Is UK Property Boom Causing Another Financial Crisis?

Lord Turner is the former head of the City regulator. He said that he is worried that economic recovery is built on same factors that led to financial crisis. See telegraph article here.

Lord Turner said he was "worried" that the UK was "developing a recovery which is simply returning to the very issues that led us to this problem in the first place.

Britain's property obsession has left the country at risk of another major financial shock, the former head of the City watchdog has warned. Lord Adair Turner, the ex-chairman of the Financial Services Authority (FSA), said mortgage and commercial property lending in advanced economies had played a "central role" in almost all financial crises and post-crisis recessions.

Much of the investment in the advanced world was now focused on real estate, he added. While he said this was an inevitable part of a modern economy, it also increased the risk of another boom and bust. "We have made it incredibly favourable to buy houses," Lord Turner told The Telegraph. "The supply issue is very important and we've got to increase the supply of housing because otherwise we are just piling up very strong incentives to buy housing, very strong incentives to borrow money to buy housing but against a fixed supply. "If you do that the only thing that can give is the price."

Lord Turner also said he was "worried" that the UK was "developing a recovery which is simply returning to the very issues that led us to this problem in the first place. "Even the Office for Budget Responsibility has said the only way we're going to get growth back in the next five years is for the [debt to income ratio] to go all the way back to 170pc again.

If in five years time debt has gone back up to 170pc, and if interest rates have returned to 3pc, 4pc or 5pc, then a lot of people are going to be struggling." Lord Turner said in a speech at Cass Business School on Wednesday night that targeted reforms to curb credit fuelled growth were needed to prevent a repeat of the 2008 financial crisis.

"The policies followed before the financial crisis failed to prevent it," he said. "In its wake major financial reforms have been introduced. These include higher capital and liquidity standards, more effective bank resolution procedures: measures to address risks in derivatives trading: and structural reforms such as ring fencing... While these reforms are valuable, they will be insufficient to ensure a more stable financial system and economy over the long term.

"We need to recognise and contain the potential for instability which [reliance on in real estate lending] unleashes," added Lord Turner. "Policies relating to the supply of new real estate, and to its taxation will likely prove as important to to financial and macroeconomic stability as reforms specifically focused on the financial system itself. "[Credit cannot be] constrained through the use of the interest rate lever alone."

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Some more views on this issue here:
http://www.cityam.com/debate/1395941773/lord-turner-right-uk-s-property-boom-risks-causing-another-financial-crisis
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Our views
We do not think that UK will be hit with another financial shock, at least not yet.  Under Chancellor Osborne of the Tory Government, the UK finances are making great improvements.  Read Osborne's full speech here. 

Growth has been revised upwards. Debt has come down significantly, though there is a long way to go.  UK Government has also adopted a very pro-business outlook.  In fact, their main Corporate Tax rate is going to be cut to just 21% from 1st April 2014, an extremely low rate for a developed OECD economy.  See UK HMRC website.

However, the views of Lord Turner should be considered carefully. There will be warning signs, if indeed the UK runs into another financial crisis.

This is why we say that investments, especially in overseas property like UK property, is a lot of hard work. Continue to spend time reading and analysing the macro-economic situation, otherwise you may be caught off-guard.

Brickmakers Apartments (Telford Homes)

Telford Homes - Brickmakers Apartments 

How we ended purchasing this development from Telford Homes is quite an interesting story.  We were informed by a friend who saw Telford Home signboards near her purchase at a development nearby.  She had been on site to visit her then newly completed property.

We contacted the sales agent and received the price lists.  The prices looked reasonable - this was in mid 2012.  We did our usual to go on Google Maps to walk the streets as well as look at its general location. This is the approximate location - (51.511097, -0.064533)

Proximity to City of London
This development was very close to the City of London.  Furthermore, our Singaporean friend informed that she had little problems getting tenants for her unit. We (including family) ended up purchasing a total of 3 units - two one-bed apartments and one two-bed apartment for a total cost of under £800,000.  In total, the 3 units were about 1,800 sq feet.

Very Negative Experience with CityZEN
CityZEN was the sales agent of Telford Homes for this development.  They were also Telford's preferred Lettings Agent.  Unfortunately, our experience with them for the Lettings part was extremely negative.  We will blog about that separately, but be warned.

Walking down Cable Street
These photographs were taken during a visit to London, second half of 2013.  This was Royal Mint Street, walking from Tower Hill, towards the direction of Shadwell, after the IJM development.

The place does look a bit run-down, which was to be expected.  The overhead on the left of the picture are the tracks for the DLR.

There was even an Enterprise rent-a-car, with their cars parked behind the gates.

Cars for rent!

There the Royal Mint Street sign, particular blocked by the traffic light.

This was the junction of Cable Street and Leman Street.  While doing our research, we looked carefully at the prices of property on Leman Street.  They were really high.  Yet, prices along Cable street were much lower.

Arrived at the Brickmakers site, under construction. Brickmakers has East and West blocks.

Walking around to the back, managed to get this photo of the almost completed block.

Another angle of the block, from behind. (Swedenborg Gardens)  This block would complete earlier.

The other block still under construction, completing later.

I took a walk behind, this was Swedenborg Gardens.  It was rather pleasant.

Some more housing behind.

This photo shows the 2 Brickmakers blocks.  One reason why they can't sell for astronomical amounts is because there is council/social housing in between.

