Can We Predict The Future And Should We Try?
I’m not doing any more construction based blogs for a bit until either I think of a new focus, or one is suggested to me. If anyone has any burning questions then please feel free to make suggestions. For now I’m going to focus on topical property issues discussed elsewhere on the internet.
There is an ongoing discussion on propertytribes titled: Do you think property prices will double over the next 10 to 15 years and if so why?
Which leads me to ask another question, is this something property developers/ investors can reasonably expect to predict, and should they even try?
Predictions tend to get made by looking at present conditions on the ground and extrapolating from them based on past trends. Personally I’m sceptical about this methodology. Anyone who applied it to buying shares right at the end of the last century will be woefully disappointed by now. Yet in property there are still some otherwise clever people saying things like ‘Property prices double every ten to fifteen years’, or even ‘Eight years’ in the case of someone on singingpig.
What they overlook is that there’s no rule that things will happen in the future just because similar things happened in the past. They may happen, or they may not. Allowances have to be made for the odd Black Swan.
But perhaps this very uncertainty is what makes attempting to predict events so important? Not in attempting to predict what WILL happen, but what MIGHT happen. It seems prudent to do a ‘What If” analysis so that we can make plans for a variety of possible futures.
What would happen if interest rates rose to 6%? To 8%? To 10%?
What would happen if rents fell?
What would happen if property prices fell and you could no longer borrow against equity?
What if they rose making it more expensive to expand?
Then look at a variety of different combinations of the variables, and what we might do then.
When would it be prudent to sell? If future interest rates rose and rents didn’t keep pace, you might sell part to reduce the borrowing on the remainder, and keep some back as a cash contingency fund.
When would it be good to develop and improve what we have? Right now is a great time to develop as builders are among the first to suffer in a recession and can be hired very cheaply.
Or when would it be wise to change to a different type of rental? (HMOs, larger units suiting more settled tenants, smaller units with higher yield). Obviously this depends on changing tenant demands, your personal goals, and your ability to pay for the changes.
I don’t believe in crystal ball-gazing but I do believe in considering and hedging for a variety of possible futures.
All the best,