There has been a property forum happening in Edinburgh which, amongst other things, has opined that commercial property has declined in value by 40% in the past year . Then they say it represents a minus 12% return. Actually, compared to the markets that's quite good, but these two figures are incompatible.
Prime property was yielding about 5%. If it has delivered minus 12% then it has fallen 17%, not 40%.
I suspect, however, that the pundits are referring to the yield having fallen 40%. In the perverse and arcane way that property is valued this means e.g. a 5% yield is now a 7% yield - which actually looks quite tempting.
As my ex-banker advisor says anything yielding above 6% is a steal at the moment. The risk, of course, is of tenants going bust. In that regard, we've had one that is going to leave us. Not exactly gone bust, but as good as. He had a small overdraft of £10,000, pretty much unsecured on his business. It came up for renewal at the end of January, and he somewhat cavalierly rang to say he assumed he could rely on the bank's support for another year.
Not a bit of it. Despite banking with them for over 30 years, and therefore they had all his business transactions for that period, they asked him for a business plan and cash flow. He expressed incredulity, especially as he only ever used a small part of the overdraft and had never over-overdrawn.
Not only did they require the aforementioned, they also needed security, and a £1000 fee, and 7% over base.
Now the latter is hardly relevant, but the fee, as I've said before, means they would be earning a very tasty 18% on their money, if he drew it all down. As he might only draw say £2000, it means the bank would be earning 58% - or much more if he was only overdrawn say half the time. That would be 108%.
The banks "investment/own account" earnings are all gone and are seriously minus. They are going to make that up from people like our tenant.
To cut a long story short, he decided to give up, and I don't blame him.
But I digress.
According to the pundits, in the last wee while RBS and HBOS have accounted for 75% of all property funding in Scotland - and 50% across the whole of the UK.
With that gone, is it any wonder the market's knackered?
A sign of the times. Nationwide will impose charges on overseas card transactions from next month. As Brian Boru has rightly pointed out, not in Europe.