Recession – what recession?

So we are back in recession and can confirm the ‘double-dip’ – well technically we can anyway. But should we really give this apparently depressing news anything more than a passing grimace as we get on with our job. If you look back over the last few months, GDP has been up a bit and down a bit. There is no doubt that we face some major challenges, not least where some of the property debt might come from to replace that which has to be renegotiated over the next 2-3 years, but the majority of business are getting a bit fed up with being in recession. They are keeping their heads down and just getting on with life.

The British Chamber of Commerce summed up the position succinctly in its press release which I quote below.

“The latest ONS data shows a fall in GDP of 0.2% in the first quarter of 2012, pushing the economy into technical recession. The figure is disappointing, and paints an unduly pessimistic picture of the state of the economy. Many commentators will question the accuracy of the data, particularly as it is based on only 40% of the information used for these estimates. As well as large falls in the construction sector, the estimate by the ONS that service sector output rose by only 0.1% on the quarter will be seen as too low by most analysts.

“Business surveys, including the BCC’s Quarterly Economic Survey, have shown a more positive picture, and we believe these give a more accurate indication of the underlying trends in the economy. We think it is likely that the preliminary estimate will be revised upwards when more information is available. For the time being, the main priority is to minimise any possible damage to business confidence. These figures are at odds with the experiences of many UK businesses, which continue to operate with guarded optimism.

“But it is clear that economic growth in the UK remains much too low. We need to see a reallocation of priorities within Plan A that will bolster business growth. That means reducing regulation, encouraging exports and improving infrastructure. While the government must persevere with plans to reduce the deficit despite these figures, it must introduce more measures to empower businesses to drive recovery.”

It would be a tragedy if we allowed the recent news to dent the vital confidence which allows business to invest in the future, because it is that investment which will drive the economy into more sustained growth.

Chris Haworth
Head of Commercial Division
Commercial, Cambridge

T: 0207 016 0729
E: chris.haworth@carterjonas.co.uk

Brazil: a tough nut we need to crack

Carter Jonas partner and joint head of its commercial agency and professional services in the eastern region, is not the only Britain who’s nuts about the Latin American country’s economic ascendancy.

Brazil puts the ‘B’ in the mnemonic BRIC as one of the darlings of the developing economies alongside Russia, India and China.

It’s a country top of mind of this country’s elite. Not only did the third in line to the British royal throne visit Brazil with a delegation in March but it also got a mention at the dispatch box in the House of Commons when the Chancellor of the Exchequer delivered his Budget statement.

It’s no wonder. March saw this Latin American nation overtake us in becoming the sixth-biggest economy in the world - growing by 2.7 per cent last year whereas UK growth was 0.8 per cent.

In such a vast country of topographical contrast, Brazil’s economic boom is down to high food and oil prices. It’s now the world’s ninth largest oil producer and its government aims for a top five ranking.

The UK is Brazil’s fourth largest foreign investor and the George Osborne was clear in his Budget speech in saying we’re looking to create a climate for export finance which will support our smaller firms in such new markets as Brazil. He also - in contrast to previous default positions of western states of old - was pointed about not wanting ‘protectionist rhetoric’ which, in the past, would have seen a regime of tariffs and heavy protection of currencies in challenging economic times.

Much has been said of the growing gap between rich and poor in our country, with predictions that austerity measures will see this gap increase. With a growing economy, Brazil has seen a decline in absolute and relative poverty in the past ten years, during which time the poorest half of a total population of circa 190 million saw incomes grow by up to 60 per cent.

The source of that statistic tells its own story. It’s Brazil’s Getulio Vargas Foundation which some in the foreign policy field regard as one of the world’s top five policymaking think-tanks. It has links with partner educational institutions such as Harvard Law School, St Petersburg State University, London Business School and, closer to home in our region, Cranfield University.

HRH Prince Harry was in Brazil for the Rio de Janeiro launch of the GREAT campaign which is part of the Government’s drive to capitalise on the international spotlight we’re in this year in not only hosting the Olympic and Paralympic Games but it’s a year which sees the Queen’s Diamond Jubilee.

