No Benefits for Landlords

The government’s decision to pay housing benefits direct to tenants rather than to landlords continues to cause chaos. Almost a year ago it was decided to pay Local Housing Allowances – LHAs – to tenants in the vague hope that they would use them to pay their rent. It’s led to a shambles in the renting market.

The National Landlords’ Association is bringing out a survey which says that 52 per cent of landlords are now less likely to let their properties to people on benefits. And of those who are already letting to people on benefits more than 40 per cent said they would be less likely to do so again when the present tenancies expire.

Reports are coming in from disgruntled landlords across the country who say that tenants on benefits move in – pay up for a couple of months – then when they are settled they simply stop paying rent and spend the money in a variety of other ways. There is said to be a huge jump in the number of evictions because of the non-payment of benefit-rent.

Landlords report that some benefit tenants prefer to spend what is supposed to be their rent money on drink, drugs and holidays.

Beleagured Employment and Welfare reform boss Tony McNulty – who’s currently trying to sort out his own parliamentary benefits – is expected to bring in changes.

McNulty is one of a number of MPs who have been criticised over their allowances. He had claimed allowances for a house his parents live in – while Home Secretary Jacqui Smith’s husband charged expenses for watching blue movies.

Aldi Growth

Every estate agent in the land is said to be courting German discount retail chain Aldi. It is planning to open 50 stores a year boosting its rapid growth in Britain. It currently has 450 outlets in Britain and is aiming to spend about £200 million on opening new stores in Britain this year. The company is said to be interested in acquiring new sites and the redundant premises of retailers who have gone under in the recession. Commercial property has been hit hard and there have been some notable High Street casualties. While several other retial chains have been having a hard time Aldi and competitor Lidl have made good progress with their cut-price range as shoppers have become more and more canny as the recession has begun to grip.

Big demand for cheaper rental properties

Demand for rental properties is growing fast as first-time buyers are forced to rent because they cannot get mortgage facilities. Estate agents are reporting that the lower end of the rental market is seeing the steepest rise in demand.

Tenants looking for anything below £500 a week are faced with limited choice. In this sector of the market demand will soon outstrip supply if the trend continues. Decent accommodation at anything below £500 a week is being seen increasingly as a bargain.

However, higher up the prestige ladder, properties which are being let for more than £1000 a week are proving increasingly difficult to shift. In this sector rents have fallen by up to 30 per cent. It is thought that this is largely to do with the number of companies taking long leases for their staff beginning to decline.

According to one leading agent the supply of rental homes in London has grown by almost seven per cent – with people who cannot sell their properties renting them out – but demand for rental properties is up 20 per cent year on year.

Property on the move again

Property interest and sales are increasing. The Brook Green W14 office of leading estate agents Townends report a marked pick-up.

Close to Holland Park Townends have a 3-storey house with a fish and chip beneath. He whole development in need of refurbishment. It was worth £850,000 a year ago. It has now come back on to the market at £635,000 and the interest is intense.

Townends also had a new build in Shepherds Bush, a split-level development of just under 1,000 sq.ft. It has just sold for £390,000. Eighteen months ago it would have been closer to £500,000. The buyers – both of them in the medical industry – put down 20%. They got a Nationwide mortgage fixed for three years at 3.84%.

Across the country house sales last month were at their highest for a year. Increased interest turned into sales in January which averaged eight property sales per estate agent. This is the highest level since February 2008 and compares with the record low of five transactions a month in August 2008.

It is estimated he number of first time buyers in the market is currently running at about 25%. It has been that figure since January. In December the figure had dropped to 11%.

Mayfair is Little Moscow

They used to call the once proud mining community of Ebbw Vale in Wales Little Moscow because of its Left politics and its notoriety as a cockpit of industrial strife.
Today that mantle has been stolen for entirely different reasons by London’s Knightsbridge, Belgravia and Kensington. Little Moscow has moved to Mayfair.

In the swankiest and costliest corners of the capital estate agents are reporting an increasing interest by Russians who want to buy property in Britain’s most costly areas. The market had died down. But now the rich Russians are back in town.

These are the new oligarchs who have a particular fondness for period properties and new swish developments with 24-hour security and such niceties as a concierge service.

It’s estimated that property prices have dropped by nearly 25 per cent in some of the smartest areas. But it is still necessary if the process of looking is to be turned into buying for the sellers to clip asking prices even further. The Russians might be rich – and in many parts of London they are far from popular – but they still like to strike a bargain.

