The UK and Brexit – a damp squib for the property market?

 At the time of the Brexit vote we commented that it would be the end of the year before there was an indication of its effect on property prices. The good news is that forecasts of the UK’s house price boom coming to an end have proved largely unfounded.  Ultra-low mortgage rates, record high employment and a lack of housing stock keep prices moving upwards. Figures compiled by the Office for National Statistics and the Land Registry for November show an annual increase of 6.7% and a jump of £2,000 from October. In England prices rose by 7.2%, but Wales and Scotland lagged behind with growth of 4.1% and 3.3% respectively.

The fall in the value of the pound has certainly helped to attract foreign buyers back into central London after they were put off by high stamp duty rates. House prices in London rose by 1.8 per cent on a monthly basis in November, reversing the 1.2 per cent drop in the previous month and undoing the dip in prices of £8,000 between July and October.  Nevertheless, annual house price growth is beginning to slow as property prices begin to reach a peak of affordability for many buyers. The average house price in London still remains significantly higher than anywhere else, however, reaching £482,000 in November, compared with £313,000 in the southeast and  £127,000 in the northeast.

However, while trends in house price growth have barely changed since the Brexit vote, the number of housing sales has slumped. There was a 22 per cent drop in property transactions in England during September compared with last year, according to the latest data available. Estate agents have reported a sharp fall in transactions as homeowners consider it too expensive to trade up owing to stamp duty costs or wait to see what happens to the economy. The number of buy-to-let investors is also falling amid the extra 3 per cent stamp duty surcharge on second homes. This is particularly evident in London where the number of completions in London fell by 39.5 per cent to 6,698, compared with 11,065 in September 2015.


The UK Autumn Budget and the effects on the property market

The UK Chancellor’s Autumn Budget contained elements that will affect ‘buy to let’ owners of UK property. The Chancellor is trying to address the high cost of renting private accommodation and the chronic ongoing shortage of houses, particularly in London where nearly one third people rent rather than own the properties they live in.  As you would expect, not everyone is happy with his proposals:
Letting agents and the fees they charge

Letting agents will no longer be able to charge tenants for the services they provide.  Until now, letting agencies have been able to charge both tenants and landlords for administrative services such as checking references, preparing a tenancy agreement, renewing a tenancy and ending a contract. The agencies will now need to pass more of those charges on to landlords, or absorb part of the costs themselves.

As you would expect, letting agents have condemned the announcement.  David Cox, managing director of the Association of Residential Letting Agents, said: “A ban on letting agent fees is a draconian measure, and will have a profoundly negative impact on the rental market. It will be the fourth assault on the sector in just over a year, and do little to help cash-poor renters save enough to get on the housing ladder.”  Richard Price of the same organisation said  ‘A ban on agent fees may prevent tenants from receiving a bill at the start of the tenancy, but the unavoidable outcome will be an increase in the proportion of costs which will be met by landlords, which in turn will be passed on to tenants through higher rents.’
It also hasn’t gone well with everyone on the landlord side of the equation. The expectation by some is that if the same level of service is to be provided then the landlords will have to pay more and this will inevitably be passed in the form of rising rents.  Richard Lambert, of the National Landlords Association, said: ‘Banning letting agent fees will be welcomed by private tenants, at least in the short term, because they won’t realise that it will boomerang back on them.’

However, a former Royal Institution of Chartered Surveyors residential chairman said letting agents could find it harder to pass costs on to landlords. ‘The problem with fees charged by letting agents to tenants is that landlords have a choice as to which agent they use whereas tenants generally don’t,’ he said. ‘Landlords can go to another agent so the agents will have to absorb the cost and get it from somewhere else. This is why Foxtons’ share price plummeted because agents like them who add a lot to the tenant’s cost of renting, will suffer. The trouble is there are a few rogue agents who have been overcharging and as a result all agents will lose out financially as a result.’

‘The devil is always in the detail’ so letting agents should not throw themselves in front of the 9am express train into London just yet.   Nevertheless, agents are going to either suffer a fall in their profits or landlords are going to have to pay more.

£3.15 billion is being set aside for 90,000 new houses in London

The London Mayor will use the cash for housing tenures, including those with below-market rents for low-income Londoners and homes with rents set at no more than a third of average local income for middle-income earners.   However, housing experts believe the capital needs to be building at least 50,000 new homes per year to sustain a population set to grow to ten million by 2036.  Whilst it may be good to see a conservative government helping lower income people, it is certainly not going to alleviate the problem as demand grows and the shortage increases.

£1.4 billion is being set aside to deliver 40,000 affordable homes in the rest of the UK

It sounds like a lot of homes, but in reality it is a drop in the ocean in real terms as the government has given little detail as to how it will be spent.  It could be used  to buy the land and build the houses, which means a cost of no more than £35,000 each. You don’t get much for that amount anywhere in the UK so the end result is certainly not going to be that many homes.   Alternatively, the money could be used to subsidise the cost, which would increase the potential number.  Either way, it is a good eye catching figure the government can use to say it is helping address the problem for lower income people.

A £2.3 billion housing infrastructure fund is being launched

This is intended to help provide 100,000 new homes in high-demand areas.  However, no details have been released yet.

There was no reversal of stamp duty charges for second homes or on cuts to mortgage tax relief, as hoped by landlords

This comes as no surprise, despite warnings that the recent changes are adversely affecting the property market.  The government is not going to change course in the short term so the market will continue to suffer.


We have been critical of the attempts by successive governments of both political persuasions to address the housing crisis.  At least this budget is an attempt to do so, but it falls far short of what is required.  The cynical question is simple – is there an election on the horizon?


Is Brexit an opportunity? For some it is, for some it isn’t

The Brexit result took most commentators and analysts by surprise and, we must admit, us as well.   The bookmakers were expecting the Remain campaign to prevail, but the underlying discontent over issues such as immigration resulted in a vote that is going to impact the socio-economic structure of the UK in many ways.  Does this mean there is an opportunity for overseas property investors?   Some of the leading estate agents came out with headlines suggesting that the fall in Sterling meant people should rush in and buy now.  Most investors are far too cautious to follow that advice.  We believe that patience in the short term is certainly a virtue, although hesitancy can result in missed opportunities.

It is fair to say that price growth had already stalled in most parts of London and the exhibitions held in Asia were seeing far fewer sales than in 2015.  Developers had pushed property prices too far and the market needed to take a breather, before, most people assumed, it surged forward again.  Fortunately or unfortunately (depending on whether you are potential home buyer or an investor) the upward trend in prices is over for a while.  Few are predicting a collapse in price and we agree with the consensus that stagnation or a mild correction is likely.

Going forward, interest rates should remain low as the government tries to keep the economy ticking along, but whether mortgages are readily available at the current rates is open to debate.  Some believe that lending will be more restricted and expensive as various sectors compete for funds. They may have a valid point, which means that if you are an off-plan buyer with a purchase to complete in the next two years you may have difficulty in securing a mortgage.   We expect a large number of such properties in central London to come on the market which would force prices down.  If you are an off-plan investor, our advice is to consider your completion strategy sooner rather than later.  If there is a stampede for the limited finance that is available, you don’t want to be at the back of herd.

Rental demand in London is likely to fall as some institutions move their operations elsewhere.  In most cases this simply means there will only be three applicants for every property instead of the current five.  Given the ongoing shortage and the sheer number of people looking for accommodation, particularly affordable accommodation, an appreciable fall in rental yields is not going to happen.  However, we can certainly rule out rental increases in the short term.

As for the rest of the UK, the warnings of dramatic house price falls from Remain campaigners should not come to pass.  The market is fuelled by domestic, not international demand and buyers are not directly impacted by the value of Sterling.  People still need houses to live in (of which there is a huge shortage) and there is not going to be mass unemployment overnight with interest rates increasingly dramatically.  If you own a property that is rented and it is performing well, sit tight and enjoy the rental income. It will be a sound investment over the medium to long term.

Of course, opinions differ and some people will see any predictions as crystal ball gazing.   The reality is that no-one really knows what will happen over the short to medium term.  We have been operating in this market for over twenty years and are confident that over the long term prices will inevitably rise.  In the meantime there may be opportunities for astute investors to benefit.

So where are the opportunities?

Downsizing will continue and if anything, increase.  Tenants will not be inclined to pay higher rents with the uncertainty over job security in the financial sector etc. and will sacrifice space for affordability and convenience.  HMOs (House in Multiple Occupancy) and smaller properties which show secure and above average rental incomes will become even more popular.  With price growth curtailed, many investors will place greater emphasis on income streams and these properties should perform well.

Buying from semi distressed off-plan purchasers should be possible over the short term, starting sooner rather than later.  With the ability to complete such a purchase, buyers will be able to make discounted offers and acquire properties which over the medium term will be seen as ‘bargains’.

