Investing in fundamentals

This week’s housing market reports and predictions are as contradictory as they are arbitrary, which is de riguer in an uncertain world.

In times of uncertainty, investments in fundamentals are seen as a safer haven. Concerns over European leaders being able to tame the sovereign-debt crisis have further boosted demand for gold as a safe haven investment. Spot gold prices reached $1,804.10 an ounce, a seven-week high, in yesterday's trading in New York. Farmland prices have almost doubled in the past five years and are somewhere around 5% higher than a year ago. Over the past 10 years agricultural land has grown 204%; which is twice the increase shown in London property prices and notably above the 6% growth experienced by the FTSE 100 during the decade. Even best English shotguns have been targeted by investors with record prices being paid and valuations rising around 3-5% a year.

Residential property, however, which is as fundamental an investment as most of us own, is, it appears not the darling of the press it once was. It is cheaper to buy than to rent. Yet, we seem to have become immune to the charms of historically low mortgage rates and the opportunities as differentials gaps narrow.

Rising commodity and fuel prices have exerted growing pressures on household incomes. But there are waiting lists across some of the quality marques for their latest range of smaller SUVs. A client tells me track side, bookmakers have reported as much as a 20% increase in takings, certainly Ladbrokes’ recent quarterly results showed a 2.5% increase over the same period last year.

The property market in Hampshire is frustrated. We have any number of excellent buyers but a steady flow of fresh properties coming to the market is being hampered by media sentiment and a feeling that perhaps it is better to wait until spring. All of this is quite understandable but our mailing lists are full of purchasers who have see the light of buying in this climate.

November, whilst not a classic time to launch a sale, offers the backdrop of an autumnal landscape and the focus of Christmas. Yet the mild weather and turning shades has given us some wonderful days. Both rivers and the countryside teem with life and entomological hatches are still a valuable food source. Game feeders provide further food for over wintering song birds and skeins of geese can be heard at dusk as they return to the safety of the river from a day’s grazing. The clocks changing gives a welcome sunrise to us early dog walkers and it is not cold enough yet for a winter coat. But as surely as night follows day, winter is close by. If the weather patterns of the past few years are repeated, we may have to wait a long time until spring. Whilst autumn can feel like a prelude to the main event , we must be careful what we wish for. Perhaps the thing that is most missed by those who leave our island for warmer climes, are the seasons. This year, mother nature has excelled herself with the loveliest autumn display. Jack frost, surely cannot be far away.

Matthew Hallett
Partner
Head of Residential Sales, Winchester

New “Small Capital Grants Scheme” for Farmers in England poised to be launched

Following the coalition government’s decision to abolish Regional Development Agencies (RDAs) the England Rural Development Programme (ERDP) has been in turmoil.

The ERDP forms part of the Common Agricultural Policy and elements of the programme had been developed and administered at a regional level by the RDAs. Thus their abolition has left a vacuum and threatened the delivery of European funds for the remainder of the programme which runs to the end of 2013.

However the government has recognised this problem and has taken the scheme back in hand to be administered by DEFRA. What this means is that they have done away with the regional delivery programmes and developed and national programme so there is now conformity across the country.

To my mind this makes a great deal of sense because under the old scheme, whether or not a farmer or rural business qualified for grant aid depended on the programme which was developed by the various RDAs. This lead to unfairness on occasions where for instance a business in Hampshire may have qualified for grant aid whereas across the regional and county border in Wiltshire, a very similar business may not have.

As you can imagine, the process of harmonising the various regional schemes has taken time and some difficult decisions have had to be made on what schemes to drop, although the national programme is now just getting up and running. The first of the new schemes which is about to be launched is called the “small capital grant scheme”.

This is an exciting opportunity for farmers although funds are likely to be limited and so farmers and foresters should be ready to make an application the moment the grant scheme opens which it is believed will be sometime in mid-November.

The scheme will initially be open for about eight weeks before it closes to allow the applications to be assessed and then the scheme will open again for another eight weeks and so on until the funds are exhausted.

The grant aid will vary from £2,500 to £25,000 although until the rules are published it is difficult to be precise as to exactly what investment proposals will qualify but in broad terms it is understood the money will be targeted at increasing the competitiveness of the agricultural and forestry sectors.


