There has been a lot of noise lately about property prices in London, particularly in the central areas. The mass media, sections of the government, financial “experts”, concerned citizens – are saying that our prices are too expensive, overpriced and unaffordable. And that values can’t continue to rise. Compared to what?
Best-selling author and international marketing and branding guru Seth Godin has some amazing insights in to pricing – particularly around the increasing value of assets.
Here’s what he says:-
- Things that are going up in value almost always appear to be overpriced.
- Property, fine art and start up investments have something in common: the good ones always seem too expensive when we have a chance to buy them. (And so do the bad ones, actually).
- That 2 bedroom renovator, half a mile from Marylebone High Street is going for £1.5m? You didn’t buy it when it was only a tenth that, when it was on a block where no one wanted to live. Of course, if everyone saw what was about to happen, it wouldn’t have been for sale at the price being offered.
- And you could have bought Apple stock in 1988 for $22 per share (which was labelled overpriced) when no one thought they had a chance of succeeding…it has been as high as $140.09 (USD) since.
- And the lousy investments also seem overpriced, because they are.
- Investments don’t always take cash. They often require our effort, our focus, or our commitment. And the good ones always seem like they take too much, until later, when we realise what a bargain that effort would have been.
- The challenge isn’t in finding an overlooked obvious bargain that people didn’t notice. The challenge is in learning to tell the difference between the ones that feel overpriced and the ones that actually are.
- The insight is that when dealing with the future, there’s no right answer, no obvious choice—everything is overpriced. That is, until it’s not.
So how can we tell what is overpriced property?
It’s not as easy as it seems. There are so many metrics you can consider, analyse and agonise over. Average prices, median prices, price to income ratios, debt to income ratios, yields, loan to value ratios – blah blah.
We asked you earlier – overpriced compared to what?
Since property prices have been recorded in London, every 10 years, without fail and on average, properties have doubled in value. The world won’t stop, the wheel will continue to roll on and those on the ladder will take advantage of it.
Of course there is a point in every price cycle when houses are overpriced (you’ll know this as the peak of the market – London, most recently in 2014). And then when the cycle is finished, time takes over, prices flatten out or drop (where we are now), incomes rise and then comes a point in the future when the homes don’t look overpriced anymore (the market towards the end of 2017 and for the next 2-3 years). They look affordable. And people will buy in droves again *cue the lion king circle of life music*.
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