For investors trying to take advantage of a weak currency, or buy at the bottom of the market, timing is the key.  Determining when Sterling and property prices have reached their nadir will be difficult to predict.  Our advice is that if the right opportunity that meets your investment criteria comes along then take advantage of it.   Only investment gurus and clairvoyants can pick the bottom of any market.

Finally, despite pre Brexit warnings to the contrary, London will remain a major financial center and will continue to attract foreign workers and investment.   There is no need to rush in, but ‘fortune favours the brave’ so don’t sit on the sidelines too long. London property has always performed, and it will in the future if you adopt the ‘five rights of property investment’.  Buy the right property in the right location for the right price at the right time through the right adviser.

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USA commercial property and its appeal to large and small investors

The USA commercial property sector performed well in 2016, but it is still under the radar for most Asia based investors who are missing out on some exceptional opportunities.  This is due to a variety of reasons including lack of awareness by investors and concerns over entering a large and diverse market for the first time.   However, with the right adviser large and small investors can enjoy the benefits of a secure and attractive income stream and sound capital growth.

The consensus of opinion amongst analysts and commentators is that the USA commercial sector will continue to perform well over the next five years.  It has certainly done this over the past thirty five years, having shown average annual returns of 8.8%.  With appropriate gearing this would have resulted in returns of 10% plus  p.a. and there are few grounds for believing this will not continue over the medium term.  As one leading asset manager put it:

USA commercial real estate fundamentals have rarely been stronger. While economic growth has been moderate, the supply of new buildings has been muted, resulting in higher occupancies and rents.  In the third quarter of 2015, occupancies among institutionally held properties reached their highest level in fourteen years. The Outlook remains upbeat.  Construction has steadily increased over the past five years, but in most sectors and markets in remains below both historic levels and growth in demand.

We are focusing our USA operations on the Chicago market and are carrying out due diligence on several opportunities that offer a real 7.5% p.a. after USA tax.   With investment levels starting from US$100,000 and rising to US$20m plus, we believe these will be sound investments for our clients.


A consistent approach to an attractive sector

We have long advocated the attraction of a secure income stream and smaller properties:

  • In December 2012 we sent out a property bulletin advocating HMOs (House in Multiple Occupation) which produce high rental returns
  • In May 2014 our property bulletin highlighted the demand for smaller centrally located properties and the value they offered compared to regional homes

Our long standing view is that the security and level of rental income should be of paramount importance to investors.  This is often over-looked by investors who focus almost exclusively on capital growth.  Both HMOs and studio units offer excellent rental returns and investors do not have to forsake capital growth simply because they want to maximize their ongoing income.
A typical HMO is a house which has been configured to provide individual rooms, which may or may not have en-suites, and which have shared communal facilities such as kitchens and lounges.  The prime advantage of a HMO is the increased rental return, which can be anything up to double that received from a standard home.   Importantly, the right house can easily be reconfigured back to a family home at nominal cost so at resale you can appeal to both investors and owner-occupiers.

A common perception among investors is that HMOs have lower quality tenants and they require a lot more work if they are to be managed effectively.   This is not necessarily the case as much depends on the individual property and the choice of tenants.  The right property manager will vet prospective tenants and minimize ongoing costs so that the rental return is maximized.   The owner should be no more involved than he would be for a standard home.  Remember though, you need to buy the whole property (whether it is four bedrooms or forty) and not individual rooms.

Twenty years ago (yes, we have been operating our business that long) studios and one bedroom apartments were not particularly popular with investors and tenants.  Over the years, as house prices have increased and demographics have changed, we have seen a noticeable change.   In virtually every city in the UK there is good rental demand for smaller properties from young people leaving home, students, professionals, divorcees etc.  People increasingly want to live close to their employment, shops and other amenities and are prepared to sacrifice space for convenience and affordability.  People need somewhere to live and with the ongoing shortage and limited number of new homes being built demand for self contained studio units and individual rooms in shared accommodation will continue to grow.  This means enhanced income streams and sound capital growth for astute investors who own such properties.

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Short term development projects: Do you need to like the location?

A remark often made to us by investors is that they have no interest in investing in, or may not like, a particular market.  Quite naturally, there are sometimes valid reasons for this. Just as some people won’t invest in pharmaceutical or technology shares because they think the sectors will under perform, some people will think the same of certain property markets.  If prices are not going to rise within an acceptable time frame, or the rental income is not attractive, having a passive, capital growth investment property make little financial sense.

Should the same thinking apply to a short term development project where the return is not determined by capital growth?  Of course, if prices are falling then it makes little sense to develop a property as the downside risk may too great.  The eventual return is likely to fall over the construction period and there is no way of evaluating this properly.   However, if prices are stagnant then as long as there is sufficient demand for the finished product at the prices the developer needs to make a profit, and the project is costed and run properly, capital growth is not a factor. If there is any, it will only enhance the return. Under these circumstances there is every reason to undertake a low risk development project in that market.

The Costa del Sol is certainly an example of a property market that has seen a major correction.    As a result of the property crash prices fell by over 40% and whilst the market is now slowly recovering general property prices are not set to leap forward and show staggering returns in the short term.  The good news from a development point of view is that few, if any, analysts and commentators are forecasting the market to fall further.  For example, the Sociedad de Tasación’s new housing market bulletin for 2015 reports that the average price of new housing increased by 2.9% last year, reaching a price level equivalent, in real terms, to those registered in the month of June 2002.   In November 2015, the General Council of Notaries reported that the number of housing transactions carried out reached a total of 34,918, which represents an increase of 7.3% over the same month of the previous year.  This meant 18 months of continuous growth.

Some investors will argue that there is still a lot of property available on the secondary market so it makes no sense to build new properties.  In certain locations and price points this is certainly the case.  According to a study carried out by Idealista, 59% of the advertised homes are priced at lower than €100,000, while 23% cost between €100,000 and €150,000.   The homes with prices between €150,000 and €200,000 account for 10% of those advertised, and those between €200,000 and €300,000 account for 6% of the total. Importantly, just 2% of these properties are priced at over €300,000.   So if you develop properties that are priced at over this figure there is certainly no oversupply.

As Mark Twain is commonly quoted as saying, ‘Lies, damned lies and statistics’. It is easy to be selective and use statistics to support a point of view.  The fact is, some months the figures (and hence the headlines) are good, some months they are not. This is what happens when the market bounces along the bottom of the price cycle.  However, with the general economy improving and demand from overseas buyers picking up, the worst is behind the Spanish market.

So what sort of investment returns should an investor expect from developing in Spain?  This will depend on the location, the sector and the risk involved. Securing a change of use for land to be developed may produce an excellent return, but the risks will be too high for most investors.  Refurbishing an existing building will involve much less risk.   It is all about doing the right due diligence, working with the right professionals and adopting a conservative approach.  With an investment period of two years or less, and double digit annualised returns on invested funds, the financial rewards can be attractive.


‘Investors dump new flats back on market’

London’s Evening Standard newspaper is required reading for many of the city’s residents and commuters heading home and further afield.   Its articles are, in general, unbiased and objective although it is always reminding its readers what a great city they live in.  With the price of London property rapidly becoming a political issue due to many Londoners finding themselves priced out of the market, the paper has increased its coverage of the sector in recent times. An article that appeared on the 14th December will certainly have upset many of the agents that have been marketing to overseas buyers.

For most of this year there have been rumblings that the London property is looking very expensive.  In recent months sales levels have fallen and prices have stagnated.  Of course,  most agents, particularly those holding exhibitions in Asia, are not inclined to broadcast this.   Whilst the reality is that the price growth was being fueled by both domestic and international demand, once demand from overseas waned then price growth was bound to stall. The question many people are now asking is whether prices will fall.

The Evening Standard article was headed ‘Investors dump new flats back on market.‘  It comments that as many as 60,000 homes are expected to be completed in areas such as Nine Elms before the end of 2017.  With over 50% of those believed to have been sold to offshore buyers there is certainly cause for concern.    The increase in stamp duty, coming after the introduction of capital gains tax for offshore residents, has prompted many investors to step back from the market. Cluttons, a leading London agency, believe that up to 30,000 newly built apartments could be dumped on to the market as investors make a hasty retreat.  This will, according to the paper and it is hard to disagree with it, inevitably lead to falling prices.

We are certainly not trying to denigrate the London market.  We have been active in that market since 1994 and have had an office there since 1997.  If you are looking for a medium to long term capital growth property there is no better market to invest in.  However, I would not rush in and buy at the moment.  The first quarter of 2016 will give us an indication of where the market is heading and by the middle of the year there may some good buying opportunities

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A secure income stream – peace of mind in turbulent times

Stock markets around the world are currently going through a degree of turmoil and analysts and commentators are undecided on what impact this will have on the world’s major economies.  Given the problems in China it is reasonable to expect more turmoil in the future. The economy there is now too large to be ignored by the rest of the world and depending on which reports you read, China certainly has some problems to address.   Whilst the good news for the property sector is that interest rates should remain low over the medium term, we realise many of our clients who have a major exposure to equities may face considerable volatility in the value of their portfolio.  Although we are property advisers and do not provide general investment advice, we have always acknowledged that investing in equities is a sound strategy and our position on this is not going to change.  In times like this though, peace of mind may be difficult to achieve and sound investment advice and cool heads will be needed.