James Stephen MRICS FAAV
Partner
Rural Practice Chartered Surveyor, Wells

Confidence and bumblebees; the great intangibles?

Aerodynamically, a bumblebee should not be able to fly but a bumblebee does not know this, so it goes on flying regardless. The housing market, it seems, like bumblebees, carries on regardless, despite seemingly unending evidence and opinion in the media that it shouldn’t.

At the start of 2007 the average property price to income ratio was 4.4, by the second quarter of 2011 this is 3.6. The cost of borrowing is at record low levels. It is, on average, cheaper to buy than to rent.

As an island with one of the highest property owning rates on the planet, ownership of your own little piece of England is as natural as it is to talk about the weather. Our country’s rich history and diversity has brought so many benefits to life in modern Britain, yet the fundamental of your home being your castle it appears is hardwired into our country’s psyche. With rising life expectancy, the prospect of actually paying off a mortgage has allowed family homes to become meaningful parts of retirement plans.

Yet the dripping tap effect of daily reporting of negative headlines has left quite a puddle. A two year old views a puddle as the most exciting thing in the world, grownups, however, tend to avoid them (although I, for one, cannot resist a splash in my wellies, when no one is looking, as I walk my dog at 6:00 each morning!). Yet properties are selling and people are moving, for the much same reasons they moved last year and are likely to move next year.

The autumn is in full flow as burning shades of leaves fall to the delight of children and the frustration of gardeners. Halloween has passed and we look forward to celebrating the thwarting of Guy Fawkes’ Gunpowder Plot . Gunpowder was discovered in the 9th century by Chinese alchemists searching for an elixir of immortality. As a byproduct of his work to improve mining safety, Alfred Nobel developed the forerunner of modern smokeless ‘gunpowders’ in 1887. The irony of these twists and turns of history is sadly apparent, as we prepare to commemorate Armistice Day at 11 o’clock on 11/11/11.

Bumblebees, regretfully are in decline. Of the 25 species found in the British Isles, three are nationally extinct and many more are seriously threatened. However, there are many plant species which require bumblebees to fertilize them. Confidence is the pollinator of our market; encouraging vendors to sell and purchasers to buy. Yet confidence can become a self-fulfilling prophesy, as those without it may fail or not try because they lack it and those with it may succeed because they have it. The housing market it seems, like the humble bumblebee is surviving. There were plans to reintroduce the short –haired bumblebee back into the wild this summer.

Also, the Heritage Lottery Fund are directing £340,000 towards the charity Bees For Everyone, a Bumblebee Conservation Trust initiative, to assist its 20,000 volunteers with an awareness campaign to help protect the endangered bumblebee.

I have high hopes for the bumblebee and a reintroduction of confidence back into the market with the optimism of a new year and all that awaits us in our Olympic year.

Matthew Hallett
Partner
Head of Residential Sales, Winchester

Bobbing for apps

I am told there are 280 buying agents in the London borough of Kensington and Chelsea alone. On some days, it feels that there are more buying agents than selling agents; which is indicative of the abundance of money over time in some parts of our market.

As half term runs into its second week, the effect of holiday’s this year has not been insignificant. This was particularly evident in April as Easter gave way to the Royal Wedding celebrations. When I moved out of London 12 years ago, the market has distinct seasons. Post 9/11 two changes have been an increase in holiday entitlements taken with a general lack of seasonality otherwise. The result had been a market that is more affected by the school holidays than it is the weather. This was borne out earlier this year when we were busier during the disruption of the snow in February than the usual watershed of Easter.

The last week in October is also the final week of the financial half year for many businesses. We are working hard to get our clients sales completed before the clocks go back. Monday is Halloween, a sixteenth century Scottish variant of All-Hallows-Even , the night before All Hallows Day. However, it is more typically linked to the Celtic festival of Samhain, (originally pronounced sow-an or sow-in) meaning "summer's end". Whilst the warmth is fading in the air as the sun no longer rises to its summer zenith, the magic of autumn is now in full flow. As the tree opposite my office turns burning shades of amber, in market terms it is not the weather that makes the difference rather that families are together over half term. The autumn brings fresh challenges in marketing campaigns; clients are asked to keep lawns free of leaves and photographers chase the sun, which like early season pheasants is reluctant to gain altitude.

