocks less attractive as an investment.

Speaking earlier this week at the Axa Framlington Live roadshow in London, Luckraft - manager of the Framlington UK equity income fund - said while UK banking shares had in recent months contributed strong income gains, the housing market could yet see a 'wobble' created by overcapacity of buy-to-let properties and alongside a rise in the number of bad debts, and this could in turn affect the profitability of UK banks.

More specifically, he suggests while the housing market has seen a relatively 'soft' landing in the last few months, banks could begin to feel the pressure of buy-to-let lending as he predicts there will be an increase in the number of 'off-plan' property deals which go uncompleted by the original buyer, as well as an increase in the number of properties which fail to make sufficient rental revenue.

Luckraft pointed out he his long-held view is recent growth in buy-to-let properties may be a poor investment - preferring to label them as "buy-to-regret" - where "The banking sector saw pure signs of life, thanks to the soft landing in the housing market. There are still significant risks [in buy-to-let], particularly with the large number of flats to rent in areas such as London," according to Luckraft.

"The average price is still 5% below value, and the growth of amateur landlords focuses on location, location, location, rather than the practicalities of an investment. I suspect we could see a lot of [offplan] investors not completing on the deal, and returning the keys, which could then produce a wobble in the market,” he continues."

A lot of people are already regretting their 'investment' in offplan apartments. This is going to become a much bigger story when the scale of the problem comes to light. The motto: when it comes to investment don't just follow the crowd to 'easy money land' - think!

Chris Bell



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