March 17, 2016
One of my landlords rang me last week from Cardiff Pointe, after he had spoken to a friend of his. They were discussing the Cardiff Bay property market and neither of them could make their mind up if it was time to either sell or buy property. If you read the newspapers and the landlord forums on the internet, there is a good slice of doom and gloom, especially with changes in the taxation towards landlords, the new rent smart wales legislation and the general uncertainty in the world economic situation.
I would admit, there are certain landlords in Cardiff Bay who have over exposed themselves in the last few years with high percentage loan to value mortgages. Those mortgages, with their current (yet artificially low) interest rates, will start to suffer, as their modest monthly positive cash flow/profit, i.e. income (rent) less costs (mortgage, fees, tax), will become negative when the tax and mortgage rates rise throughout 2017 and beyond.
It appears to me these landlords seem to have treated the Cardiff Bay Buy to Let market as a sure bet and have not approached this as a business and, as a result, they will suffer as they thought “Buy a house – rent it out so it covers the mortgage and make a few quid on top”. These are the people who will be thinking twice. I see opportunity everywhere and won’t be stopping, I’m here to stay. It’s going to be an exciting new year.
Gone are the days when you could buy any old house in Cardiff Bay and it would make money. Yes, in the past, anything in Cardiff Bay that had four walls and a roof would make you money because since WW2, property prices doubled every seven years years… it was like printing money – but not anymore.
True, since January 1997, the average price paid for a flat/apartment in the CF10 area has risen from £53,445 to today’s current average of £152,480 in the town, an impressive rise of 185% and terraced/town house have risen in the same time frame, from £58,280 to £192,250, an even better rise of 230%. However, look back to 2005, and in that year, the average flat was selling for £183,763, meaning our Cardiff Bay landlord would have seen a drop of 17% and the terraced owner would have seen a drop of 7%, as they were selling for on average £206,667 … which isn’t good for people who bought in 2005, but it gets even worse when you take into inflation.
Since 2005, then inflation, i.e. the cost of living, has increased by 33.4%. That means to retain its value, Cardiff Bay terraced property bought for £206,667 in 2005 needs to be worth £275,628 today. Therefore, our landlord has seen the ‘real’ value of his property drop by 40.4% (i.e. -7% less 33.4% inflation).
The reality is, since around the early 2000’s, we haven’t seen anything like the capital growth in property we have seen in the later decades of the 20th Century and it’s not predicted to grow at the rates it has previously done either. So it is high time anyone considering investing in property stopped believing the hype and did some serious research using independent investment expertise. You can still make money by buying the right Cardiff Bay property at the right price and finding the right tenant. Think about it, properties in real terms are 40.4% lower than ten years ago, so investing in Cardiff Bay property is not only about the potential capital growth, but also about the yield (the return from the rent). It’s also about having a balanced property portfolio that will match what you want from your investment.