Michael Dean: Market could be set for a downturn

Michael Lloyd

August 14, 2018

The property market has the potential for a downturn, Michael Dean, principal and co-founder of Avamore Capital has claimed.

He said that he’s starting to sense a market shift and that as a result international investment in the market may start to dwindle as house prices drop.

That risk will be exacerbated if investors see negative returns which could lead to a rush for the exits. That being said, many real estate funds are looking to take a long-term view or see the UK as an opportunity even if the economy is performing poorly.

He said: “I see a lot of potential for risk on the lender side and it may be difficult if conditions worsen in the property market and investment capital coming into this space decides to go elsewhere.

“We may see a smaller volume of transactions due to less appetite from developers/borrowers, combined with less capital available for lenders to lend against.

“That’s part of the reason why our targets are more conservative this year – things could get turbulent.”

He added: “If you take a more cautious funding market, then it creates a more challenging market backdrop.”

Dean went on to say that lenders and investors may take a more prudent approach due to general market sentiment and the clear risks on the horizon.

However he added that this could turn out to be an overly negative prediction.

Dean said there’s a huge number of bridging lenders and there’s been an arms race for bridging share. He felt that some legacy issues were masked by a rising property market and subsequently a buoyant finance market in 2017.

But he said: “We may run out of white knights in the short term because the property market is probably not going to rise anytime soon, especially with the prospect of Brexit on the horizon and we don’t expect to see any more positive leverage movements in the credit space that will help either.

“So with a soft property market and flat credit market it’s feels inevitable we’ll see a poorer performance in the sector overall than in previous years.

“I genuinely don’t know what’ll happen. I think there may be lot of threats and lenders have to be mindful of them.”

One suggestion he had for the government is to look at stamp duty at high value properties.

Dean added: “If the upper end of the property market gets going, it filters through to the lower end too.”

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