A top estate agent who did not want to be named said: “ It’s still difficult to sell or to rent hugely expensive places in those areas which became super fashionable in the boom times and which today have lost a lot of lustre. But the traditionally finest areas are still the places the rich want to live. They can walk into the West End without having the hassle of tubes or traffic jams and they have the world’s best shops and restaurants and cultural attractions literally on their doorsteps. People trying to sell or rent properties for astronomical prices in the Johnny come Lately nouveau areas must start getting real.”

Property Plight Continues

The property market will be one aspect of the economy in the minds of the leaders the G20 key economies when they meet in London at the end of this week. Dominique Strauss-Kahn of the International Monetary Fund says the world is in a ‘ Great Recession.’ He has warned that there could be civil unrest with millions of people forced into poverty.

Property in Britain is still in plight. Bank of England figures show that the gap between base rates and many home loans has widened – even though banks have slashed rates for savers and the BoE has brought in a succession of drastic rate cuts which means rates are now at their lowest ever figure of 0.5 per cent. It’s further proof of how lenders are still maintaining an iron grip – in spite of government pleas to start helping consumers.

Chase de Vere and Cobalt Capital – two leading and well-known mortgage brokers in London – have called in receivers and 100 people in the two firms have lost their jobs. It’s yet another indication of how desperate the mortgage market has become.

The Royal Institute of Chartered Surveyors has just put out figures showing that estate agents sales fell to a record low for the three months up to February. The RICS reckons each estate agent sold an average of 9.5 properties in the twelve week period. Sales by agents in London were even lower. They sold an average of six properties each.

The RICS figures confirm, though, a widely reported increase in interest among putative buyers. The limited number of mortgages on offer, the rigidity of the terms and the lenders demand for a hefty deposit are factors still discouraging sales.

Elsewhere in property, construction leader Bovis lost almost £80 million last year even though its sacked 60 per cent of its workforce. It wrote down the value of its houses and land bank by more than £93 million.

Scott Wilson the building design and engineering group has taken a battering on the stock market. It’s cutting ten per cent of its 6,600 staff and is freezing salaries. Its shares dropped 20p to 50 p yesterday. Clients in the UK and the Middle East were cancelling or postponing projects and some were abandoning projects which were in progress.

Free Rents for London Offices

London wants to tempt foreign companies by offering them rent free offices. There are too many empty offices in London chasing too few commercial tenants.

Boris Johnson the Mayor wants to lure continental businesses by offering them up to 12 months free office space and the use of a dedicated adviser to help them relocate to London.

Johnson chose Mipim, the annual European property industry bun-fight at Cannes, on the French Riviera, to launch his come to-London package.

The free rents could be worth up to £150,000 for a year. The hope is that foreign firms who shift to London will want to stay on for longer than the 12-month free trial period.

An estimated 13 per cent offices in the City are vacant which inevitably has a knock on effect on pushing down rents.

New jobs in financial services – the principal propellant of the capital’s economic growth – are down by more than 60 per cent.

New Rates & New Measures

The plight of Britain’s property, construction and adjacent industries was taken into account today when the Bank of England cut interest rates to a record half per cent and pumped £75 bn into the economy by utilising one of the most radical measures to date - QE – which stands for quantitative easing – otherwise known as printing money.

QE takes Britain into new and totally unknown waters. And reducing interest rates yet again to within a whisker of becoming zero rates is a final desperate shot at getting the economy moving again.

Of course the Band of England would have been mindful of how the Great Crash is affecting all corners of the economy. But a healthy property market is central to the well-being of the UK.

Though there has been a diversity of news lately from across the turbulent property sector most of it, sadly, continues to make worrying reading.

,Britain’s second biggest housebuilder Persimmon has ploughed into the red as the value of its land has plummeted.

It made a £780 million loss in 2008 compared to a profit of £582 million in 2007. The dive has been caused because it has had to write down £652 million from the value of its land stocks and work in progress. It also wrote down another £201 million in goodwill.

It’s been rumoured for a while that Persimmon was about to breach its banking covenants. But it’s managed to renegotiate its debts and has come up with new banking facilities. It will not – surprise, surprise - be paying a final dividend to shareholders.