The GREAT initiative’s Rio launch was anchored around a £25 million campaign to encourage Brazilians to visit the UK. GREAT will see campaign launches in Mumbai and Shanghai too.

British brands on display at the launch included Bentley, Aston Martin, Burberry and Stella McCartney, who is both a brand and the fashion designer responsible for the Olympic wardrobes of Team GB.

Indeed, we pass on the Olympic baton from London in 2012 to Rio de Janeiro in 2016 and, in between, Brazil hosts the 2014 FIFA World Cup.

Even though Horse Guards Parade on Whitehall is the scene for the beach volleyball Olympic event, it’s a world away from Ipanema or Copacabana. But wouldn’t it be inspiring to think that, alongside some of the 2,000 plus tons of sand scattered across the London landmark for the event, some of that Brazilian economic fairydust might be mixed in so we can maximise the chance to shine that this summer will bring Team UK plc? .

Will Mooney MRICS
Partner
Commercial, Cambridge

Is buying a property as complicated as you think?

In recent times it has been difficult to escape from the general negativity surrounding the housing market whether it is a newspaper, television or radio report discussing various factors from economic uncertainty to limited finance options. There aren’t too many stories around that offer buyers and first time buyers much confidence in the current market. Through recounting my recent house-buying experience, i hope that i can offer a more positive insight.    

My family, like many others decided post Christmas that a house move was now essential. We had been putting it off for some time but the need for more space was becoming critical. Having identified the most suitable property, we submitted an offer on the 21st February and signalled our intention to complete by the 23rd March to take advantage of the first time buyer stamp duty relief scheme. We were able to exchange contracts on 13th March and we successfully completed on the 23rd.

Within those three weeks, between the offer being submitted and contracts being exchanged we had to apply for mortgage which was to be 85% of the value. Carter Jonas do have a Financial Services arm or an affiliated company so i received no specialist treatment as some may think, I merely selected a broker who came highly recommended, explained the criteria and let him advise me accordingly. The process couldn’t have been smoother; the valuation was booked in quickly, the report emailed to the lender the same day as the valuation and the mortgage offer followed 48 hours later. Furthermore I received a text update from the lender at every step.

I am not naive enough to believe that every transaction can be as straight forward as this but there is some specific advice that i believe that will benefit all buyers to help iron out any potential problems.

1. Carry out proper research, not just on the properties that you are looking at but the affordability. Research the amount of money that you are able to borrow prior to viewing properties so that once you decide to move on one you can with confidence and you’ll better know your budget and negotiating margins as a result.

2. Select a good broker and solicitor; they will save you time and money in the long run. My broker researched not only the lenders that i could go to but also the backlog of paperwork of each to ascertain who was able to perform within the timescales and the difference in the rates only amounted to a couple of pounds a month. Cheap solicitors commonly found on price comparison sites will cause you more problems and stress and eventually more money than a local, knowledgeable solicitor with experience. Pay a little more upfront and have the security that matters will be dealt with swiftly, professionally and that protect your best interests.

3.Finally, commit to the purchase. I found it strange sat with my solicitor as she told me that a large percentage of clients use the signing of the contract meeting as a way to try and re-negotiate or specifically look for a problem as justification for pulling out of the purchase. If you are unsure at the outset don’t proceed, you will save yourself and others time and money and when the right property comes along you will be certain and once it does, commit to buying, look for reasons to buy not for reasons why not too.

What this whole experience has taught me and what i am keen to share is that many of the perceived problems with buying a property currently seemed to be manufactured. Yes i appreciate not everyone has had or will have the same experience as me, however if you approach the purchase from the right angle, do your research, take time to find the right people to work with and if you are happy then buying a property can be very a very straightforward and stress-free process.

