October 2021

A lot of recent data and reports continue to tell us that house prices and values here are soaring. If you are a home owner or considering your first time purchase you will be watching all of this with great interest. At MCG Investments we are talking to people all of the time who are involved in buying, selling, investing or simply moving home and we are here to tell you that we strongly believe we are not in a bubble and are not likely to be for a long time yet. Why not? A lot of comparisons are being drawn, in our view incorrectly, between now and back in 2007/8. This is not a fair comparison and I am here to tell you why. The property market ten years ago was being fuelled by debt and the credit boom created an artificial property bubble. Back then, banks were offering more than 100% loan to value mortgages and borrowers were able to secure more money than they had the capacity to pay back. When the market dipped there was zero equity in the homes to protect the home owners or the financial institution that provided the loans. Bad news for everyone. What is going on? We are living through a period of record housing market growth due to a range of circumstances coming together. The property market in Northern Ireland currently has record levels of equity and borrowing institutions are far more responsible now ensuring that lenders are capable of taking loans on and can afford their monthly repayments. At a basic economic level here, housing demand continues to outpace the supply and of course that imbalance ensures that prices will continue to go up. One of the most important drivers in the property market also continues to be the record low interest rates and taken together with limited supply and responsible lending the factors remain in place for property values to continue to increase. There has been a huge shift in both the psychology of home buying and the demographics of who is buying property since the beginning of the pandemic here. Our view of home and work life has changed irrevocably over the past two years. Many of us have found that we have been able to find a healthier work / life balance with working from home, which started as a necessity that I believe is set to become a more permanent feature in all of our future lives. This has fuelled activity in the market place, people leaving cities and moving back home and getting better value for their money in more affordable areas. Companies have accepted that a happier workforce is potentially a more productive work place and it looks like blended working is here to stay. In home improvement terms, even those people who have not moved homes have spent considerable sums of money transforming their houses, adding offices, gyms and outside rooms to their houses. Home owners are enjoying more space and a better quality of life than ever before, this is set to continue. What is going to happen next? Let’s go back to the data, we have numerous reports UK and  Ireland wide that there continues to be a shortage of houses to meet current demands. We will not even get in to future demands in this article. We have a very high demand for affordable housing across all of our local authorities and in Northern Ireland too. Construction costs, infrastructure challenges (water and waste) are making it exceptionally challenging in cities like Belfast to bring new homes on to the market and yet the cost of land for new development is still not getting any cheaper. There is a growing niche market for organisations like MCG Investments to buy, improve, hold or re-sell residential property and at present ourselves and many others are successfully operating in this space. Record low mortgage interest rates will continue to provide borrowers with increased purchase power and any increase to base rates will be graduated and over a longer term. Mortgage applicants are continuing to be asked to meet strict lending criteria including 20% deposits which we support as it keeps equity in the markets. This offers borrowers and institutions a safety net in terms of any price corrections in the future. At MCG we do not see a ‘Property Bubble’ here anytime soon. Our housing market is being driven up because all of the main checks and balances apply correctly at present. However we should not become complacent, and we should continue to monitor the data across the markets and flag any changes in trends. None of us can claim to have a crystal ball but the signals are; it looks unlikely that there will be a ‘Property Bubble’ in the short term in Northern Ireland. We believe that the expansion of the property market here will continue, albeit the rate of increase may begin to slow down slightly in years ahead. Property Investment is not a get rich quick fix and our clients and investors take a long-term view when working with us. Over time property assets go up in value and always have since records began. Our investment strategies deliver in terms of both capital growth and strong rent to value ratios and have proven to work time after time. We will not be changing anytime soon. Tanya McGeehan | Managing Director ‘We are committed to creating wealth through Property’ To get in touch with MCG Investments to discuss how we can help you, contact us today!  

Like many developers and builders, we have been analysing price movement in our materials over the past two years, as we attempt to get a handle on why our like-for-like project costs are coming out 20%-25% higher for reasonably similar repeat scope and repeat specification.  We have noted sizeable increases in a range of vital materials for house building including steel, cladding, timber, cement, glass, and insulation. This is due to a number of factors including the pandemic, Brexit, supply chain disruption, the shortage of labour, in particular HGV drivers, and the continued rise in demand for new homes. The knock-on effect of these factors is very concerning, as it could potentially impact the recovery of the construction and property industry. We have recently acquired a site with full planning permission for an apartment development scheme, in a joint venture with another developer and whilst the prospect of moving in to new build residential schemes really excites us, we do have to be careful in this climate to ensure we carry out extensive due diligence and stress test all our schemes to make sure they remain viable.  That includes assessing building costs per square foot and selling costs per square foot to make sure that we can cover any further unforeseen material cost rises and all contingencies, as best as we possibly can. It is not just the rise in material costs that are causing practical challenges for the industry. “Whilst there is a lot of talk about material costs rising, the other major impact for the construction industry at present is the lead times for the delivery of key building materials such as windows.  Pre-pandemic, we could measure, order and install windows for a project in approximately four to six weeks.  That process is now taking more than 12 weeks due to labour shortages, transport and logistics challenges. Such delays add to our project delivery timeframe taking longer to bring our houses to market. However, as we move into 2022 we believe that these issues will settle. As we move into the last quarter of 2021 we are cautiously optimistic that the latter part of the year will bring some stability to construction costs and enable accurate financial planning for the industry and within our own business.  We currently have over £4m worth of live property projects on our books and have bought properties for both MCG Investments and our clients, at prices that allow us to have more than one exit strategy when the projects are complete.  We buy, improve and re-sell and we also buy, improve and hold for the longer term.  Both strategies are proving popular for clients at the moment depending on their preferred investment approach. We are continuing to invest in the local residential property market and have exciting plans to expand further in 2022 with the benefit of hopefully more settled industry construction conditions.