Are financial institutions really the best place to invest for a better financial future?

Millions of people invest on regular basis in products and plans offered by insurance companies and financial institutions. They invest for variety of reasons including retirement, higher education for their children and repayments of their mortgages, amongst many others. They trust these institutions because they believe that their investments will perform better in their safe and capable hands. However, investors’ expectations for a reasonable return on their investment often turns to disappointment, shock and anger.

To illustrate, in 1987, I purchased an endowment policy. This was arranged so that on its maturity in 2012, it could pay back an interest only property loan. I have now been informed that after completing 25 years of monthly payments at £250 per month - amounting to a total investment of £75,000 - I shall receive an absurdly low amount of £95,872.10. If I had deposited £250 a month in an ordinary building society account, earning an average of 5% interest for the last 25 years, my money would have grown to approximately £150,000.

In contrast, during the same time period, many investors who decided to invest their money themselves have managed to profit well from their investments. A good example is the two partners that I had the pleasure of introducing to the property industry in 1986. Their clever investments in commercial properties have made them into one of the wealthiest, most successful entrepreneurs in the UK today.

These two did not sit back and hope that their investments would grow in the hands of others. They looked for commercial properties that represented good value and were occupied by long-term tenants with strong covenants. Once they found such a property, they looked for finance with attractive terms from banks or building societies. Having secured the finance, they then negotiated hard and bought the property at the lowest possible price. They then waited for the value of their purchased property to increase so that they could use their increased equity to refinance and buy more properties. A brilliant yet simple, old-fashioned method of building a property portfolio.

I believe the illusion that financial institutions are the best place for people to invest for a better financial future, is slowly dying. More and more investors are realising that many of the complex policies and plans sold to them were created to benefit financial institutions and their intermediaries at the expense of their investors. Hence, the reason that an increasing number of people are now looking to invest their money directly. The significant increase in the number of new people attending property auctions looking to purchase income producing properties is a good example. As they say, if you want a job done right, do it yourself. In the case of an investment, if you want your money to grow invest it yourself.

Mamad Kashani- Akhavan

Are property valuations really only worth the paper they’ve been written on?

I have been buying and selling properties in London for myself and many others for the last 30 years. During this period, I have come across many property professionals that provided good advice to their clients and others that definitely did not.

To illustrate, in the early 80’s I had the pleasure of knowing an old school estate agent by the name of Mr Scott Dalgleish. Mr Dalgleish knew all the properties in Knightsbridge personally. He knew which properties would get better morning sun, which ones were noisy because they were tube effected and he even knew which buildings had good or bad porters/caretakers. Mr Dalgleish’s extensive knowledge of the market and his many years of experience working in Knightsbridge enabled him to provide advise that was accurate and could be relied upon.

In contrast, on 18th January 2011, I instructed one of the leading firms in the UK to provide a valuation for a freehold building that we wanted to buy in Knightsbridge. Ten days later, I received a draft valuation report. The report contained pages of useless copied information that frankly could have been put together by my 8 year-old daughter. This leading firm charged thousands of pounds to conclude that the property was only worth an absurdly low figure of £805 per square foot.

However, once I challenged the valuer who had put together the report, he was adamant that his valuation was correct. His argument was that he had followed all the correct procedures and had considered all the facts. However as the conversation progressed, it become obvious that he did not really understand the uniqueness of the Knightsbridge property market and when I asked to be shown any other freehold in Knightsbridge that could be bought for less that £1000 per square foot, of course he could not come up with anything as there was no such property in Knightsbridge.

Unfortunately, over time, the idea that only large firms are capable of producing valuation reports that could be relied upon, has taken hold. Today, almost all of the property advice and valuations for large properties are provided by a handful of large well-known firms. However, as the above example shows, these firms often lack local experience, knowledge and the basic common sense required to provide property advise that is accurate and reliable.

In my opinion, the idea that large firms are better in giving property advise than smaller firms with experience and intimate knowledge in their own area of expertise, is absurd. No two properties are ever exactly the same and no amount of formulas or paperwork can ever replace local experience and knowledge.

Many, including banks, have found to their cost, that some of the impressive, glossy valuation reports prepared for them by well-known firms are only worth the paper they’ve been written on. As they say, never judge a book by its cover. In the case of a valuation report – never judge the accuracy of a valuation report by the name of the firm on its cover

Mamad Kashani- Akhavan

Are mangers really better at managing other people’s businesses?

The vision, passion, hard work and determination of old school entrepreneurs - who risked their capital to create and manage businesses -resulted in employment and prosperity for generations of us. If it was possible to bring back a few of these successful entrepreneurs from previous centuries, I believe they would be seriously shocked to see a new world where many business owners are no longer in control of their companies. A world where senior banking officials can earn much more without having to risk any of their own capital, than factory owners putting their own money on the line and employing hundreds of people.

Over time, the idea that companies are better managed by professional mangers as opposed to their owners, has taken hold. Today in Britain, most large companies are managed by managers with no ownership interest. At the same time, the ownership of large corporations has become so fragmented that shareholders no longer have any real control or say in the way that these corporations are run. This has resulted in unprecedented control and absolute power in the hands of the managers.

However, the recent shameful performance of many large UK companies such as British Airways, has shown us that this formula does not work. The idea that managers - who have no vested interest in the business - will perform better than owners - who are prepared to go to any length to protect and make their business successful - is absurd.

Furthermore, it has been proven time and time again that no amount of rules or regulations can stop managers from taking risks and making decisions that are in their own interest at the expense of their companies. The collapse of the Royal Bank of Scotland is a good example. Sir Fred Goodwin wanted to build a financial empire. He decided to risk all of the assets under his control to achieve his dream. After all, why shouldn’t he? It was not his money or his children’s inheritance that he was gambling with but other people’s money. How perfect.