Patrick Brady
Associate
Residential, Bath

MIPIM - glamorous surroundings, serious intent

If you are a reader of a certain popular Sunday paper, you will have learned that MIPIM, the international property conference which takes place in Cannes each March, is a place where local authority councillors go to swill champagne at the ratepayers expense and most men spend the rest of the time, when they are not swilling champagne, in the arms of the many prostitutes that allegedly flock to Cannes for the MIPIM week. I must admit that the article made me feel a bit inadequate. I certainly have had the occasional glass of champagne at MIPIM and, even more occasionally, have had a glass or two with local authority councillors, although it is normally beer, but, in all the 13 times that I have attended MIPIM, I have never once knowingly talked to a prostitute. I think I saw one once – well two actually – when two statuesque and very attractive blondes with a heavily muscled minder appeared to be working the foyer at the Carlton Hotel, but even now I am not sure.

It is true that MIPIM takes place in wonderful surroundings – glamorous villas, luxury yachts and 5 star hotels – with delicious food and drink, but the vast majority of attendees go there to work very hard. The rather pathetic article in the Sunday Express is an easy one for a lazy journalist to write but I remember a few years ago, sitting beside a journalist from the Yorkshire Post at a dinner hosted by Bradford Council. I asked him what he made of MIPIM. “I came here to write an article about local councillors spending the ratepayers money on a champagne junket in the South of France” he said. “But, having seen how hard they have worked, the real contacts they have made, and what they have achieved for their area, that is not the article I am going to write at all”. It is a brave decision for a local authority to attend MIPIM, particularly when times are hard and Government cuts are affecting every authority in the land but it is a hugely worthwhile investment in the future of their area and an unrivalled chance to engage directly with investors, and those who direct investment, to ensure that opportunities for growth – and jobs, and housing – are given the best possible chance of success.

So what was the mood of those of us who were concentrating on the UK property market for 2012 and beyond? The overriding impression is that there is a huge amount of equity available to invest in opportunities, but very few opportunities which match the risk criteria of those investors. It is rare for an agent to be so popular but with the many developers desperately seeking opportunities to invest, anyone who might be able to source those opportunities was feted. The real challenge , and possibly therefore the opportunity, comes on the debt side. In the heady days of 2005 – 2007, a huge amount of debt was written on property transactions normally on a 5 – 7 year term. In the next 2-3 years, some £135bn of this debt is coming up to be refinanced, and many of the traditional debt lenders are out of the market. That, coupled with the more stringent requirements to be imposed on the banks by Basel III, means that banks can no longer ‘pretend and extend’ so we are beginning to see the first signs of new debt providers – the insurance companies, equity funds and the like – coming to the market. So the second most popular people at MIPIM seemed to be those who have access to that debt. The by product of all this of course is that there is a greater likelihood that much of the property which has been locked away under the control of the banks, because low interest rates and outstanding debt exceeding value have made bringing property to the market very unattractive, might actually now start coming to the market – and whilst this potential flood of properties might have a significant downward effect on property values in the short term, it is a real time of opportunity for the well funded developer that has the skill and innovation to bring some of these neglected assets back to life. It is going to be a painful time for some of those banks though, because they are going to have to take some fairly serious further writedowns before they come out the other side.


Chris Haworth
Head of Commercial Division
Commercial, Cambridge

T: 0207 016 0729
E: chris.haworth@carterjonas.co.uk

Don't build on my back yard

So we are back in recession and can confirm the ‘double-dip’ – well technically we can anyway. But should we really give this apparently depressing news anything more than a passing grimace as we get on with our job. If you look back over the last few months, GDP has been up a bit and down a bit. There is no doubt that we face some major challenges, not least where some of the property debt might come from to replace that which has to be renegotiated over the next 2-3 years, but the majority of business are getting a bit fed up with being in recession. They are keeping their heads down and just getting on with life.

The British Chamber of Commerce summed up the position succinctly in its press release which I quote below.

“The latest ONS data shows a fall in GDP of 0.2% in the first quarter of 2012, pushing the economy into technical recession. The figure is disappointing, and paints an unduly pessimistic picture of the state of the economy. Many commentators will question the accuracy of the data, particularly as it is based on only 40% of the information used for these estimates. As well as large falls in the construction sector, the estimate by the ONS that service sector output rose by only 0.1% on the quarter will be seen as too low by most analysts.

