DO BANKERS REALLY DESERVE THEIR HIGH REWARDS?

Right wing politicians and the press are quick to  accuse anyone criticising the high earner with the label of jealousy, ignorance and envy. They are adamant that in 21st century Britain, only  those who are prepared to work harder or are more talented could receive higher rewards. 

However, if this was true then the question would be how could an average salary of a senior banker be as much as ten times more than a nurse? Do they really work ten times harder or are they ten times more talented?

 It’s difficult to justify their high salary with the number of hours they work. Many nurses do more hours and are arguably doing a more difficult and worthwile  job. So it must be because of their talent that these bankers earn such high rewards.

Given the fact however that bankers’ many mistakes resulted in one of the biggest financial crises  known to man kind, it's difficult to argue that bankers are more talented or deserve their higher rewards. Below is a good example of bankers’ inability to control costs and squandering of other people's money.

One of the UK’s leading banks lent £2.5 million to the owner of two small hotels in the south of England. They then decided to call in their loan and put these two hotels into administration. Our "talented bankers" - without any negotiation or bargaining - decided to appoint a large expensive team to sell these two hotels.

 Recently, the hotels were sold for  £1,015,000. After the deduction of absorbent administrator's fees, the agent's commission and other expenses, the bank received £36,000. This equates to less than 2% of the original loan amount. 

In most other industries the people responsible for this fiasco would lose their jobs. In banking, they probably get promoted. After all, these bankers have shown results by successfully removing two non-performing hotels from their books. 

The fact that the bank lost so much money and paid fees that in any stretch of the imagination was not appropriate, does not seem that important. It's not worth getting upset over.   

The reality is that there are many in the banking and other industries that do not deserve their high rewards but continue to make easy and excessive money. Whilst in the same country  an increasing number of hard working, talented people such as nurses, police officers and teachers struggle to have a decent standard of living.To many the idea of fairness and the notion that in 21st century Britain only those who are prepared to work harder or are more talented could receive higher rewards is nothing but a fairytale.

Mamad Kashani Akhavan

Is a 3-fold increase in stamp duty an act of absurdity?

Overseas buyers spend billions of pounds every year purchasing UK properties. This has immensely benefited the UK economy and created jobs and prosperity for so many. Some of these buyers legitimately use offshore companies to protect their privacy about their worldwide assets.

It was therefore surprising, when the Chancellor increased stamp duty from 5% to 15% for properties over 2 million pounds bought in the name of offshore companies. No local tax payer would ever find it acceptable to pay 3 times more tax, so why did the Chancellor risk undermining the attractiveness of UK properties by scaring foreign investors away?

It is of course absurd to argue that offshore companies are only used by morally repugnant people trying to avoid paying stamp duty. Even if a small minority abuse the system, surely there are better ways of stopping them rather than risk damaging one of Britain’s best sources of foreign investment.

It is equally absurd to believe that the increase in stamp duty and threats of other punitive measures is a small change for wealthy foreign investors and one that would not deter them from purchasing properties in the UK. On the contrary, these hostile measures could easily convince some purchasers that UK bricks and mortar are no longer the world’s best and safest investment in the hands of this government.

We all heard the Chancellor saying that he is a good friend to business. We also heard him saying that he understands the difficulties facing the business community better than most, having witnessed first hand, his father’s hard work in building one of the world’s leading names in wallpaper design. I am sure the Chancellor would forgive people in the property industry if they were to say that with friends like him who needs enemies.

Mamad Kashani Akhavan

Is racial tension escalating out of control in the UK?

Successive British governments have been generous to an ever increasing number of immigrants choosing to make Britain their home. There are not that many places in the world where immigrants can end up receiving free health, education, housing and a passport not long after they arrive.

The influx of immigrants has resulted in UK tax-payers having to share the already limited resources of public services. In the fear of being called racist, they say nothing but grin and bear the increasing waiting time for hospital beds, social housing and a place in a local school for their children.

A gentleman I met recently said “Mr. Cameron’s government is lecturing its people to be hospitable and generous”. He continued by saying “Mr. Cameron would never share his house with strangers so what right does he have to force others to share their public services. It is not racist but just bloody unfair for the government to allow immigrants to receive benefits that they have not paid taxes for!”

The response of previous governments has been simple; they increase the expenditure on public services making the situation bearable. However, now that there is less money available – due to the economic crisis – it would not be difficult to for see that there could be increasing resentment and anger towards foreigners in the UK.

The majority of people enjoy and understand the benefits of living in a multicultural UK. However, the continuation of the current economic crisis could escalate racial tension to a level never seen before in the UK. In my opinion, it is now more important than ever for the British Government to allow people to freely discuss their resentment towards the government’s over – generosity to immigrants. As Shakespeare taught us in King Lear, punishing people for expressing their true opinion could end in disaster.