We keep mentioning a secure, attractive rental income stream as we are firm believers of its merits.   Of course, we are also advocates of capital growth opportunities. Each client has their own needs and  it is all about creating the right balance within each individual portfolio.   As many readers of our property bulletins will know, we have been operating for over twenty years and our clients who bought properties, particularly in London, in the 1990s and later have benefitted enormously from rising prices.   They will continue to enjoy sound returns over the medium to long term, even if values ebb and flow according to market conditions.  However, the UK has now introduced capital gains tax for overseas investors and many investors are now turning to income producing properties to support their long term capital growth investments.  They realise that a balanced portfolio is becoming increasingly important and a healthy cash flow helps them sleep at night.

It is universally agreed that there is a shortage of properties in the UK and nowhere near enough houses are being built to meet demand.  In residential areas throughout the country there is strong rental demand as, good times and bad, people always need somewhere to live.  With interest rates low, house prices are continuing to rise making them unaffordable for many people.  The UK is developing a generation of tenants – people who simply can’t afford the deposit or don’t want to burden themselves with a huge mortgage.  The supply of tenants is growing every year and there is no likelihood of this falling.   This means a well located, low maintenance property that is well managed is like having money in the bank, except the income is better then the interest rate the bank pays!   And of course, rents and property values typically go up in line with inflation or better so the real value of the income is maintained over the long term.

Some investors will say that they don’t need extra income so a strategy of capital growth with a nominal income stream is ideal.    For many investors this approach works, especially for those who are not concerned when markets fall and are prepared to take a long term view.  However, some of us like the security of seeing money go into our bank account every month.  It is a very reassuring feeling and a real net return of 6% plus p.a.certainly protects the downside.

A steady increase in the value of the portfolio is called peace of mind. In turbulent times, it certainly has its appeal.

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Changes to UK inheritance tax and the housing shortage

Many offshore investors have historically made use of company structures to avoid inheritance tax.   However, the UK government has recently decreed that from April 2017 property in the UK, whether directly or indirectly, held by foreign domiciled persons will be liable to UK inheritance tax   This means they look through the structure to see who owns the property.  Company structures include a trust or a hybrid structure using both a trust and a company.

Given that the principal benefit of using a company is being removed,  certain investors may wish to review their current ownership structure.  There may be capital gains tax issues in doing so, but if they are caught by ATED (the annual charge will affect properties from £500,000 from 2016) it may worthwhile to do so.  A brief discussion with a qualified tax adviser would certainly be appropriate.

The government did not stop with inheritance tax.   The allowance for wear and tear on furniture used in rental properties is going to be withdrawn in 2016.  The government will release further information on this in due course.

The ongoing shortage of houses, planning problems and rising prices

The basic laws of supply and demand means that when there is limited supply demand increases and in the case of property this means rising prices. For a number of years we have been telling our clients that prices in the UK will rise over the medium to long term for this simple reason.  The UK government estimated in 2014 was that 240,000 to 245,000 additional homes would be required each year to 2031 in order to meet newly arising demand and need in England.  The following shows the number of houses actually being built:


The main issue holding back house building is the limited supply of land at the right price.  Most of the problems have been caused at a local level with councils and communities protecting vested interests and refusing / objecting to planning applications.

The politicians all say that if elected they they will rectify the problem, but the reality is that successive governments have not come up with a solution.  The current government is making all the right noises and is planning to overhaul the planning system including
A new “zonal” system, as employed in many other countries, which will give automatic planning permission on all suitable brownfield sites, removing unnecessary delays to redevelopment.
Power for the government to intervene and have local plans drafted setting out how housing needs will be met when local authorities fail to produce them, and penalties for those that make 50% or fewer planning decisions on time.
It all makes for good politics and the ultimate goal is an admirable one. However, whilst many people in the sector welcome the proposed changes, there remains scepticism that it will produce the desired result.  There is a Chinese proverb which says ‘The sky is high and the emperor is far away’ and it certainly applies when it comes to planning in the UK.  Policy statements from the central government are all very well, but it is the implementation at a local level that is the key to getting anything done.

Even with the best intentions, nothing is going to happen which will solve the problem overnight.  There will be a shortage for many years to come and this will continue push up prices.  Its the basic law of supply and demand and creates a sound opportunity for property investors.

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Short term development projects – what investors should consider before investing

We have been involved in property development for many years and follow some basic guidelines which we thought would be helpful to share with our readers. There is a general perception that the property development sector is the domain of larger institutions or special development companies and that smaller investors do not have access to it.  It is certainly true that historically, individual investors have struggled to enjoy the rewards the sector has to offer.  This is simply because of the high investment levels involved.  However, with the right structure and approach smaller investors can enjoy excellent returns from low risk projects.

When considering undertaking or investing in a development project it is worth noting the following:

The basics

  • Buy the right site
  • build it for the right amount
  • sell the units in the agreed time frame
  • for the agreed end values

Property development isn’t very complicated if the basics are followed.  The best approach is to take on a project that shows an acceptable return and then focus on producing that return.  Some people will argue that the aim should be maximise the return.  We disagree.  The aim should be to produce the profit that was deemed acceptable and not take unnecessary risks which would jeopardise achieving this.  We all want to make more money, but not at the risk of losing money.  It is all about preservation of capital with an attractive return.

The right structure

There are several ways a development project can be structured:

  • Investors buy the site with the developer acting as Project Manager on a fee/profit share arrangement.
  • Investors lend money on a secured basis to the developer, either as primary or mezzanine finance. This typically involves a set interest rate/return to the investor.


The suitability of the above will depend on the project and the wishes of the individual investor.
Detailed agreements should be entered into which clearly set out the obligations of the developer and protect the interests of the investor.

The location

Some developers believe there is always demand from more wealthy people so they focus on top end properties in prime locations.  Other developers argue that is always demand for standard family homes in medium income areas as this where the majority of people want to live. Developers at the low end will point out that there are always people looking to get on the property ladder and who don’t have mountains of cash to invest.  Each argument has its merits and it all comes down to individual preference.

The important issue is whether there will be buyers for the completed properties at the prices you expect in that specific location.  People live in high, medium and low income areas and the key is the demand that exists there.  If there is an over supply of properties, or vast tracts of land waiting to be developed, you may struggle to sell the properties which will affect the investment time frame and return.

The country in which the development is being undertaken should have a stable political environment, a good legal system and a transparent tax regime.  The investor is not going to live in the completed property so whether the lifestyle there appeals should not really matter.

Whether prices are rising in the location should not be the determining factor. The important thing is that prices are not expected to fall.   Any increase in property prices over the construction period should produce an enhanced return. See the danger of forward pricing below.

Forward pricing – avoid the temptation!

When compiling a feasibility study for a development project the easiest way to make it work is to inflate the prices that the completed units can be sold for.  This temptation must be avoided at all costs.  The question every investor should ask is ‘If these properties were completed and ready for occupation today, what would they sell for?’   The required return to the investor should not be dependent on prices rising over the construction period.   Of course, the properties may go up in value and be sold at a higher price and if so there should be an enhanced return.  However, they may not go up in value and the prudent approach is to base the investment return on today’s end prices. It means most projects don’t meet the expected profit requirement and therefore are not undertaken.  The good news is that the ones that do, will meet expectations.

Refurbishment or new build

It doesn’t really matter whether it is new build or refurbishment.   Some buildings need to be demolished, whilst some are structurally sound and can be refurbished.  It is less expensive to refurbish, but much depends on the specific project.  A general rule is that the more work you do on the property the greater the value you create.  Upgrading a kitchen or bathroom and adding a coat of paint won’t greatly affect the value.

A detailed budget

A detailed budget should be prepared showing ALL the costs.  This should be independently verified by an appropriately qualified person.  It should have an adequate contingency sum to allow for any unforeseen circumstances.  A fixed price building contract will reduce the risk considerably.  However,  this may prove to be more expensive as the builder will want to cover his risk by quoting an appropriately higher cost.

Independent due diligence

The following should be confirmed by an independent party before the investment is made;

  • Satisfactory planning approval
  • Construction cost and time frame
  • Professional services and fees
  • End sales values based on today’s prices

The right manager

Before you invest in a project you should confirm that the developer:

  • Has extensive experience in the sector
  • Knows the market in that location
  • Provides conservative estimates
  • Provides detailed and independent verification
  • Has formal agreements to protect the position of all parties

You will be entering into a partnership so it is important that you feel comfortable with the developer and his method of operation.


The above is just a brief note on some of the key areas an investor should consider before investing in a development project.  It is not exhaustive and each project will have its own set of issues and risks.  With the right due diligence and approach these can be minimised and the project will produce an attractive return for the investor.