Elsewhere, Smallbone – it makes £40,000 plus kitchens - is up for sale. You’d have to be a brain-dead so-called celeb ( aren’t most of them?) to install a star kitchen in the middle of the Great Crash.

A downturn in Smallbone’s business has meant that a recent refinancing package of £6million will not provide sufficient working capital to see it through the recession.

Meanwhile the vultures circle Britain’s economy. They’re picking off juicy opportunities. But hey ho! That’s the free market for you.

Luke Johnson who knows about pizzas and TV – he’s the boss of Channel 4 – has managed to raise £75 million for an investment fund.

Johnson is quoted in The Times newspaper saying he was excited by opportunities from the crunch. He was seeing “ two or three times as many opportunities as we would normally.”

Well, that should really give solace to the growing ocean of bankrupts. His fund has so far bought a posh bakery chain. Would a soup kitchen have been more appropriate?

Scouser Steve Morgan of builders Redrow is becoming known as the come-back-kid as the leader of a boardroom coup. Football fanatic Morgan – he owns Wolverhampton Wanderers and has tried to buy Liverpool FC – founded Redrow and owns 30 per cent of it. He’s now tipped as the next executive chairman. He was the chairman until 2000.

Redrow has taken a bashing. Its shares have fallen about 80 per cent in the last two years. It has said that the number of homes it sold in the last six months of 2008 had halved and its revenues had collapsed by 60 per cent. It made a loss of £46 million in the second half of 2008 compared with a £36 million profit during the same period in 2007. Redrow has halved its workforce and has taken a £24 million write down on its land values.

Time will tell whether today’s interest rate cut will help the property industry and if it will finally fire up the economy. The omens are unhelpful. There have been massive cuts in the past few weeks and they have not, as yet, hugely stimulated the economy. It is, however, still early days.

In terms of whether the lenders will pass on the half per cent cut to existing mortgagees – or whether the cut will be reflected in the range and cost of loans and mortgages available – is still unknown.

Savers will once again take another hit and meanwhile the rate at which businesses are going under is alarming. Something in the order of three people a day are losing their jobs in the UK.

Printing money is regarded by most economists as a last resort and it most definitely would not have been either Darling or Brown’s first choice. The implementation of QE is yet a further indication – if any is needed – of the depth and seriousness of the down turn.

Mortgage drought continues

Bank of England rates are likely to be cut to an all-time record low of half a per cent on Thursday. Mervyn King the governor is keeping his fingers crossed that this latest reduction will fire up the property market. With interest rates already at rock bottom levels the latest figures about the state of the mortgage market make gloomy reading.

According to BoE figures mortgage lending has contracted by 90 per cent over the past year. Estate agents are reporting an increase in interest from would-be buyers. But mortgages are still difficult to get because of the chunky deposits which lenders are demanding and because the range and scope of available mortgages has been slashed.

Those estate agents who have good contacts in the world of mortgage broking are proving themselves of immense value to putative buyers.

If the estate agents can put their buyers in touch with reliable brokers who are keeping an eagle eye on the mortgage market they are worth their weight in gold. Like everything else the mortgage market has taken a major hit. It is not as big as it was – but buyers still need mortgage brokers who can ferret out the best possible deals.

If Thursday’s expected cut fails to do the trick it’s likely that Chancellor Alistair Darling will resort to even more extreme measures. The measure that is the most hotly tipped is already being referred to by its an acronymn of QE. That means quantitative easing.

In real English QE means PMM. It stands for printing more money which can then be injected into the economy. It’s another high-risk strategy – ask any average Zimbabwean. Brown, Darling and King might have to keep their toes as well as their fingers crossed.

TV out in the Cold

There is more evidence that life is slowly coming back to the property market. Last week figures from the British Bankers’ Association – we haven’t heard much from them lately, now why should that be? – showed a second monthly increase in the number of home loan approvals.

There was a four per cent gain in January taking the total number of new mortgages being approved to more than 23,000. It’s good news but it is still more than 40 per cent down for the same period last year.

It is beginning to look as if the old adage about property still being better than most other investments remains true. The stock market has been a blood bath, sticking it in the bank now looks risky and even if the bank doesn’t go bust it pays less than peanuts on deposit accounts, and the whole range of bonds and trusts et al are all looking distinctly dodgy.

Property has taken an almighty swipe – but pity the poor devils who have seen their pensions wiped out and their stock market holdings vaporise. You can stick a pin almost anywhere in the stock market and the simple guide of highs and lows will tell a sorry tale.