The market has some really high quality buyers, ready, willing and able to make a Christmas move. Yet the choice is limited. As the countryside offers everything from field sports to long walks, Hampshire firesides are a special retreat from the rigors of the city. Despite European financial turmoil, interest rates are pegged at record low rates and the FTSE seems as resilient as ever. What better a time to buy or sell a Hampshire home? Demand is still high, supply is low and the countryside becomes even more magical as autumn gives way to winter. Hibernating wildlife cram for winter, yet I cannot help thinking we have not seen the best of this season and our harvest festival could turn into a winter of contentment.

Next Saturday is bonfire night. As fires and fireworks are enjoyed throughout the country in remembrance of the events of 5 November 1605, the cold becomes a welcome visitor. Whether bobbing for apples or enjoying all that a gunpowder plot of your own can bring, spare a thought because everything makes this time of year special is unaffected by headlines and a market that is frustrated.

We launched our new Carter Jonas iPhone app this week which is now available from the App Store for iPod Touch and Apple iPhone.

The last twelve hours have seen the app downloaded as far afield as China, the former Yugoslavia Republic of Macedonia, Slovakia and the United States. A recent review read; “Quick and easy to use - I like this app as it is straightforward, easy to use and I found it very quick too. Great descriptions and photos and easy link to the map for location too”

The Carter Jonas property app will allow you to search for the latest residential sales and lettings from Carter Jonas.

The functionality includes a shortlist property for later review, search for properties near you based on your GPS position, alternatively search for properties based on your desired town, county, city or postcode, email and telephone the branch directly from your iPhone, view photos and read about the key features of the property, find a Carter Jonas office near you, quickly search for new properties based on your previous search criteria and email your favourite properties to your friends and family.

Matthew Hallett
Partner
Head of Residential Sales, Winchester

The Badgers and Bovine TB issue

The Badgers and Bovine TB issue rumbles on with a recent debate in Westminster Hall where Farming Minister Jim Paice strongly defended the government’s proposal to introduce a trial culling programme of badgers.

Much of the debate surrounded the science behind the government’s proposals but Jim Paice responded knowledgeably stating that, “I do not believe that doing nothing should be an option”. He went on to explain in some detail that it is widely accepted that a badger cull as proposed would reduce the incidence of TB in cattle by 16% and explained further that the latest “science shows that the incidence of TB in the culling zones fell by up to 34%”

It seems to me the debate about the science will go on forever but what is also clear to me is that if we only try to control the disease in cattle and pay no attention to badgers which are known to be a source of infection in cattle then the incidence of TB in cattle will continue no matter how many cattle are tested and subsequently slaughtered. That is not to say that other avenues of research should not continue.

For instance an effective injectable vaccine has been developed for badgers although it is not practical to administer on a wide scale while an effective oral vaccine unfortunately appears to be many years away. As far as cattle are concerned an effective vaccine is thought not to be far away but there will then be major problems with the EU in getting agreement to use it.

So while the TB problem is getting worse both financially and geographically it seems the government’s proposals to introduce trial badger culls is coming nearer to fruition but it is also clear from Mr Paice’s statement that there will be a sting in the tail for the wider farming community in that the cattle testing regime is likely to become tighter. As Mr Paice stated in the debate, “We propose to reduce or abandon compensation where farmers are overdue a TB test.” So the bovine TB debate continues and although it appears this government is prepared to implement some form of control of badgers this will be accompanied by ever more stringent cattle testing and biosecurity measures on farm.

James Stephen MRICS FAAV
Partner
Rural Practice Chartered Surveyor, Wells

The property market and other paradoxes…

September was a record month, both for temperatures and our Winchester business. Hampshire harvests were safely gathered in and although rivers were low, there were some lovely days sport to be had with good grilse runs and some large late season brownies.