“Business surveys, including the BCC’s Quarterly Economic Survey, have shown a more positive picture, and we believe these give a more accurate indication of the underlying trends in the economy. We think it is likely that the preliminary estimate will be revised upwards when more information is available. For the time being, the main priority is to minimise any possible damage to business confidence. These figures are at odds with the experiences of many UK businesses, which continue to operate with guarded optimism.

“But it is clear that economic growth in the UK remains much too low. We need to see a reallocation of priorities within Plan A that will bolster business growth. That means reducing regulation, encouraging exports and improving infrastructure. While the government must persevere with plans to reduce the deficit despite these figures, it must introduce more measures to empower businesses to drive recovery.”

It would be a tragedy if we allowed the recent news to dent the vital confidence which allows business to invest in the future, because it is that investment which will drive the economy into more sustained growth.

Chris Haworth
Head of Commercial Division
Commercial, Cambridge

T: 0207 016 0729
E: chris.haworth@carterjonas.co.uk

Keep Focused on What You’re Good at and That Should Keep you and Your Business Interests Smiling

In the musical Annie, the wee orphan girl sang ‘You’re never full dressed without a smile”. I can’t recall whether this was before being taken under the wing of Daddy Warbucks but, with or without finding my own millionaire patron, I’m determined to be more positive this year.

It doesn’t come easy to those of us on the genetically dour side of the Celtic tracks. But, one month in and my disposition is still sunny. Apparently, being - or at least appearing outwardly happy - is in-vogue now too.

While the Duchess of Cambridge has a lot to be genuinely happy about, she positively beamed forth with teeth-showing and dimpled cheeks on the front cover of January’s Tatler magazine. I’m also advised that models in adverts for luxury brands Mulberry and Chanel have dropped the moody pouts in spring campaigns, whereas Bally’s models are giddy with giggling and goats in the shoe brand’s latest shoot.

While it’s not exactly mirth, my sustained positive outlook is kind-of puzzling given the relentless churn of bad economic news that just keeps on coming.

I still went to bed in a good frame of mind at the end of a day last month which saw £5 billion wiped off the share value of a company which has been the 6th largest property seller since 2007 and which is also a significant tenant and contributor of rent to some of the country’s biggest commercial property companies.

I’m talking Tesco.

It wasn’t that I was positive just because I had sealed a deal with Sainsbury’s on a unit in Cambridge at the end of last year – I’m not naïve. The ‘model’ supermarket not performing indicates it’s not rosy for the others who’ll surely follow in Tesco’s wake come the reporting season.

Yet one person’s bad news gives somebody else a lift.

On that very same January day, when the Royal Bank of Scotland announced the shedding of 3,500 jobs, it saw its stock rise by 5.5 per cent. Mixed blessings for those employees facing redundancy yet who are also UK taxpayers and thus RBS shareholders of 82 per cent’s worth of rising shares.

Boil down the analyses and commentary on the bad fortunes of Tesco and RBS and it seems that, at the core, each company had moved away from the essence of good business and that is knowing and doing what you’re good at.

Tesco CEO Philip Clarke admitted that the supermarket’s focus on expansion beyond UK shores had been a distraction. This and a seasonal price drop in-store which it had adopted as an alternative to its usual, more targeted ‘couponing’ of its loyal customers had contributed significantly to its falling fortunes.

Equally, the expert view of RBS is that its desire to divest itself of its high stakes investment banking activities will bring nothing but good. Its pre-bail out activities had diverted RBS from what it was really good at - being a very fine high street retail bank whom its Scots customers always use to refer to with affection as ‘The Royal’ as opposed to its auld enemy on the high street, the plain old ‘Bank of Scotland’.

So what’s the lesson? Keep focused on what you’re good at and that should keep you and your business interests smiling.

Will Mooney MRICS
Partner
Commercial, Cambridge

Badger/Bovine TB

In recent years I have become increasingly concerned by the effect TB is having on the welfare of our farming clients. Few people actually realise the emotional strain that is put upon families who have devoted their lives to farming, only to watch animal after animal test positive for TB in the knowledge that these stock, some of which may have been bred for generations, are now condemned to slaughter.

