Strong 2011 figures from the auction rooms signal hope for the residential investment market, says Chris Baguley, Director at specialist lender Auction Finance Limited.

2011 started out subdued but stable in the auction rooms. The property sector generally experienced a disastrous year, but the auction industry weathered the storm very well. Lots offered and sold were more encouraging than they have been for a long time.

Throughout the economic crisis I was relieved that the auction rooms escaped the doom and gloom of the property market and actually presented investors with some great opportunities to acquire good quality stock at significantly reduced prices.

Attendance figures were strong and some great sales and purchases were being made. I'm not saying the auction market didn't dip during these years; it did, but it just didn't suffer to the same extent as the wider property market.

In the first half of 2011, three quarters of all properties offered at auction sold, a seven per cent increase on the first half of 2010, bringing the total number sold 10,969. This kicked us off to a promising start. Meanwhile, the papers were overflowing with negative stories that seven out of ten properties up for sale remained unsold. It was clear - the property sector in general, although picking up, was not replicating the success of the auction rooms.

My view of the auction sector, even early on in the year was that it was going beyond stabilising, but improving; the auction rooms were in a stronger position than the traditional property market.

The benefit of auction rooms is that in tough times they were presenting resilient investors and homebuyers with solutions. There's plenty of well-priced stock for the taking and sales can happen fast, especially for those with the right finance in place.

With auctions becoming increasingly popular more people came to us for funding. In 2011 we lent £17m to buyers in 216 transactions, a 34 per cent increase on last year. Loans varied from £25,000 to over £1m, averaging at £74,500.

The fact that the number of lots sold at auction is on the up, is a beacon of hope for the market. Now we've reached the beginning of a new year the market in general is starting to follow, it has just been a matter of time. This suggests figures from the auction rooms are a great indicator of the overall mood of the market - we can use them to predict how the industry is shaping up.

The key to success is buying properties at the right level and the yield is the biggest influencer, if it stacks up on yield it will sell. There will be no property boom for a long time to come, but with the auction market share of residential transactions doubling since 2006 this is a positive sign.

Who are the investors?

For property investors that were in the position to buy, the auction market in 2011 continued to be strong, largely as a result of the property rental market. People are finding it difficult to get on the property ladder and for landlords the resultant falling house prices and rising rental yields are creating big opportunities to buy.

We've seen our cash-rich clients keen to spread their money across a number of investments by utilising auction finance and we're seeing investors entering the room with one property in mind and leaving with several. The deals have been too good to miss.

An interesting trend we've seen is the growing number of professional women entering the buy-to-let market. Many female investors I've spoken to cite a range of reasons for placing their bids. Owning property can be a way of boosting pensions and ensuring financial stability but for many it's not just about making money, it's a case of satisfying their desire to renovate properties.

Another trend in the auction room is the rise in parent property investors. With university fees soaring to £9,000 per year in 2012, parents in the position to buy have been coming to the auction rooms, often for the first time, to purchase property to let to their offspring, rather than paying property rents to a third party.

Investing is definitely a growing trend amongst parents. Student property is a solid investment for the future in key areas and there are excellent deals if you do your research. We had seen a lull in this type of purchase but it's becoming more popular.

We've also seen increasing interest from investors overseas. A number of East Asian investors snapping up commercial property in auction rooms across the country has been noticeable over the past year. East Asian investors are the biggest spenders with more than £52bn of Asian equity seeking acquisition in the UK commercial property market. Buyers from Indonesia, Thailand, Taiwan and China are the latest we've seen targeting the UK commercial property market.

What are they buying?

Both residential and commercial properties have sold well. Our lending has seen a split over 20 per cent on commercial and 80 per cent on residential - with the majority of these being on traditional property types. Government proposals in The Budget had a knock on effect undoubtedly. We saw investors grasp properties following the announcements to relax planning permission rules. In fact, we saw many investors snapping up commercial properties planning to convert them for residential use.

An example of this has been the large number of pubs being purchased at auction for alternative use, such as residential conversions, retail units and even day nurseries. Some have also been leased back as free houses.

A large portion of the stock coming into auctions has been repossessions. In terms of residential properties more than 20 per cent of all lots offered at property auctions are repossessions. The banks want speedy sales and investors want to grab a bargain - the auction rooms are perfect for this type of property.

It's likely that more repossessed properties will be sold in the auction room well into the start of 2012 especially as interest rates creep up and many of the high street banks have yet to release into the market. Buy-to-let investors who do their research can find properties that achieve strong yields and make excellent long term investments especially those in city locations where rental values have increased quicker than out of town properties, climbing on average by £524 a month over the last decade.

If I had to pick two property types that have been favoured by the auction room investors, I'd say new-build flats and terraced properties. New build flats saw their prices slashed in auction rooms with average reductions the highest seen in five years.

The average reduction on new build properties sold at auction during 2010 was just under 50 per cent according to The Essential Information Group (EIG).

People who associate auctions with older properties are mistaken; it's a shame because auction rooms are where you will find former new builds at ridiculously low prices, sometimes at half of their original asking price. This year investors have started to catch on to this and are reaping the rewards. The same goes for terraced properties, we've lend more than £8m for the purchase of terraced properties this year, an increase of 22 per cent, proving them to be a popular choice.

2012

All in all, we bid farewell to 2011. The year has treated the auction sector kindly. Hopefully, the success will continue in 2012. There's certainly plenty of stock for the taking and we're here to help if your clients are looking to invest.

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