No. of Recommendations: 1
Financial historian and former fund manager, Russell Napier's perspective on government debt crisis management options has lead me to the following conclusion:
One of the most attractive investments, I can personally make, is buying residential property with leverage in the U.K..
The U.K. property market covers a very wide range of regions from London to small towns close to bigger cities, in places like Scotland and Northern Ireland. As well as residential and commercial buildings, sites, houses, apartments, storage units, factories and all kinds of property dynamics, that can drive prices above and below national averages.
Russell Napier suggests there are only five ways
governments an reduce deficits:
* Austerity
* Economic Growth
* Default
* Hyperinflation
* Financial Repression (defined as moderate inflation and government-imposed low interest rates)
Napier believes financial repression is by far the most probable outcome, as the other four options are highly unlikely for various and obvious reasons.
In such a scenario, one of the most advantageous investments is to purchase property using debt. This strategy benefits from low interest rates on the debt, while the property's value appreciates with inflation.
The U.K. government has understandably, given its situation, taken a sledgehammer to the buy to let market, by imposing large increases in taxes (higher SDLT & CGT, mortgage interest relief restrictions, with likely further property tax rise to come in water charges and council taxes) on non residential single family homes.
For me personally buying my children houses with high loan to value long term fixed rate mortgages and buying a larger private residence is what I should probably do, from a purely financial perspective. There are of course negatives, not least the higher costs associated with larger houses.
I have not looked into U.K. property investment vehicles but expect them to benefit from government financial repression policies in future. I would want to know a lot about the specific assets that are owned; how they are valued; discount to net asset value, tax structure, management skills etc. There are knowledge people in this sector, who will know what to avoid and what might be attractive. For example, I am hearing residential property prices in London are falling. We know that the office market has been affected by work from home. Amazon has changed the high streets etc. On the other hand places like Scotland and Northern Ireland are cheaper. I know of a company doing very well, yield wise, on storage units in Northern Ireland, as the economy benefits from post Brexit arrangements, having a foot in both the UK and EU, which is unique. Point is, there are probably U.K. property public investments, run by managements with good track records. Which might be a nice idea against a backdrop of low interest rates and creeping and enduring inflation…
I mentioned Berkeley Homes as a brown field house builder with a long track record of being clever operators in that specific sector of the property market. U.K. government is also strongly behind house building. Again understandable given growing population and chronic housing shortages. So maybe house builders in the uk is worth considering. I haven’t looked at valuations but they are usually reasonable to very cheap, compared to the nose bleed equity valuations in the US for example. Due to the highly cyclical nature of demand.
Anyway, a bit of a ramble and late reply. I might take a look around the U.K. listed property companies. Might be less work than buying a bigger house.