Farmers are often portrayed as being “hard” and “unfeeling” but in reality if you are to make a living out of rearing livestock you do need to have an empathy with your livestock after all if they are unwell they will neither grow to put on meat, become pregnant to provide lambs or calves nor produce milk. Thus the welfare of their animals is very important to farmers but they are also realists in that where there is life there is also death which is something the rest of society has, in large part, become sanitised from.

Despite this acceptance of death, the impact of the premature slaughter of livestock because of TB is often hard to handle both emotionally and financially. Farmers do receive compensation for livestock lost to TB but this is rarely sufficient to replace the livestock and goes nowhere at all to compensate for the additional costs and losses resulting from a TB breakdown such as additional feed required to sustain cattle that cannot be moved off the holding or the loss of milk production.

So, it was with interest that I recently attended a farmers meeting hosted by the Shepton Veterinary Group where Paddy Gordon, partner in the practice, spoke to a room full of dairy farmers all eager to learn how they can help reduce the impact of this devastating disease. Paddy who is a Cambridge graduate, part time lecturer at the Royal Veterinary College, winner of various national awards as well as a practicing vet is no intellectual slouch and he stated that the current policy of TB control is simply not working.

The disease has spread at an alarming rate in the last 25 years; in 1986 235 cattle tested positive in the whole of the UK while in 2010 over 28,500 cattle tested positive. Surely this is evidence enough that the current policies are not working. In Somerset, which has escaped the worst effects of the disease until the last 10 years, the number of new herd break downs increased from 34 in 2001 to 303 in 2010. Paddy Gordon estimated that in the last 10 years the number of herds under restriction has also increased from 2% to 15% in the county.

Paddy explained that farmers are sceptical about the accuracy of the TB test but he rebutted this assertion by explaining that the test is pretty accurate and the reason there are so many “false positives” is more likely to be because evidence of the disease has not become physically visible at the abattoir rather than the animal actually not being infected. Of more concern is that the test misses some infected animals at the early and late stages of the disease.

In fact Paddy thinks this is a significant issue which is why herds do need to be tested frequently to reduce the chance of cow to cow transmission. However he also went on to explain that however frequently the tests are carried out, if there is an external source of infection which is not being tackled the disease will never be brought under control.

In this respect, badgers have been identified as the primary wildlife source of the disease and recently the government has announced that it will allow badger culling in pilot areas. Paddy went on to address the assembled audience on the practicalities of doing this in the Shepton Mallet area. The theory is that if the badger population can be reduced by 70% in a minimum area of 150 sq Km then the disease will reduce in cattle by as much as 28%. By way of example, 150 sq Km would represent a circle around Shepton Mallet extending as far as Oakhill in the north and Ditcheat in the south.

It was recognised this would be both very controversial and a massive logistical task but many farmers are desperate to reduce the impact of this disease on their lives and would be willing to pay for the cull which would be carried out by trained marksmen. In the meantime many farmers are already introducing additional biosecurity measures, trying to exclude badgers from cattle buildings and feed stores but this is not easy because a persistent badger can get through a three inch gap and obviously when cattle are out to pasture this can be even more difficult unless we have mains electric fences around all fields which would no doubt also be unpopular with walkers and the like.

So, what can be done? Well Paddy Gordon’s view, which seemed to be accepted by those present was that in the short term a badger cull, alongside continued cattle testing is the only way of tackling the disease although in the long term an effective vaccine for badgers will ultimately be the answer.

I find it sad, having been involved in research in to badgers and bovine TB back in the late 1980s that the arguments over this disease have hardly moved forward since then which is probably why the disease has continued to spread. Therefore regrettably I think the time has now come for action on badgers although at the same time I think as much resource as possible should be focussed on the development of an effective oral vaccine for badgers because that will probably be the most effective solution to a problem that everyone would like to see behind us.

James Stephen MRICS FAAV
Partner
Rural Practice Chartered Surveyor, Wells
T: 01749 683381
E: james.stephen@carterjonas.co.uk