Property, Credit crunch and Investment – Part I

Property, Credit crunch and Investment – Part I

This short analysis is prepared to assist a private sector house builder facing the credit crunch. In the next posts we provide strategies and insights in evaluating the development scheme and improving its performances…

Location Analysis

The site has the advantage of strategic location nearby the City of London. We found only a small number of local shopping facilities, suggesting the need for small scale retail units. Residential streets north of the property contain a mix of older homes and new infill development. Employment centers are accessible by car and public transport.

Market Area Definition

Interviews with estate agents identify the primary market area (PMA) with the following places: Gloucester City, Audubon, Brookway and Oaklyn.

Housing Characteristics

Homeowners occupy 70% of all housing units in the PMA, vacancy rates are between 3% and 5%.

Demographic Characteristics

The suburb has a total resident population of 1.000.000.

Inflation and Interest Rates

The Monetary Policy Committee has nominal target of 2% (medium term) for the CPI. The average loan for the construction market trade at 5%, but conditions may vary.


The unemployment rate in the suburb rose to 2.9% in 2009 (4,5% national average), a 1.2% increase is partially offset by an increase in goods producing sectors.

New Construction Activity

In most of the jurisdictions within the PMA, there are no new developments of similar units while the commercial sector is experiencing some growth.

Housing Supply

We find an average price of £ 120.000 for 800 homes sold in the PMA with characteristics similar to the ones developed; we note a decrease in the last 6 months in all but two of the zip codes within the PMA mainly due to the tight conditions of the mortgage market.

Housing Demand

We note an increase in the number of households, the need to replace obsolete units, shifts in tenure by renters in PMA becoming homeowners and changes in household income and in the prices of the units available. Affordable housing units will serve households with income ranging from £ 15.000 to £ 35.000, we estimate a capture rate of 2% of age and income qualified households. Market rate units, for which we estimate a capture rate of 5%, are targeted to the income band from £ 35.000 to £ 65.000.

Buyer Profiles and Home Features

It is expected to serve first time buyers with a small percentage of senior households. While not provided in the units object of development, we note that surveys report the availability of additional storage area and energy saving features as characteristics that could command +8% on average prices.

Escape Way

Just in case things turn very bad (i.e., political turmoil, economic distress, currency devaluations, etc.) and the State is not supportive, an escape way allows to move capital very quickly leaving only liabilities in view of negotiations.

See the next part of the post.

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