Take ITV as just one example. It was launched at about £1.14 a share and Michael Grade arrived with cigar and red braces and was hailed as a Messiah. Some hope. Grade’s being paid a reported – and some would argue obscene - £2 million a year.

ITV shares are currently around 23 pence apiece. So if you’d bought £50,000 worth at its launch – your holding would be worth about a fifth or £10,000. If you’d had your money in banks or building or any other sector the damage might have been even worse.

ITV advertising is down 20 per cent for the first quarter. Most of it’s either disappeared entirely or vamooshed to the Net or one of the digital channels which relatively speaking few people watch. Like the one with the forgettable name which Richard and Judy are now on. The figures for their show slumped to 8,000. That’s less than the circulation of most weekly newspapers sell.

But back to ITV. A twenty per cent drop in advertising for the first three months? That’s just a fifth of its usual take. If it kept falling at that rate for four quarters – a year’s worth – advertising revenue would be down by 80 per cent. So ITV would have to try and get by on 20 per cent of what it’s been used to. Basically, that would be curtains.

Grade’s planning to make yet more redundancies – ITV’s now been vomiting people for months. It’s going to flog of some of its businesses such as Friends United. And it will only get a fraction of what its previous boss Charles Allen – big-time caterer turned media mogul – paid for it when he ran ITV.

And guess what? This is highly original – it’s likely to launch a rights issue to boost its finances. That will dilute still further the existing holdings. And it’s what so many other companies are planning to do now. So putative shareholders and existing ones will have quite a choice as to where they choose to invest their money. Given its appalling track record it’s unlikely most would risk their money in ITV.

There’s another stupendously original plan in mind. ITV is going to cut again its programme budget. It makes you wonder .. er, as far as the programme budget goes, isn’t that part of the reason the rot set in in the first place? It stopped making programmes anybody wanted to watch apart from downmarket gameshows and talent contests.

As anybody knows in business, or should do, it’s the easiest thing in the world to go downmarket. But it’s almost impossible to go up again.

If ITV was not wildly overpaying its bosses, if it was making proper programming such as original dramas and documentaries which would sell around the world and would give it more of an ABC1 advertising share which even in these times is better than a CDE advertising profile, and if it got rid of the massive white-elephant studios entirely which are still scattered around the country, it might fare better.

The other big problem which is like a noose around ITV’s neck is its pension fund. This is what is blighting so many different companies. In ITV’s case it’s got £800m worth of debt and in two years time it faces a red alert when a £450m bank loan has to be repaid. How’s that going to be repaid if revenue has dwindled to virtually nothing?

So bricks and mortar might have gone through a tricky time. But just think .. you could be an ITV shareholder waiting with beating heart to see what new horrors Grade is going to drop on you anytime now.

No wonder there’s a cry to see ITV merge with Channel Five ( or Five as it now ludicrously styles itself) and Channel 4. But it doesn’t sound like much of a solution to TV professionals. Three lame dogs tied together hand and foot. That would be merely tripling the problem rather than finding a solution.

And what would it lead to? More cost-cutting, redundancies, programme budgets slashed. No doubt the boss of three combined companies would earn £6 million a year, three times what Grade gets for running just one outfit. With a nice fat pension of course. But haven’t these ‘solutions’ been tried before? One could have sworn it’s what ITV’s been doing.

Why is it that all these highly paid bosses cannot come up with anything more original than endless slash and burn? Whatever happened to entrepreneurial spirit, of fighting, of growing businesses and demonstrating innovation and originality no matter how tough the climate? After all, isn’t that why they’re paid so much money? Let’s face it, you could get any old Joe off the street to come up with the blindingly obvious solutions that are being mooted at the moment. And you wouldn’t have to pay him millions of pounds either. He’d do it for a modest wage and be grateful just to have a job.

Don’t run away with the idea that ITV’s bust. It’s likely to turn in pre-tax profits of around £150 million. That would be down from £280 m in 2007. But £150m is still a lot of loot. If ITV bosses cannot get by on that they should try life in the small business sector where there is a real hardship and where thousands of thousands of people are on a knife-edge worried about a letter arriving from one of the greedy banks. Now that’s real pressure. And they’re not each on £2 million a year. You might have to sell the yacht Mr. Grade. Ah, shame.