October has been marked by England’s departure from the Rugby World Cup and some choice phrases from the Governor of the Bank of England; “It is unfamiliar – that’s because this is the most serious financial crisis we’ve seen, at least since the 1930s, if not ever. And we’re having to deal with very unusual circumstances but react calmly to this and to do the right thing.” Mervyn King’s words, whilst chilling are also apt for the Hampshire property market, where we are contending with very unusual circumstances indeed. The dearth of prime properties for sale is more extreme than usual, yet buyers are less willing to compromise. Whilst there are plenty of buyers looking for good country houses, there is currently less urgency to purchase and the negotiations are more complex than usual. When markets are faring well, buyers are more prepared to compromise, so if 7/10 of their boxes are ticked, they are more than likely to proceed. Currently, however, buyers do not want to consider any risk whilst the markets are uncertain and would much prefer for all ten boxes to be ticked, which can sometimes prove to be an unachievable aspiration. Buyers are reluctant to bid, in effect, against themselves and in many cases, would prefer to wait until there is competition to confirm the level of market value. All of this slows the process whilst the battle of wills is played out.

The oxymoron of a shortage of properties and buyers unwilling to compromise is alien to Hampshire and in stark contrast to conditions in London. The prime London market, which is dominated by international buyers, is moving much more quickly; there is a shortage of property coming onto the market so buyers know that they have to act quickly in order to compete. A mild autumn and a lively London market are the usual indicators of a busy October in Hampshire but sellers of prime property are in short supply. Negative market comment in the media appears to have become a self fulfilling prophesy; clients, like early season partridge are, it seems, understandably easily spooked. Perhaps the most frustrating paradox is the lack of property creates a lack of property; potential vendors are unwilling to enter the upheaval of a sale without a reasonable chance of a suitable alternative home to trade up or down to, thus there is a logjam.

I have just returned from my yearly pilgrimage to Scotland, in pursuit of the silver tourist; Salmo salar and whilst a wonderful week was had, as always, we were plagued by river water levels. Salmon get trapped in pools, waiting for a spate large enough to return upstream to their redds; the Hampshire market has similarities with buyers and sellers in a holding pattern, waiting for the flow of activity to return.

I am regularly updating buyers and their agents and hope that the current impasse in the country market can be resolved before the city Christmas bonuses are announced.

Matthew Hallett
Partner
Head of Residential Sales, Winchester 

Wheat prices on the slide

Arable farmers will be looking with a degree of gloom at the recent trend in wheat prices which has seen them steadily fall since a peak in April of over £200/t to £142/t last week, which is the first time in over a year that this year’s price has dropped to lower than it was a year ago. Further a year ago wheat prices were rising on fears of world shortages as Russia had banned wheat exports but in contrast the market pressures are in reverse this year with fears of falling demand due to the slowdown in the world economy and generally better than expected harvests. It seems there is little a farmer can do to influence these international forces and so they must turn their minds to improving the efficiency of production in other ways.

In this respect many readers will have notice that in recent years there has been a trend away from ploughing land following harvest towards what is known as “minimum tillage” where the farmers pass over the stubble with a various types of machinery which usually comprise a combination of discs and tines of one form or another. The seed for the next crop is then “direct drilled” in to the seed bed which has been created. This makes sense on various levels; first it maintains the soil structure which is otherwise broken up during conventional cultivation techniques because a plough basically inverts the soil. Once ploughed the soil has to be broken down again by various other machines to create a suitable seed bed in to which the next crop can be drilled. This work is in itself expensive in terms of machinery and fuel.

At another level the minimum tillage techniques are also believed to preserve an better population of earthworms which help with the soil structure and having been on one farm walk earlier in the year, it was clear that this technique had retained far more moisture in the soil than would otherwise have been the case had the soil been ploughed. This has been particularly important in recent dry years when spring sown crops in particular have suffered from the drought conditions.

However, what I had not realised until I read a recent report of some field trials is that there can be a very significant benefit in yields for wheat crops which have been the direct drilled rather than using conventional cultivation techniques.

A recent study carried out in Suffolk has shown that the average yield from 31 plots which were direct drilled was 3.7t/acre as opposed to an average yield from all the conventionally drilled plots of 2.9t/acre. This represents an increased yield of over 25% which seems quite staggering to me and begs the question why everyone is not adopting this technique.

One reason is perhaps the fear that it is more difficult to control weeds, which is probably true, particularly for such things as “black grass” which can be very pernicious but the benefits of minimum tillage do seem quite compelling and so I suspect this will be an increasing trend for many arable farmers.

James Stephen MRICS FAAV
Partner
Rural Practice Chartered Surveyor, Wells