Читать книгу Property Entrepreneur - Wong Vincent - Страница 14

The aftermath of the global financial crisis was ugly in the property investment world. The collapse of some of the world's biggest banks and financial institutions, such as Lehman Brothers, and major US mortgage companies (Fannie Mae and Freddie Mac), completely destabilized the global economy.

Until this point, we had seen years of hay-making for property investors, as lenders fell over themselves to offer mortgages at ridiculously low rates; everywhere you looked, people were buying properties at inflated prices (speculating they would rise even further) and taking on huge mortgages. Ordinary people were able to invest in property. Never before in the history of Britain had so many people of every social class been able to own property. Teachers, doctors, window cleaners, plumbers and builders were becoming so-called “property millionaires” alongside the traditional wealthy classes.

The problem was that many investors soon found themselves mortgaged up to the hilt with what turned out to be toxic debts. When the housing market collapsed, many people found themselves trapped in negative equity (meaning that their mortgages became greater than the actual value of their properties). The debts were called in and many properties were repossessed. People learned the hard way that being a “property millionaire on paper” wasn't even worth the sheet of paper!

Put it this way: if you had 10 properties each worth £500,000 before the crash, and you had £100,000 of equity in each, you were, at that point, a “property millionaire” (i.e. you owned £1,000,000 of equity). When the property market crashed and each of your £500,000 properties collapsed in price to £400,000, you were suddenly worth nothing (and with £4 million worth of mortgage debt in your name). If those properties slipped even further down to £350,000 each, you now technically owed the bank £500,000 on top of the mortgage debt, i.e. you were in a negative equity situation. In commercial property, the bank does not allow you to be in negative equity (in fact you can only be in mortgaged debt up to an agreed loan-to-value, so you always have to make up the shortfall if the value of the property falls); in residential property, you don't have to give the bank anything as long as you keep servicing the mortgage. If you are unable to pay the mortgage on any property, the bank will repossess your property and come after you for any shortfall if they don't recover enough to pay off the entire mortgage; i.e. once they repossess, they can claim any shortfall from you. (NB: This only applies in the UK. In the US they cannot come after you for this shortfall, which is why so many people walked away from properties when they fell into negative equity and were unable to keep servicing the mortgage.) If you owe the bank money, you will end up getting a bad credit rating.

This process happened rapidly and left many people reeling. In fact it might be more accurate to call the “aftermath” a “bloodbath”!

If you want a really eye-opening and fascinating account of what led to the global economic crisis, watch Charles Ferguson's Oscar-winning documentary Inside Job. Also, Jacques Peretti's brilliant documentary for the BBC, The Super-Rich and Us, investigates the rise of the “super-rich” as a result of the crisis and challenges the theory of “trickle-down economics”.

But what we were left with (after the aftermath) was actually a potential goldmine for any investor left standing. All the people who'd bought their portfolios when the property market was on the rise, i.e. at the “top of the bubble”, had ignored the cardinal rule of value investing as decreed by the man known as “the most successful investor in the world”, Warren Buffett, who said you should always “buy low, sell high”. It was the savvy investor who knew this, that profited in the aftermath of the crisis by scooping up under-valued properties.