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The five rights of property investment and why we chose Stoke-on-Trent

As many of our clients and followers will know, we are developing a block of 28 large self contained studio units in the centre of Stoke-on-Trent.  A number of our clients have asked why we decided to develop in this city.  London or cities such as Birmingham and Manchester would appear to have been a more obvious choice.  The answer is that we wanted to offer our clients a sound property investment at an affordable price and as you can see from below, we firmly believe we can do this our our Stoke-on-Trent development.

The common mantra of estate agents that ‘Location, location, location’ is the most important factor in property investment is too simplistic.     The key is to buy:
i)  the right property
ii)  in the right location
iii  for the right price
iv)  at the right time
v)   through the right adviser/developer.

We call it ‘The five rights’ of successful property investment and you will hear us talking a lot about this during 2015.   If investors follow this strategy  then they will have invested wisely.

So let’s consider London first.  This is a truly international property market and will produce sound returns going forward.  There will always be occasional blips, but international demand will keep pushing the market forward for the foreseeable future.  The problem for many investors is the cost of entering that market.  A decent one bedroom apartment in a central location will start from  £200,000 and even with a mortgage this is beyond the reach of many people.  It might be the right location, but if you can’t afford to buy the right property there then all of “The five rights’ have not been adhered to.  There is little point in buying the wrong property simple because it is the right location.

It is fair to say that many investors feel more comfortable with a bigger city. They imagine there will be stronger buyer and rental demand going forward simply because there are more people living there.  Unfortunately, this is not necessarily the case and much depends on the specific property and the location it is in.  The essential formula of limited supply and strong demand can apply irrespective of the size of the market.

Take Stoke-on-Trent for example. It isn’t the biggest city in the UK and it certainly hasn’t got the best scenery or football team. It is like a lot of other cities; it has a decent size population and the usual city infra-structure.  So why invest there as opposed to anywhere else?  The honest answer is that there is no reason whatsoever to choose it over anywhere else. Which is not say you should not invest there.  On the contrary, the important thing is that if you can find the right opportunity there then it is as good as anywhere else.   It is all down to ‘The five rights’ and if you can find a property there that is suitable then you can buy it with confidence.

So let’s take a look our Majestic Court development in Stoke-on-Trent and see whether it meets ‘The five rights’ criteria.

i)  The units are large self contained studios that will be modern and very popular with young professionals, students etc.  For that market, they are the right property.
ii)  They are superbly located adjacent to shops, restaurants and within easy walking of the railway station and the Staffordshire university campus , so they are in the right location.
iii) They are the right price for many our clients (under £60,000 and with a guaranteed tenant) and represent excellent value on a pounds per square foot basis.
iv)  The general UK market will always have blips, as will London, but the time to invest for the future is now, not in the future.
v)  Lastly, we have been operating since 1992 and firmly believe we are the right adviser to use (of course, you would expect us to say that but we actually believe that and so do our clients). Importantly, we are the developer and will provide a quality product that will meet our clients’ expectations.

When we found the opportunity in Stoke-on-Trent and carried out our due diligence we quickly realised it was a sound place for us to develop a quality product that our clients could benefit from.  We are extremely confident that time will prove us right.  Going forward, we will find opportunities in other areas and if they satisfy ‘The five rights’ then they will be worthy of consideration.


The Costa del Sol or the major cities?

With the Spanish property market showing signs of recovery some of our readers have asked where in Spain they should buy and whether the oversupply in some areas will impact the recovery.   It is certainly true that there is still an oversupply of properties throughout Spain and this is likely to remain the case for some time.  The good news is that the number of unsold homes in Spain will shrink to 563,000 units in 2015, according to a report issued by the Spanish Realtors Association, in collaboration with the Institute of Business Practice (IPE) and the National Network of Qualified Property Consultants (RAIC).  This is a 40 percent decline from 2010.   It is worth noting that many of the homes are half built or poorly constructed in bad locations, with little chance of ever selling. It is all about buying the right property in the right location for the right price.

A commonly held view is that the major cities will be the first to see prices rise as foreigners snap up bargains there.  To some extent this appears to be happening, with agents in Barcelona for example, advising that up to 30% of sales are going to foreign buyers and prices are edging upwards in certain districts. The same is true of the Costa del Sol though, with foreign buyers rapidly returning there.

In the UK, London has historically out-performed the rest of the country in terms of capital growth.  Howere, in recent years this has not been the case in Spain.  The price of coastal properties surged 250%  from 1996 to 2007 as hundreds of thousands of foreigners, mainly from the UK, France and Germany, bought property.  Contrast this with the main cities of Barcelona and Madrid where prices rose 188% over the same period.

As you would expect with a property crash,  some areas were worse affected than others.   The Costa del Sol, which is on the coast and where prices are typically lower than the major cities, saw prices fall by as much as 50% as a result of the global financial crisis in 2007.  Barcelona and Madrid experienced a much less severe fall, with prices dropping by up to 30%.   Of course, such price falls are in general terms only and you can always find individual properties where the price has fallen more or less than these percentages.

Given the above, one could argue that the major cities are a safer location in terms of capital preservation – if prices fall they will fall less in these locations. However, given the state of the market the downside risk is not considerable. We believe the emphasis should be on picking the area that will show the best investment returns rather than which area will be the best for the preservation of capital. After all, with a limited downside the reason for investing in Spain is to maximise the return.

As indicated above, the price gap between the major cities and the Costa del Sol was narrowing between 1996 and 2007.  With prices falling further in percentage terms in the Costa del Sol, the price gap has now widened again with the major cities being relatively more expensive in comparison.  With foreign buyers returning to the Costa del Sol we may see a resumption of the previous trend where it out performs the major cities.

Whilst the major cities may or may not recover sooner, the issue for most investors is not which market will be the first to show price increases, it is which market will show the best returns over the medium term.  At the end of the day it is all down to the investment return over the period of time you want to invest. There is an over supply of properties everywhere, and more so in the Costa del Sol than in Barcelona.  However, it is all about buying the right property in the right location for the right price.  Both the Costa del Sol and Barcelona have properties that can satisfy those requirements.

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New stamp duty rates in the UK

The UK government has changed the stamp duty rates in its Autumn budget statement.  The changes, which are effective immediately, have drawn positive responses from most commentators and analysts.  It certainly benefits buyers of lower valued properties and penalises buyers of properties valued at more than GBP937,500.

Under the new rules, no tax will be paid on the first £125,000 of a property, followed by 2% on the portion up to £250,000, 5% on the portion between £250,000 and £925,000, 10% on the next bit up to £1.5 million and 12% on everything over that.

It is estimated that around 750,000 buyers every year will benefit from the new rates.   By contrast, the 17,000 buyers of properties valued at GBP925,000 plus will pay more.  The new rates will have the greatest impact in London and the south-east, which are likely to contribute around 75% of all stamp duty receipts. The changes are unlikely to have a major impact on the central London market.  Time has shown that buyers at the higher level will absorb additional costs and interest rate rises.  It is hoped that the new rates will end all talk of a ‘mansion tax’ on such properties, although this remains to be seen.

The changes are designed to help first time home buyers and people at the lower end of the income scale.  It is not often that a UK government makes changes to the tax regime which are universally praised.  In this case, they have and with an election next year it is not difficult to be cynical in terms of the timing. Nevertheless, the changes will benefit a huge number of people and are to be applauded.

It is worth noting that given the cost of property in the UK, more and more buyers are focusing on smaller units at affordable prices.  The dream home of a four bedroom, two bathroom house is rapidly moving beyond the reach of many buyers.  The acceptance of reduced living space applies especially to younger buyers.  Many of them don’t want to live on a large nondescript housing estate miles from a city centre.  They want to live close to major shopping centres, bars and restaurants. Sacrificing space is often necessary if they are going to achieve this.  The trend towards smaller, well located homes is set to grow for the foreseeable future and offers great opportunities for investors.


Is Sotogrande the best residential development in southern Europe?

We have long had a policy that we will not offer properties to our clients unless we have seen them ourselves.   As we mentioned in a recent property bulletin, the Spanish property market is showing signs of recovery so Dan Wainwright, our UK director, and myself have just spent a week looking at opportunities in southern Spain.  There are certainly some great opportunities for both investors and owner–occupiers (holidays and permanent residents) to buy quality properties at the bottom of the price cycle.

One of the areas we visited was Sotogrande and it really is a great place to live. It  is located in the province of Cadiz, where the mountains of Andalusia and the River Guadiaro meet the Mediterranean Sea.   It is 30 minutes from Marbella,  only 20 minutes from Gibraltar Airport, one hour from the airports of Malaga and Jerez and very close to the cities of Granada, Seville and Jerez. It  has been carefully developed into what is now an outstanding resort. Its wide avenues, harbour, two beach clubs, world class hotels, colourful Marina, and every conceivable kind of service:

Banks  ;  doctors   ; lawyers  ;  shops  ;  restaurants  ;  car hire  ;  tennis and  padel tennis courts  ;  horse riding  ;  sailing  ;  art galleries  ;  craftwork and antique shops  ;  a colourful street market every Sunday.