It is not surprising therefore, that as a consequence of ongoing reckless investments with other people’s money, irresponsible lending and bad management, Britain recently faced its biggest financial crisis in modern history. In response to this crisis, the previous government ignoring the will of the market, wasted billions and billions of taxpayers money saving bankrupt banks that were badly managed, lacked proper control and did not deserve to be saved. “Insanity” could be defined as “doing the same thing over and over again and expecting different results”. Perhaps in synonymic terms we could define it as “allowing banks to continue doing what they were doing as before, but expect them to succeed this time”.

I believe that the UK government should have bowed to the will of the market and allowed bankrupt banks to fail. In time, these unsuccessful banks would have been replaced by many smaller banks. We could have relived an era when real capitalism existed; where banks were owned and managed by their owners rather than managers whose personal interest conflicted with the interest of the bank. Of course, the transition would have been hard, but as they say short-term pain is necessary for long-term gain.

Is investing in London’s prime properties really as safe as investing in gold?

For centuries many have put their trust in gold to always retain its value and protect them against inflation. The value of gold has increased by almost 100 times since the beginning of the last century. Today, an ounce of gold is still sufficient for a gentleman to be suited and booted nicely.

There are many similarities between gold and prime London properties. They are both tangible and unlike shares they do not lose their value because of incompetent managers. Unlike perishable commodities, property and gold last forever. They are both limited in supply and protect against inflation and economic uncertainty.

Throughout my 30-year career in the property industry, I have witnessed foreign investors’ absolute belief that investing in London’s prime residential properties is failsafe. It is this continued foreign interest that has helped to give London’s prime properties a status that in the eye of many is as good as gold.

Continuous strong demand from foreign buyers looking for a safe haven, coupled with a very limited supply of new properties due to strict planning regulations, has resulted in a phenomenal growth in the value of London’s prime residential properties. To illustrate, in 1981 I sold an apartment in Kensington next to the Albert Hall for £300,000 the equivalent of roughly 1500 ounces of gold. Today the same apartment is valued at £10m or approximately 9000 ounces of gold.

As the above illustration shows, over the past 30 years London’s prime properties have out performed gold many times over. Although gold and prime London properties have many attractions in common, property also fulfills a basic human need - it provides a roof over people’s heads. I therefore believe for long-term investors, prime London properties will not only prove as safe as gold, but that they will out perform gold once again in the next 30 years.

Mamad Kashani Akhavan
info@glfinance.co.uk

Has Mr Murdoch’s newspaper behaved any worse than other UK papers?

It is easy to criticize the alleged, deplorable actions of News of the World. However, it is important to remember that in the past, there have also been other newspapers that could be accused of inappropriate behaviour.

In order to win the circulation war, it is evident that staff at News of the World, were allowed to resort to any measures necessary to break new stories.

Similarly in 2009, to increase circulation, a quality newspaper editor – with his newspaper strapped for cash and fighting for survival – decided to take advantage of Dubai’s woes during the credit crunch. He sent his prize winning young journalist to Dubai to write a strong and shocking article. The eager journalist did not disappoint. He came back with an inaccurate, one-sided horror story portraying Dubai as a harsh and backward city.
However, once the newspaper was challenged by people including myself who know Dubai well, it could not produce any evidence to substantiate any of its comments. The journalist who published the article, has now admitted that he had invented witnesses for one of his other articles.

In response, I wrote an open letter dated 16 April 2009, titled THE DARK SIDE OF BRITISH JOURNALISM, where I stated that by allowing the publication of inaccurate articles, newspapers risked losing their credibility as well as the trust and confidence of their readers.

I believe it is rather insulting and bizarre, that the same newspaper which sacrificed truth and integrity to sell more papers, is now one of the biggest critics of the News of the World’s actions. The pot is now calling the kettle black.

Mamad Kashani-Akhavan
info@glfinance.co.uk

Should the UK government have frozen properties owned by Libyans in London?

Before I start I would like to introduce myself to those of you who do not know me. I Mohammad (Mamad) Kashani-Akhavan have been working as an International Property Investment Consultant based in London for the past twenty nine years. I shall limit my response to the above question to my own area of expertise: international investors and their continued interest in the London property market.

There are many reasons that make investing in the London property market attractive to foreign investors. One of the most important reasons is the fact that the UK has an established legal system for safeguarding foreign ownership, which gives foreign investors the security and confidence they need to invest.

London property has proved a powerful tool in attracting foreign investment that has benefited the UK economy. It is therefore extremely worrying to realise that the UK government - for political reasons - has frozen Libyan owned properties in London without a valid legal reason.

The fact is that in the UK properties can only be purchased legally and in compliance with all the UK laws and regulations. It therefore does not follow that the UK government should be allowed to prevent any foreign investor from selling assets which they have already purchased by following all the UK laws and regulations. Surely the only authority in the UK that should have the power to freeze properties in the UK should be the Court and not the UK government?

In my opinion, the UK government should not have undermined the confidence of foreign investors in the protection of the British legal system for foreign ownership. It seems to me, that the UK government is lecturing other countries about the importance of the Rule of Law and yet conveniently, it has completely forgotten that we are all innocent - including unpopular foreign rulers - until proven guilty. I believe that the freezing of Libyan owned properties in London has seriously damaged the UK’s reputation as a safe haven in the eyes of many international investors.

Mamad Kashani Akhavan
info@glfinance.co.uk