Is this a good time for investors to sell their prime London properties?

The world is going through a turbulent and difficult time.This has resulted in the collapse of property prices in many countries. In a recent auction in Dublin, a well-known seaside hotel in Ireland that was previously on the market for 4.5m euros, was sold for only 650.000 euros.

In contrast, London’s prime property market has remained defiant and strong. In fact, prices have increased substantially since the start of the Credit Crunch. This has in large part been due to foreign investors’ continued aspiration to own prestigious London properties.

There are those however, who are convinced that prices have become so inflated that they can no longer be sustained. They believe a downward correction in property prices is inevitable. This argument is tempting savvy investors to sell now and wait for the prices to go down so that they can buy similar properties for less at a later date. I agree that prices have increased too quickly and a cooling off period in demand is likely.

However, given that there are a small number of prime properties in London most of which are owned by wealthy owners who have the ability to wait for demand to recover without reducing their asking prices, it is unlikely in my opinion, that this reduction in demand shall result in reduced prices. It could lead to a period of stagnation or slow growth but not reduction. During my recent visit to the Middle East, it was easy to see the continued unshakeable confidence that large propertyinvestors - including sovereign funds - have in the London prime property market.

 Before selling I believe it is also important for investors to consider lessons from the past. I have sold many London properties for myself and others during the last 30 plus years. All of these properties were bought well and sold with a good profit. Nevertheless with hindsight, I would have done much better by holding and not selling any of these properties. The fact remains that investors who tried to time the market by selling high in the hope of buying low later have done very badly in comparison to investors that never sold.

To illustrate: in 1981 I sold a prime mansion flat over looking Hyde Park for £300,000. This worked out at almost £85 per sqft, which represented a great selling price for its time. However, at no time since selling this flat did I manage to purchase a similar flat for £85 per sqft or less. The present value of a similar flat is now approximately £10m.

In my opinion if long-term investors do not need to sell for financial reasons, there is a never a good time to sell London prime properties. As the old saying goes, "learn from other people's mistakes”………. mine included. I wish you all every success.

Mamad Kashani-Akhavan info@glfinance.co.uk

Is Britain today really a better place as a result of Thatcherism?

I came to study in the UK in 1978. It was not difficult even for a 15 year old to see that the UK economy was in trouble and there was a desperate need for change. The problem with the UK economy was in large part due to high taxes and therefore not much incentive for people to work hard. The change came with the election of the first woman prime minister in 1979.

Mrs Thatcher had a great influence on the people of my generation. She instilled in people the importance of self-reliance, working hard and striving to be the best at their profession. In return she promised that the government would go out of its way to reduce taxes and regulations allowing people to make more money.

Mrs Thatcher’s ideology was simple; by incentivising people to achieve more, not only would these people make themselves better off, but their success would also result in economic growth that would benefit others. The implementation of her ideology resulted in a change of fortune for the UK. It emerged from being the sick man of Europe to becoming one of the most affluent countries in Europe. But unfortunately there was a high cost and we are all paying for it today.

Subsequent prime ministers continued blindly with the Thatcherism ideology. The hunger to achieve more became exaggerated and got out of control. In Britain today, an increasing number of doctors, lawyers and politicians amongst many others, have become so obsessed in making money that they have forgotten that they should not be motivated by money only.

To illustrate, last year I needed urgent eye surgery. My GP referred me to a well-known expensive surgeon in Harley Street. He seemed under pressure trying to deal with too many patients and subsequently spent very little time considering the best option for my surgery. When we realised that the operation was not successful, the said surgeon and his assistants were more interested in knowing that they would be paid in full for my surgery as opposed to having some concern as to what went wrong.

Mrs Thatcher in her 11.5 years premiership made many necessary changes that are greatly benefiting Britain today. However, this is overshadowed by the fact that Thatcherism started a process that resulted in the corruption of social values. In Britain today selfishness and greed is legitimised and the notion that making money at other people expense has become acceptable.

Additionally, many of Mrs Thatcher’s well-intentioned initiatives to promote capitalism such as encouraging widespread share ownership, has resulted in disaster today.The ownership of large corporations has become so fragmented now that shareholders are no longer able to unite and stop managers making decisions that are in their own interest at the expense of exploited shareholders. A good example is the senior management of British Airways who
are making millions for continuing to do a bad job.

In my opinion, the Iron Lady’s resolve to make Britain a better place has only partially succeeded. However, to her credit, she was passionate in delivering all that she promised even when it was difficult or unpopular to do so. Baroness Thatcher not only talked the talk but unlike many politicians today she also walked the walk.

I wish you all every success
Mamad Kashani-Akhavan

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