The two beach clubs, El Octógono and El Cucurucho are located in unparalleled surroundings and both have direct access to the beach. The clubs offer members and visitors a range of unbeatable services and activities for children and adults.  The Sotogrande International School has been an IB World School since January 2000. It offers both a Primary Education Programme and the Diploma Programme. It is a private school, with English as the main language.

It is also a great sporting area with five superb golf courses including Valderrama,  the 97′ Ryder Cup venue, the Real Club de Golf and La Reserva de Sotogrande.  It also has eleven polo grounds of the highest level.  It is home to the first marina ever built in Spain, with 1,400 moorings of between 6 and 15 metres. It is often referred to as Little Venice because of the many canals and special atmosphere and it offers residents the option to have their boat moored right outside their home.

New build two bedrooms in the marina start from 350,000 euros and villas in the area start from around 550,000 euros.  There is good rental demand, particularly from people working in Gibraltar, and with the Spanish market set to recover now is the time to buy.  If you are looking for a lifestyle home and a sound medium term investment, Sotogrande may be the ideal location.

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Spain – bottom of the market and set for recovery?

In August 2012 we commented on the Irish property market and the fact that all markets recover in time and Ireland would be no different. This has certainly been the case, with prices in Dublin having risen over 20% in the last year. The recovery has also spread to the rest of the country with prices rising by 5% over the same period. Some analysts have even asked whether a price bubble is forming. This is for a property market that a short time ago many people were questioning whether it would recover in this decade, let alone the next few years! The same applies to the UK market. Like Ireland it fell as a result of the global financial problems of 2007/8 and took some time to recover. When it did, it took many investors by surprise and they ended up buying far outside 10% of the bottom of the market.

Over the past twenty years we have seen a number of ‘boom and busts’ and have learnt a couple of things that we keep reminding ourselves and our clients of – it is almost impossible to pick the absolute bottom of a property price cycle and all markets recover in time. It is a question of ‘when’ and not ‘if’. We firmly believe that if you buy within 10% of the bottom of the market you will have done well. If you buy within 10% of the top you will certainly not have done so. But getting the timing right is not easy. Markets seem to recover a lot quicker now than they did twenty years ago when we started our business. This is partly due to better communication channels (the internet, social media etc), which gives people easy access to market information. Unfortunately, this doesn’t mean it is easier to pick the bottom of a property cycle, it has always been extremely difficult to do that and we doubt that will ever change. It does however, help investors more quickly identify market trends and move quickly to take advantage of opportunities.

If you are looking for a medium term investment in a market:

that appears to have bottomed out and in any event should be within 10% of the low point of the current price cycle
offers security of title
an adequate legal system
access to market information etc
has an active secondary market
is not an emerging market
where do you look?
One country you could consider is Spain. The market there certainly crashed and the ‘doom and gloom’ commentators have said that there is an over supply of properties, no investor demand and no hope of recovery. Does all this sound familiar? We commented on the Spanish market in June and November of last year and fully acknowledge there has been an over supply and little investor demand. However, no hope of recovery? All markets recover in time and Spain seems to be about to do that.

It certainly appears that the market is now within 10% of the bottom of this price cycle. House prices dropped 3% year on year to June 2014, the lowest annual fall for 6 years. The data from Tinsa is the latest evidence of what commentators increasingly declare to be ‘the bottom’ of Spain’s housing market decline. The month of July saw price rises in several provinces, with the improvement being largely credited to foreign property investors buying on the coast and in major cities. These investors are looking to cash in on the highly depressed property prices which tumbled from their pre-crisis highs. This is particularly the case for Britons who accounted for 15% of all sales to overseas investors, followed by the French (10%), Russians (9%), and Belgians (7%). The Golden Visa scheme, which allows residency through the purchase of a property, came into force on the 30th September 2013 and has also resulted in increased interest from the Middle East, Asia and Russia.

Commentators are now becoming more bullish, so we can expect investors to increasingly return to the market. “We have already seen a staggering 2,500 per cent increase in Middle Eastern buyers this year versus the same period in 2012, and a 190 per cent increase in buyers from Russia and Lithuania.”, said Marc Pritchard, sales and marketing director for Taylor Wimpey España, in a report in Telegraph UK. This sentiment is supported by Myles Johnson of the Financial Times who said “Several large deals have been completed for assets that 18 months ago not even the most foolhardy speculator would have touched.”

The general economy is also showing signs of improvement. Spain has the 13th Highest GDP in the world and in 2013 it stood at approx. $1.4 trillion, with a per capita figure of $30,557 . In line with most countries in Europe and elsewhere, its economy was adversely affected by the 2008 global financial crisis. The government was forced to seek EU financial aid and introduce severe budget cuts which culminated in unemployment exceeding 20%. By 2014 the economy was on its way to recovery with 1.4% increase over the previous year. Exports mainly led the recovery which was aided by private consumption, an improving labour market and stronger confidence. Business investment is projected to benefit from the better economic outlook and higher exports. Higher activity will result in positive employment growth, but ample spare capacity will keep inflation low.

The above doesn’t mean that prices are going to boom overnight throughout Spain, but it does mean that in some areas now is the right time to buy and take full advantage of the up-turn.


Do you want high income or high capital growth from your property investment?

The answer to the above question seems obvious – most investors want both. Whilst it is possible to achieve this in some emerging markets, such opportunities come with high risk. The currency, political stability, ownership entitlement, re-sale potential are all issues that affect the medium viability of emerging markets. Most investors we speak to are seeking security of their capital with an attractive return. That means a lower risk strategy and mature but profitable markets like the UK are seen as preferable for this.

So can you enjoy both in the UK? The answer is no, you can’t if you want to minimise your risk. In the UK investors nee to clearly define whether they want a high income with capital growth that matches inflation or higher capital growth with income that typically is adequate to service a mortgage. If the marketing agent forecasts both, be wary – if it sounds too good to be true it probably is.

Whether you are an experienced property investor or just starting the process of putting together your portfolio, your aim should be to have a diversified portfolio. This can be achieved through exposure to different currencies, locations and sectors. Many investors are totally focused on capital growth (based on market vales rising), but there is a lot to be said to having an attractive and secure and attractive income stream as part of the portfolio. Property prices may go up over a period of time, but seeing money go into your bank account every month never loses its appeal.

Many investors we meet are heavily exposed to one capital growth market, often London property. This market has performed exceptionally well for many years and will continue to do so. A typical example of a well located capital growth opportunity is our Redmans Place, London E1 project. The apartments will rent easily to people working in the city and Canary Wharf and given its location and quality capital growth should be strong. With two bedroom units at GBP470,000 most investors will secure a mortgage. With gross rental yields of 4.5% – 5% gross (typical on zone one and two properties on current market prices) the net income will be negligible. This may be acceptable if the emphasis is on capital growth, but they are no ideal for investors who want an attractive income stream paid to them every month.

The alternative strategy to capital growth is to focus on income. In the UK you can buy cheap houses in many northern towns and put welfare recipients or immigrants in as occupants. This does not necessarily mean you will have a poor quality tenant, but it does mean you will not have a quality property in a quality area. Welfare recipient etc. rent in the bottom of the sector. Your re-sale potential may also be limited in such locations as people typically aspire to own property in better areas. Whilst your gross rental yield may appear to be attractive, after you take into account repairs and maintenance, voids etc. (let alone the management headache) the net yield may not be so.

For investors seeking a higher income opportunity, studio apartments may offer an affordable option. These can be targeted at the student or the general professional market. There is a general trend in the UK to downsizing in terms of residential property. People are prepared to give up extra space as they search for convenience and affordability. Studio apartments in city centres that appeal to professionals who want to be in the heart of everything make great rental investments. A studio unit in Redmans Court is an obvious example, but the income stream is still going to be less than a strategically located purpose built student accommodation studio unit which offer a much higher income stream.

Are there any downsides to buying a studio to be used by students? Of course, there is. Few, if any, investments are perfect. You have to be a student so you won’t be able to live in it yourself. The upside is that this is is seen as a plus as they offer much better security and hence appeal to students. There is no shortage of students and studio size units are highly sought after by post-graduate and more mature students so management issues are minimal. Another potential downside is that you won’t be able to sell it to an owner-occupier in the future. Does this matter if you sell it to another investor looking for a high income opportunity (and there is an increasing number of investors looking for that)? A great example of such an opportunity is our Majestic Court development where large studios can be bought from GBP49,950 and have a guaranteed tenant in place for five years at 8% per annum net of all costs.

