Please see an interview with Charles Dixon – a RICS surveyor with over 26 years of experience in the industry. Charles provides some in-depth information of much relevance to UK property investors including a definition of what ‘value’ means today; modern day valuation techniques; due diligence tips; his own thoughts on the property market; regulation of the property industry and much more:
1) Can you explain a bit about your background?
I have worked in the property world since graduating from Reading University in 1976 initially in the South Midlands and East Anglia, but for the last 26 years in the South West including Cornwall, Devon, Somerset and Dorset.
2) What is your definition of ‘value’ in the current UK property market?
Here is the non technical answer: the UK property market is a largely open and free market made up of thousands of individual transactions made by people and organisations with wide-ranging objectives. A free flow of information in the market is essential in informing the decisions behind those transactions. The internet has revolutionised the availability of information on transactions and has made it accessible to everyone; whereas before only people in the industry had such information. This has enabled many more people to join the property owning community. Value is what one person will pay to another for a property and, if value is not to be distorted, both parties must be well informed and acting in an arms length relationship.
3) Would it be fair to say that most surveyors are taking a conservative view on the valuation of property due to the uncertainty of the market?
Surveyors base their assessment of value not only on comparable evidence of similar transactions but also on their assessment of current market sentiment from the general public, the volume of properties available and being traded and of course many external factors that bear on the individuals undertaking a property transaction – for example: the general state of the economy, interest rates, taxation policies etc. If surveyors are taking a conservative view, this should reflect a conservative approach that parties are taking in actual negotiations and transactions and reflecting the uncertainty of the market of which they form part.
4) The majority of investors reading this are residential property buyers – one difficulty that has emerged as a result of the low market activity is the ability to obtain comparable sold data. What are the best steps that can be undertaken from your point of view?
Data on property transactions is available through many free websites and through the Land Registry. Statistics on trends are also available free from the Department for Communities and Local Government and indices on house price movements from Halifax Bank and Nationwide Building Society. There are also subscription websites giving additional data which further knowledge about local markets (such as ‘Hometrack’). Agents are generally willing to help with information on transactions in their area provided they are approached tactfully and they are not restricted from giving information on a transaction by confidentiality. The current situation is dramatically better for individual investors than it has ever been and over time it is likely to improve further with the further development of the internet. However when there are so few transactions as we are currently experiencing, it is difficult find comparable evidence. This is a difficulty for professional Valuers as much as the general public. It needs deals to be done to establish the market. In these conditions investors may be taking greater risks as their decisions are less well informed. Property transactions have never been risk free and it may be that, after a long period of a rising market before this recession, some people became too complacent and assumed that their property transactions could not fail.
5) Can you talk through the processes that you would undertake prior to visiting a property in terms of your own due diligence?
Terms of business must be agreed with the client before visiting the property. Very often the client is pressing to have the advice/ survey/valuation as quickly as possible so that office based research sometimes happens after a visit rather than before. In any case, the Surveyor can target his research more efficiently if he has first visited the property and actually it and its location. Depending on the purpose of the report, the Surveyor will want to consider most of the following:
- planning consents;
- short, medium and long term planning issues in the area;
- recent works of repair / improvement to the property;
- available consents guarantees;
- boundaries and related responsibilities;
- location and routes of utilities;
- environmental issues;
- contamination issues;
- presence of mines;
- flood risks;
- subsidence risks;
- details of construction if it is non-standard;
Much of this information and more is available through a local Authority search and website enquiries from various organisations.
6) Similarly, if you are requested to undertake a ‘desktop’ valuation what steps would you take?
Surveyors should be very wary of desktop valuations which can be misleading to the recipient if the basis of the valuation is not properly understood. In general, such valuations should only be undertaken when the property has been previously inspected and preferably not too long before. Such valuations must definitively state the assumptions on which they are made. They are best avoided when a surveyor is dealing with the general public who will probably expect the same level of knowledge of the property as if it had actually been inspected and may feel let down if they subsequently find changed conditions which had not been identified through the lack of an inspection.
7)On the back of the last two questions, do you think residential house prices in the UK are still over-valued?
In my opinion, residential house prices are too high in relation to salary levels – particularly if as a society we wish to encourage a home ownership culture. This is not a fault of the property market, but of external factors that bear on home buyers such as a lack of new homes available to buy thus restricting supply. In an open market such as the property market in the UK, home buyers are competing for the available homes to buy with other types of purchasers such as foreign investors, buy to let investors, holiday home buyers etc. Unless the government intervenes to disadvantage these other types of purchasers (which I would not advocate) they key to reducing prices is to increase the supply of homes on the market.
Should residential property investors take more of a ‘value’ based approach – as is what is more common in commercial property?
If the motive for purchase is property investment then yes, a value based approach is the best advice. However, when people buy for their own occupation and use they apply many different subjective criteria and will sometimes ignore the rational behaviour of the market and pay in excess of what the property could be resold for. This is a valid part of a diverse open market that sometimes makes it unpredictable for those observing it from a distance.
9) You are a major advocate of regulation of the property industry – and your book discusses this in detail – what kinds of measures do you think should be in place?
I am an advocate of the proper regulation of individuals working within the property industry particularly to protect the inexperienced general public who occasionally participate. I do not particularly advocate regulation of property itself unless there is a clear need. In many parts of the property industry there is a clear need and obvious benefit from various types of regulation, however in general I feel that there has been excessive and too complex regulation in recent years to the extent that some people ignore areas of regulation or the regulation restricts the market. Regulation should be proportionate to the benefit achieved as well as being simple and straightforward.
10) Is there a difference, in your opinion, between regulation to install professional principles into the industry and the government just sticking their oar in?
Governments are motivated to regulate where they feel that consumers are adversely affected or if the market is acting imperfectly or against policy objectives. Governments are also motivated to find ways to tax property which is a good store of private wealth and an easy target for the raising of public finance. Occasionally, governments will regulate in pursuit of social policy objectives. In general, the government in the UK has not regulated much in pursuit of encouraging professional principles, but rather has relied on the industry self-regulating itself through its professional bodies such as the RICS and NAEA. The Government has resisted the temptation to statutorily regulate Estate Agents which it could have done at any time by using powers in the Estate Agents Act of 1979. This means that the professional bodies need to be constantly looking at themselves critically to ensure that they are reflecting public opinion and public concerns by adapting their regulatory arrangements to keep up with best practice.