The view from the front again.  It is true that the block looks to be stuck in between social housing.  Some have said that the social housing will never go away, therefore the upside of the value of the apartments would be limited.  That may be true, however, given the price and the location we decided it was worth the investment.

After viewing the buildings from the outside, it was time to walk onwards to Shadwell DLR. It was a very pleasant walk, less than 5 minutes.  This was the entrance to Shadwell DLR.

Look - bicycles for rent!  This was Cable Street.

A useful map.

I noticed the Barclays advertisement.  Not sure how many people actually rented these bicycles.

Thanks for viewing!!

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Lanterns Court, Denison House (Canary Wharf) - Part 1

Denison House, Lanters Court, Canary Wharf
(page updated 9 March 2014)

We bought a very small (397 sq feet) 1 bedroom apartment at Denison House (developer was City & Docklands) near Canary Wharf in 2010.  This was an opportunistic purchase because the units were sold at fire-sale prices.  At that time, the previous owner could not complete the purchase and Colliers were trying to quickly sell off the units.  Prices looked good, units came with a confirmed Corporate Let, we jumped in.

This unit has done extremely well in terms of rental yield, bypassing Montreal House.  However, the capital appreciation has not been as great.  The reason is simple, there are many more units available in Canary Wharf area, as my pictures would show.

Tenant Profile at Denison House
So far, this has been a Corporate Let and not a private let. This means that our tenant is a corporation, and not a private individual. Our lettings agent in this case is a company called Life Residential.

Rental Acheived & Capital Appreciation 
Currently, we are getting more than 350pw for our 1 bedroom apartment, an incredible rate.  This rate is only achievable because it is a Corporate Let.  The Corporate Tenant is an international firm called Bridgestreet. Our flat can potentially fetch £300,000. Our purchase price was under £230,000.  This unit is a clear winner where rental yield is concerned.  No point selling the golden goose.

A word of caution on Corporate Lets though.  We have been burnt by these Lets before because the Lettings Agents usually do not take a deposit.  Furthermore, we had a very negative experience with an agent called CityZen Estate Agents, who promised us a Corporate Let but it didn't materialize, causing us to incur significant losses.  Make sure that your interests are fully protected if you are going for such Corporate Lets.

Word of Warning on Canary Wharf Properties for Sale
Take note, many marketing agents would like to boast that the development is at or very near Canary Wharf. We have seen marketing collateral making ludicrous claims, e.g. The Forge, Westferry Road advertisements claiming that they are 6 minutes from Canary Wharf.  If you are not on the ground, be very careful what they tell you.

Pictures
Let's get on with the pictures. On this day, I took the Tube to Canary Wharf Tube Station, and started to find my way to our flat.  Here was Canada Square.

I decided to get up to the surface to walk around, rather than go through underground passages.  These office towers look really tall.

Canary Wharf continues to do well and it is still growing.  More tall buildings coming along, so I read.

It was a very quiet day, because it was the weekend when I visited.

I come to South Quay footbridge.  (Google Maps- 51.502015, -0.020236)  Our flat is located south of Canary Wharf Tube station.  This bridge was an important link.

These flats are very near Canary Wharf.  Even then, they are not that tall.  I counted 13 storeys.  You don't see 40 storey-type HDB flats here!  This view is taken as I stand on Canary Wharf side, looking south.

Foot traffic.  The bridge was purely for foot traffic, no cars.

Alright, I have crossed the bridge.  Once crossed, the place has a much more residential feel.

Across the South Quay Bridge, looking back at Canary Wharf.  Quite intimidating yah?

All these look like residential blocks, which I am sure they are.  If you live here, you could be 3 minutes away from your office!

I keep walking, as I make my way to Denison House.  I chose to walk down Mastmaker Road.

The road sign there says Lighterman's Road.  This was my location -  51.499128, -0.021162.  I had walked down Mastmaker Road and I will be taking the road on the right.

That road was Cassilis Road.  This would bring me to Denison House.

More flats.  Compared to most other areas of London, this place has many high-rise residential apartment blocks.  Still, you can see that the high-rise is about 10 to 12 storeys.

I have reached Lanterns Way.

I have reached Denison House.  This is the main entrance.

Doorbell.  You need a key fob to enter into the reception area, where there is a 24 hr concierge.

There is the concierge.

The reception area is simple, yet elegant.  It almost feels like the lobby of a business hotel.

There is the lift (or elevator).

I will head on to our flat.  Head on to Part 2 to see more.

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Montreal House Canada Water SE 16 - Barratt Homes (Part 2) (Gym and Surroundings)

Montreal House, Maple Quays, Canada Water SE 16 

This is a continuation from part 1.  This is the gym of Montreal House.  It was spacious.  I went there during off-peak hours, so there wasn't any wait for the machines.

Running machines.

Well-fitted.

More treadmills.

Rowing machines.

Various machines.

Happy jogging! Oh sorry, she is on the step machine.

We head on outside.  There is this canal.  I only took a short walk, not sure where it leads to.

It was certainly very nice though. 

A great place for a walk, or a jog.

These look like older apartments.  Just three storeys!

It was starting to rain.

Nice!  A very pleasant place to take a walk. 

A short video of my walk. It started to drizzle and rain, but it was still nice.

Continued to Part 3 - Library and Surrey Quays Shopping Centre..

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