Income or capital growth? As you can gather from the above, each has it merits and much depends on the individual investor. The first step is to sit down with the right property adviser (and no disrespect to most Independent Financial Advisers, we do mean a specialist property adviser) and discuss your needs and requirements. It is worth taking the time and effort to get the right advice at the outset. Having done that, the property world awaits you and there are some great opportunities for you to take advantage of.

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Smaller units in the right location can be better property investments than regional houses

If the mantra of ‘Location, location, location’ espoused by many estate agents is to be believed, you should place greater emphasis on where the property is located than the actual property itself. While this approach is too simplistic to be adopted without qualification, there is certainly some truth in it. Buying the best location you can afford is usually better than buying the best property in a poorer location.

In 1994, when we first began offering UK property to Hong Kong investors, many of the people we spoke to would only buy two bedroom apartments in central London. London was relatively affordable and there was no need to look elsewhere. One bedroom units, even in London, were frowned upon as investments, primarily because in Hong Kong few people wanted to live in them. Although we pointed out that it is the demand for the product in the UK that counts, not the demand in Hong Kong, it was fair to say that demand for studio and one bedroom units was not as great as demand for two bedroom units.

Bring the clock forward twenty years and the position has changed considerably. The trend towards people living on their own has been growing for some time. Britain has become a lonelier place to live over the last 40 years with the number of people living alone almost doubling from nine per cent in 1973 to sixteen per cent by 2011. Of the 26.m existing households, 7.7m of them are occupied by one person.

The result of ever increasing property values in London means that it is now one of the most expensive places in the world to buy property. Numerous people who would like to live in zones 1-3 on the underground system can no longer afford to do so and a large number of investors have been frozen out of the market. These people simply cannot afford the standard two bedroom unit that has been the staple of the investment market for many years. This has resulted in smaller units becoming much more acceptable to both UK based buyers and overseas investors.

Tenants are in a similar position. They want to live in an area that suits them and if that means not using a spare bedroom as a storeroom, then so be it. They would prefer to rent a smaller unit than pay the extra rent or move to a less favourable location. With rent levels so high, empty rooms are increasingly regarded as needless and extravagant The good news for investors is that in many locations, both purchase and rental demand for studios and one bedroom units is as strong as two bedroom units.

The demand for smaller units is not restricted to one bedroom apartments. Studio units of at least 20 sq mtrs are now in demand from tenants and owners. Many single people and young couples, especially professionals, want a city centre residence and a large self contained studio unit is perfectly acceptable. This applies whether they are buying or renting. Naturally, you shouldn’t buy a studio unit in a sprawling suburban area where there is an abundance of larger, affordable accommodation. In a busy city centre there are strong grounds for buying one. It is an investment and we are not going to live in it ourselves. We simply want to rent the property we buy to the best tenant we can find, for the highest rent and then sell it easily for the highest figure we can achieve. A studio unit in say central London will mean a quality tenant and should show better capital growth (as you would expect from London) over the medium to long term than a house in the midlands.

So why don’t more overseas investors buy smaller units? There are a number of reasons:
1. Lack of knowledge of the demand for this type of accommodation.
2. Lack of availability – most developments offered to Asian based investors include a majority of two bedroom apartments
3. A desire to buy something they would want to live in themselves

Of course, the above means that many investors don’t buy in the UK. Prices are now so high they can’t afford to buy anything that meets their requirements. This does not have to be the case. The following shows what can be bought for far less than a typical central London two bedroom apartment and yet will still be a great investment in a great location:

1. £50,000 – £75,000: studio units for students and professionals in university cities
2. £75,000 – £150,000; one bedroom apartments in city centre locations
3. £150,000 – £200,000 – studio units in London zones 2 – 3
4. £200,000 plus; one bedroom apartments in central London zones 2 – 3

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Student accommodation funds, liquidity and the benefits of direct ownership

Many investors have entered the student accommodation sector through managed funds. Some of the funds have performed well, others such as Mansion and Brandeaux have experienced serious liquidity problems. Nevertheless, the underlying assets, i.e. the student accommodation units, have preformed well with most operators experiencing 99% occupancy rates and healthy investment returns.

When investors want to withdraw from a managed fund they expect to be able to do so and to receive their funds promptly. To facilitate this the funds typically keep up 10% of its net assets in cash. The managers argue that if more than this was kept then this would affect the fund’s investment return since cash does not generate anywhere near the return that student accommodation provides. In a normal market you would expect to see subscriptions being higher than redemptions resulting in the fund growing in size. The problem arises when there are more redemptions and the cash held (i.e. the 10%) is depleted. The manager is then forced to sell some of its assets, which brings with it a number of issues that have to be faced.

The funds typically own blocks of 200 units plus. They are extremely reluctant to sell a portion of these as the block would then lose its appeal to institutions etc who want to manage a whole block and not have to deal with individual unit owners. Some of the funds have complained that there are too few buyers for the blocks, but this has been disputed by a number of parties. There is strong demand from overseas institutions, with the flow of money from international investors, the majority of which has been from North America, passing the £1bn mark in 2013 for the second consecutive year, up from just over £275m in 2011. New funds are entering the market, including the Curlew Student Trust, which aims to raise £250m. The BlackRock UK Property Fund spent £50m and Standard Life spent £81m acquiring blocks in 2013. So much for there not being buyers for the blocks. There is always a buyer for a property, the only issue is the price that has to be paid.

Of course, once word gets out that a fund has a liquidity problem, other funds and institutions want to buy at a discount. If the block is sold at a reduced price the fund’s performance may be affected, which may cause more investors to withdraw, which will require more blocks to be sold and the problem goes on. Irrespective of this, more investors hear of the problem and start to redeem their money which create more liquidity problems.

We are not criticising funds, apart from the fee structure contained in the fine print, which is often far too high. We are simply pointing out that funds have the potential to suffer from liquidity problems, with all the adherent issues associated with that.

For buyers of individual units, the issue of liquidity does not directly affect the value of their investment in the same way it affects a fund. A fund with liquidity problems quickly becomes common knowledge, whereas the real reason why an individual buyer is selling a property is rarely known. The seller simply lists it for sale at a price and there is no expectation from a buyer that the seller is a distressed vendor.

It is true that property is generally less liquid than funds. However, if the fund is experiencing the above problem then from an investors point of view there is far less liquidity than if the investor directly owned the property. He or she is locked in and dependent on the manager to return their funds. At least with direct ownership there is always a buyer at the right price. The secondary market for student units is rapidly developing and going forward the sector will offer satisfactory liquidity and attractive returns.

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Equity valuations and income

Has the world gone mad? A British take-away food company called Just Eat has just made its debut on the London Stock Exchange. It was valued at £1.5bn, which is over 100 times its last year’s underlying profit, and it went up 5% on its first day’s trading. We are not investment bankers, we are property specialists, so it is not for us to say that it was not worth that multiple. To a lay man though, it is hard to see how a take-away food company is worth 100 times its annual profit. Apparently, the company is being positioned by its promoters as a technology play, which allows everyone to get very excited and the valuation to go up. This is not an isolated case. More and more companies and their advisers are taking advantage of a broad connection with technology and favourable market conditions to raise huge sums based on ever increasing multiples. Does any of this sound familiar?

A number of people have expressed the view that a technology bubble is forming. If they are right, then when the bubble bursts (they all do eventually) there are going to be a lot of people suffering huge losses. Unfortunately, there is a very real danger that other sectors of the stock market will be dragged into the mire. Which does not mean that there are no sound equity investments out there. However, it does reinforce the need for a balanced portfolio so that investors are not over exposed to equities.

‘Income, income, income!’ is the dominant investment strategy for many astute investors. In times of over excitement in equity markets it is easy to see the attraction of a secure and attractive income stream from an alternative asset class. Sure, rising stock prices means paper gains and if you choose the right exit point (oh, how we all wish we could do that!) or adopt a long term hold strategy then there are sound profits to be made. However, putting hard cash in the bank every month is never a bad strategy and it appeals to most of us.

When you can get a net yield of 8% p.a. from a property, why would you not invest in that asset class? Of course, some people like immediate liquidity and yes, property is less liquid than equities. Importantly, though, there is always a buyer for the right property. If you are buying equites for the long term and the market drops are you going to sell or will you continue to hold? Most passive investors don’t panic and they decide to hold. For them, immediate liquidity is not required for all of their investment portfolio and property may be an ideal investment for them.

So where can you get an 8% p.a. net yield? UK student accommodation is the obvious answer. There is going to be a shortage of student accommodation for many years to come, which will result in a steady and attractive income stream for investors. If you believe that income is important or you want to re-balance your portfolio, this is a sector you should invest in.

Graduates in Cap and Gown

Student accommodation – The academic standing of a university and the re-sale opportunity

We are often asked how important is the academic standing of a university when determining the investment merits of a student accommodation unit close to that institution. Whilst some investors are inevitably drawn to leading universities such as Oxford and Cambridge, whether a university ranks 1st or 100th in academic achievement is not going to influence the success of the unit as a property investment. Demand for places in that university is important, as is whether there is enough suitable accommodation to cater for all its students. Not everyone can attend Oxford, but every student attending university has to live somewhere.

