PROFESSIONAL investors are starting to see buying opportunities in that most bombed-out of areas – property.

UK house prices have tumbled more than 11% to an average £177,351 since last August’s peak, based on the Halifax index, after a decade of booming prices that added 145% to the average home’s value.

However, moves are afoot to reignite the market: the Treasury is working on a package of measures, including the suspension of stamp duty, to help hard-pressed families. And lenders are cutting rates.

Peter Bolton King of the National Association of Estate Agents said: “If this [stamp duty] suspension does occur, it will provide a much-needed boost.”

However, the outlook for property prices remains bleak: the International Monetary Fund says at least another 15% will be knocked off values over the next two years.

However, some commentators expect the market to recover around 2010 or 2011. The National Housing Federation is pencilling in a 25% rise by 2013.

Much of the negativity is already priced into markets – for example, property-futures indexes anticipate a 30% drop by 2011.

If you think that the outlook is not so bad, you could profit by “buying” future prices. There are also bargains to be had when buying bricks and mortar: some auction lots are going for 40% less than market value.

A SNIP AT AUCTION

Private investors are returning to the market, according to one of London’s top auctioneers.

“They probably haven’t bought in the last two years because they’ve thought prices were a bit strong,” said Chris Coleman-Smith, who heads Savills’ auction team.

“One long-standing investor whom we haven’t seen in quite a while bought 10 sitting-tenant investments at our last auction.

“He told staff: ‘It’s my birthday, so I thought I’d come out shopping’; he clearly thinks now is a good time to buy.”

Sitting-tenant properties are trading at discounts of 25%-40% to vacant-possession value on the open market – meaning a £200,000 home could be snapped up for £120,000.

However, these homes are occupied by long-term (generally retired) tenants on regulated tenancies at discounted rents – meaning rents rarely cover mortgage costs and investors are unable to take ownership until the tenants die or move out.

Repossessed properties are another potential way to buy into the market on the cheap.

The number of repossessed properties at auction leapt to 3,102 in the first half of 2008, almost quadruple the figure three years ago, according to the Essential Information Group’s property auction site (eigroup.co.uk).

Repossessions now make up more than 20% of properties going under the hammer.

Managing director David Sandeman said: “These properties are selling extremely well compared to other lots, with investors bagging some excellent deals. New-build flats are also selling at huge discounts.”

Repossessed new-build properties are going for an average 26% below the initial purchase price.

BUY-TO-LET BARGAINS

With rents across the UK rising as first-time buyers are priced out of the market, yields are starting to look good again. In some prime areas of London, however, there is an oversupply of property to let from people who cannot sell, so you need to pick your area carefully.

A two-bedroom flat in Hollo-way, north London, selling for £149,999 would give a weekly rental income of £300 – a yield of 10.4%, according to lettings agent ludlowthompson.com. A three-bed flat in Walworth, southeast London, on the market for £229,995 would rent for £380 per week – a yield of 8.6%.

“Certain properties – secondhand stock near good transport links – are now better value than the market as a whole,” said director Stephen Ludlow.

On another positive note, buy-to-let tracker rates have fallen in the past month by 60 basis points – going below 6% for the first time since early 2008 – despite Bank rate staying at 5% for four consecutive months.

This has cut interest-only buy-to-let lending costs on a £200,000 loan by £100 a month.

COMMERCIAL PROPERTY GOING CHEAP

Investors in popular funds are nursing heavy losses: the Scottish Widows Investment Partnership Property fund is down 20% on the year, Norwich Union Property has fallen 19.2% and New Star UK Property has lost 17.7%. However, professionals are starting to see opportunities again. Citi Private Bank has t e a m e d u p w i t h a f u n d manager to launch a UK commercial-property fund, the details of which are set to be announced next month, The Sunday Times has learnt.

SPREAD BETTING

You can invest on the future price of homes without buying them through spread betting. Put simply, you “buy” or “sell” a price depending on whether you think values will rise or fall.

The market has never been more popular: about 40% of Cantor Spreadfair’s new clients trade on house prices, compared with 5% 18 months ago.

Although clients, in general, remain bearish, future prices for the fourth quarter of 2010 have bounced back by about £10,000 in the past six weeks to a spread of 135-140 (£135,000-£140,000). That compares with today’s price of 185.6 (£185,600).

“There are now people buying and the prices are coming up a little,” said Cantor Spreadfair’s James Lippett. “That could suggest the market might have bottomed out.”

Capital Spreads’ clients are still pricing in another 20% drop in house prices by 2011 – meaning there is money to be made for those who correctly anticipate a smaller fall. If you do not think the market will fall as far, you could buy at around 140. Should house prices only fall by 10% from today’s levels, the settlement price would be around 166 – 26 more than what you bought at.

That means you would win 26 times your stake (£2,600 profit before commission on a £100 per point stake). However, if you had bought at 140 and the market fell 30% to 131, you would lose nine times your stake – £900 on a £100 per point stake.

Those who bet correctly stand to make a mint. Spreadfair client and full-time investor Simon Smith, 35, from Yorkshire, liquidated his six-strong property portfolio, including his own home, last year. He went from being £4m long of the market at the start of 2007 to £3m short at the start of 2008. He has since closed some contracts, because the market has priced in a 30% crash.

Spreadfair’s Lippett said: “Had [house] prices continued to rise, he’d have blown everything he’s ever worked for, but he predicted the fall and has made hundreds of thousands of pounds.”

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