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

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