Demand for places in leading universities is growing, but so too is demand for lesser renowned institutions. In 2013 there was an over subscription of 181,000 applications for the 495,000 higher education places available for under-graduate students. This was a rise of 3.6% on the previous year. The demand from overseas students is set to grow as well. In his 2013 Autumn Statement to the House of Commons, the UK’s Chancellor, Mr. George Osborne, announced that an additional 30,000 overseas students will be allowed to enter the UK next year and the following year there will be no limit. This means universities will be free to recruit as many overseas students as they wish and will result in a substantial increase in the coming years. These students have to live somewhere and the supply of new purpose built blocks is not likely to satisfy the growing demand in the long term let alone the medium term.

In summary, its the demand for accommodation in that location and the secure income stream the unit generates that count, not the individual student’s educational prowess or the institution’s academic standing.

Another question we are often asked is whether there is a re-sale market for individual student units. It is certainly fair to say that this is a relatively new sector that is enjoying enormous appeal among individual investors. Most units are bought off plan using a forwarded funded payment method. This means that currently very few established units come on the market. There is a strong demand for established units which are already producing a secure income stream as not everyone wants to buy off plan. In the coming years, as more units are completed and occupied, more investors will have the opportunity to buy these. This will inevitably lead to an active secondary market involving estate agents, financial advisers, web portals etc. Where you have investors seeking immediate, secure rental income and owners who want to sell there will always be people who will step in to help and generate that business. It certainly helps if you buy and then re-sell through a long standing agent that you know will be around in years to come. You should have an established relationship and a high degree of trust with them. In any event, the buyer will probably be a parent of a student or someone looking for a secure and attractive income stream. If the property has a sound track record and is well managed, there will always be a buyer for it.


UK government changes to impact on student accommodation sector

In his Autumn statement to the House of Commons, the UK’s Chancellor Mr. George Osborne, announced changes that are likely to have a major impact on the central London residential market and the student accommodation sector:

1. Overseas investors will have to pay capital gains tax from 2015

Many people had always thought that if this was ever going to be introduced it would be the Labour party that would take that fateful step. It appears that the Conservatives have more back bone than many people thought. Mr Osborne’s statement that “Britain is an open country that welcomes investment from all over the world, including investment in our residential property. But it’s not right that those who live in this country pay capital gains tax when they sell a home that is not their primary residence – while those who don’t live here do not” is perhaps hard to argue with. Unless you are an overseas investor of course.

It will be interesting to see if developers who hold weekend exhibitions in Hong Kong, Singapore and Kuala Lumpur, and who sell vast numbers of London apartments, will enjoy the same level of success now that this tax will be applied to their buyers. Many of those buyers are seeking capital gains and whilst the finer details of the tax have not yet been decided, including the rate, its introduction will surely impact on demand.

The effect of this change is that many investors will decide that a higher rental yield is better than an uncertain capital gain that will be taxed. This is especially the case where the owner can claim a personal allowance to reduce his tax liability on his rental income. With the rental yield from student accommodation being seen as secure and attractive, more and more investors will enter this sector. That can only lead to one thing – student accommodation unit prices will rise. Good news indeed for the people who own units in well located student blocks.

2. The cap on the number of overseas students allowed to study in the UK is to be removed

Mr. Osborne has decided to increase the number of overseas students next year by 30,000. The year after that the cap will be removed and with no upper limit universities will promote themselves even more vigorously overseas as they seek to attract high fee paying students. There is already excessive demand for the limited number of purpose accommodation units that are available, but Mr. Osborne has taken no heed of this. In fairness to him, the impact of overseas students on the British economy is considerable and it is therefore understandable if he does not dwell on the problems these students have in finding suitable accommodation.

The upside of this change is that universities will recruit overseas students quicker than councils will grant planning consent and developers can build suitable accommodation. The result will be even stronger demand for purpose built student accommodation and, inevitably, higher rents. This is fine if you own a student accommodation unit, not so if you are a student trying to find accommodation. No matter how much rents rise though, students will keep going to university and the UK will still attract overseas students. A good British university education is certainly worth paying a little extra in rent. If you think rental yields in this sector are attractive now, in a few years time they will be even better.

We are pretty sure Mr. Osborne did not make his changes based on a desire to make student accommodation even more attractive as an investment. The good news is that they have. With more people driven to high income opportunities and rents likely to rise, the next few years will see even better returns for both both large and small investors in this sector.


“Buy land, they are not making it anymore”

It is hard disagree with the above quote. Ownership of strategically located land has always been, and always will be, a sound investment. It has stood the test of time and will continue to preserve and generate wealth for generations to come. So why don’t more investors take advantage of the current opportunities in the USA land sector? It is certainly a great time to invest there and there are some sound opportunities available.

Most investors in places like Hong Kong, Singapore and Malaysia focus on the UK market and have little knowledge of the USA. London apartments have long been an investment favourite for investors in these countries. The London market has performed extremely well over many years and is a superb place to invest. However, many investors cannot access the market there as prices have soared in recent years. Land in the USA is a much more affordable investment with investment levels starting from US$10,000. Some people will be concerned that this will only buy something in the middle of a swamp or so far from civilisation that-one will want to live there in our life times. However, this is not the case, it is merely a reflection of the current state of the USA market.

Residential land in established communities in Florida can now be bought from under US$15,000. Prior to the GFC in 2008, many of the plots were selling at close to US$100,000. There has certainly been a lot of pain in this market for investors over the last five years. The fact remains though, that Florida is one of the growth states in the USA and the population is set to steadily increase over the medium to long term. Builders are gradually coming back into the market and housing starts are showing signs of improvement. Permits for future U.S. home construction rose to their highest level in 5 years in October, suggesting the housing market recovery remained intact. Single-family homes are by far the largest segment of the market. The Commerce Department advised that building permits jumped 6.2 percent to a seasonally adjusted annual rate of 1.03 million units. That was the highest rate since June 2008.

The demand for land is not going to surge over night and prices will not double in 2014. Nevertheless, the signs are there that the worst is over and Americans have started building homes again. They will need land with approvals in place for this. When you can buy a building plot for under US$15,000, the downside is negligible. It really is worth a punt on the recovery of the USA single family home market – the returns may be excellent over the next five years.

As an alternative to buying land already zoned residential, investors can buy pre-developed land through Walton. Some investors will worry that the company will fail to secure planning approval, but it has never failed to do so and with 56 exited projects it has a sound track-record. Rather than simply wait for the land to increase in value, Walton adds value to it by securing all the necessary approvals to allow a developer/builder to start construction. Investors do not have the flexibility of being able to sell when they want to, as they do with individual ownership of a building plot, but for investors who want a ‘hands off’ profitable 4-6 year investment, it is ideal.

Spain - flag

Fortune favours the brave property investor as Spain launches Golden Visa

They say the darkest hour is just before dawn and that is certainly the case when it comes to the Spanish property market. It is in a severely depressed state with an over supply of properties in some locations and little demand from domestic and overseas buyers. Many value buyers will see this as an opportunity to buy a quality property at a heavily discounted price. Property experts are predicting a boost for the Spanish property market with the country’s new ‘Golden Visa residency investment visa set to attract a lot of buyers from outside the European Union. However, as you will see below, for every ‘bull’ there is a ‘bear’ out there.

The long anticipated ‘Golden Visa’ legislation granting non-EU nationals automatic Spanish residency if they buy suitable property investments will certainly impact on the market. This has now officially been made law after being published in the state Gazette (BOE). This opens the door to thousands of potential investors spending a minimum of €500,000. Whereas traditional buyers have been the British, Dutch and Germans, this could change with estate agents reporting a rise in interest from buyers from the Middle East, Russia and China. These nationalities have already been snapping up properties in anticipation of the new law, which is retrospective. The law will allow those who have already bought to benefit from the residency rights which allow them to stay in Spain for 12 months compared with the current 90 days and a further residency permit that is renewable every two years

The visa is set to boost the prime property market in Spain according to Knight Frank. Its latest residential insight report says that prime markets are on a firmer footing with some more affluent second home hotspot reporting price growth for the first time since the onset of the global financial crisis. According to the Knight Frank report Mallorca, Ibiza and Barcelona are leading the way and it is hoped that investors from Asia and the Middle East in particular will shore up some of Spain’s more oversupplied markets as a result of the investor visa. ‘The outlook for Spain’s luxury housing market is improving. Both the volume of enquiries and agreed sales have increased in the first half of 2013. Spain’s prime markets are attracting a broader range of international buyers who have the confidence and finance in place to purchase. Buyers previously looking in neighbouring European countries are seeing value in Spain and in particular the Balearics once more,’ the report says.

The report also reveals that Madrid is increasingly on the radar of international buyers with interest from buyers in the United States, Mexico, Colombia and Venezuela. Knight Frank’s associate office in Barcelona recorded more sales in the first half of 2013 than in the whole of 2012. Mallorca‘s recovery is also evident across most price bands but particularly below €600,000 and above €2 million and Dutch and Belgian buyers are increasingly active in the prime Ibiza market. Sales in Marbella rose 21% in 2012 year on year and there has also been interest from French buyers as a result of French President Francois Hollande’s policy on wealth tax. The report points out that Sotogrande remains a firm favourite with Madrid’s wealthy and Gibraltar’s business community. Popular areas include Sorogrande Costa, the Kings and Queens area and large plots close to the Almenara Golf Course

With the aftermath of more than a decade of debt-fuelled speculation is still taking its toll, not everyone is relying on the Golden Visa to cure the problems of the Spanish property market. Since the start of the year, foreign investors not seeking residency have begun to return to the Spanish property market for the first time since the crisis hit in 2008. Several large deals have been completed for assets that 18 months ago not even the most foolhardy speculator would have touched.
The question many people are asking is whether this increased interest from supposedly ‘smart money’ is an indication a floor has been placed under the property market, or whether such deals are simply speculative bets on heavily distressed assets. A rush of deals from private equity groups has been used by supporters of both sides of the argument to justify their case. Since the end of summer a number of real estate portfolios have been sold to more adventurous private equity buyers such as Blackstone and HIG Capital. The latter has bought a stake in the first large package of property assets put on the market by Sareb, Spain’s so-called “bad bank”.

A number of factors may be cited for the jump in the number of property deals, after three years in which almost no transactions took place. One has been the creation of Spain’s state-organised “bad bank”, which took €54bn of troubled property loans from the balance sheets of the country’s nationalised lenders. Sareb has begun to place these assets into portfolios to be sold to investors, which has helped generate confidence that a floor may have been set on prices . Another factor has been a wave of government-imposed provisioning rounds, forcing reluctant banks to write down the value of their bad loans and to raise capital to cover the expected loss. This has encouraged lenders to begin selling off assets at prices low enough to tempt foreign investors back to the negotiation table after years of denial and reluctance to accept large write downs.

Of course, in spite of encouraging signs, there is no guarantee that the good times are about to return. Spain has a stock of 650,000 unsold homes, according to its ministry of public works, with average prices having fallen by 30 per cent since the start of 2008. Nevertheless, some people believe the worst is over and now is the time to enter the market. ‘Fortune favours the brave’ and in this case, there are reasons to believe this will be true for Spanish property

Thames- bridge

Why investors should use a search service for London property

There are always lots of exhibitions taking place in Hong Kong, Singapore, KL and elsewhere where the agents are supposedly offering the best opportunities in London. Of course, if there are four or five exhibitions there are four or five ‘best opportunities’. The following weekend there is another round of exhibitions with an equal number of ‘best opportunities’. They can’t all be that great and it is fair to say that all the statements made by zealous salespeople at these events cannot be relied on. It is very much a case of ‘caveat emptor’, i.e. ‘buyer beware’. It is also fair to say that purchasers are usually paying a very full price. Developer sare not spending large amounts of money on these events with recouping it through the purchase price. You can find some good properties at the exhibitions, but you won’t find many bargains.

In terms of the UK market, most buyers expect the vendor to pay the agent a fee and do not want to incur this themselves. This means the agent is obliged to get the best price he can for his client, i.e. the vendor. The purchaser will often forget this as the process of identifying and negotiating the purchase unfolds. Of course, there are some good advisers who will seek a win-win situation and we pride ourselves that we fall into this category. This approach ensures the purchaser gets a quality property at a fair and reasonable price with a great after sale service. The intention is to build long term relationships with both the developers and the clients. Unfortunately, not all advisers and estate agents adopt this approach and we must remember they are representing and being paid by the developer/vendor. Unless they want to build long term relationships with the clients, and most agents pay lip service to this as people are attracted to exhibitions in any event, it is too easy to focus on keeping the principal party, i.e. the developer, happy.

The best way to acquire a London property is to use a search agent. Some people will argue that paying a fee of 2% is needless when they can get the vendor to pay. We genuinely believe this is short sighted. Retained agents (i.e. paid by the purchaser) are extremely popular with selling agents as they do not have to share their sales fee. This results in them being offered the best properties that they have on their books. Being retained also allows the adviser to focus on getting the very best deal for his client, i.e. the purchaser. Ensuring a discount to cover a 2% fee should be more than achievable for the right adviser. Importantly, you have an experienced and capable adviser researching the market, identifying the best property to buy and then negotiating on your behalf to get the best price. Even without the discount, it could be argued that the peace of mind that comes from knowing you are buying a quality property and are most certainly not over paying for it is worth the fee anyway.

So why don’t more people use a reputable search agent? For some it is too easy and convenient to go to an exhibition and buy there. For others, they do not want to incur the 2% fee and believe the selling agent will represent their interests fairly. Some people feel they know enough about the market, and have enough time, to find the right property, make an informed decision and then negotiate the right price. Of course some people do, but for others the right property search service is the ideal option. There are some great opportunities in the London market. Make sure you approach it correctly, with an expert acting exclusively for you.

Graduates in Cap and Gown

The need for 25% more university places will result in a continued shortage of UK student accommodation

There is an ongoing shortage of purpose built student accommodation in the UK and if comments made by that country’s universities minister the shortage is only going to grow. Universities in the UK have seen a squeeze on places in recent years, with thousands of students failing to get on courses. In a recent paper, Mr David Willets the minister warned that the number of places at UK universities will have to grow from 368,000 to 460,000 over the next 20 years to meet demand. If these are provided the accommodation shortage will become even more acute.

The comments and projections from Mr Willetts follow on from The Robbins report, which was written fifty years ago and called for and led to a bold expansion in university places. The report’s guiding principle was that higher education should be open to all able and qualified enough to go. The reality is that there are more applications every year than places available and that is not going to change unless the government takes action.

Mr Willets believes that due to the fall in the number of births circumstances have changed since the report was written. Educational standards have also improved with the number of young people with the potential to go to university increasing. He said “However, looking ahead to the 2020s, we can see the increase in the number of births since the turn of the century feeding through into more young people. Those pressures have already been felt in our nurseries and primary schools.”

The above does not take into account the growing number of overseas students that are coming to study in the UK. There are 435,000 at the moment and with the government and universities encouraging overseas students to come to the UK even more places will be required.

Of course, whilst there is no guarantee the government will act in time to prevent the problem from growing, the important first step of acknowledging the need for more spaces has now been taken. One option is for the government is to join forces with the private sector to establish new universities. The recent increase in tuition fees clearly indicates it believes people should pay for higher education and the increased involvement of the private sector seems inevitable.

All this means the demand for student accommodation will keep growing. Unfortunately for students, there is no likelihood that there will be enough purpose built accommodation in the foreseeable future. There are approx. 1.15m students living away from home in the UK and there are only approx. 450,000 purpose built units. This means that 700,000 students are in the private sector looking for accommodation, which is often poorly located and unsuitable.

With increasing numbers of students and restrictive planning and other issues holding back development of suitable blocks, there is going to be continued demand which will result in upward pressure on rent levels and capital values.

UK houses

UK prices forecasted to rise, a shortage of homes and yes, you can invest outside London

The bears are certainly in retreat when it comes to the UK residential sector. Bullish reports from analysts and commentators now seem to be the norm, a different picture to the last couple of years. One such report has just been released by the Centre for Economics and Business Research. It advises that the average price of a home in Britain will jump by a quarter in five years, from a national average of £225,000 this year to £278,000. In London prices will rise even higher, from £395,000 today to £566,000 in 2018. As well as the capital, the regions will also benefit, with a predicted rise in the East of 27 per cent to an average of £311,000 and a jump of £20,000 in the North East to an average price of £160,000.

The favourable news is not just limited to house prices, mortgages are becoming more available, with the number of loans handed out to buy a home, rather than just to remortgage an existing loan, rocketing according to the Bank of England. In August, 62,226 house purchase loans were handed out, the largest number since February 2008 and a 30 per cent increase on August last year.

However, house prices rising over the medium is not good news for everyone. Many people are warning that a generation of young people are being frozen off the property ladder by the crippling cost of homeownership at a time when the average full-time salary is £26,500. Many people believe the answer lies in building more homes, but this clearly not happening. The Joseph Rowntree Foundation (JRF) advises that there will be a shortage of more than one million homes by 2022. According to JRF the impending housing crisis will hit hardest in London and the South. Although these regions contribute 70 per cent of the rising demand for new homes, only 50 per cent of new homes are currently being built there. Lord Best, Director of the Joseph Rowntree Foundation said: “We estimate that the difference between housing demand and supply will have widened into a yawning gap of 1.1 million homes in England alone by 2022: most of it in London and the South East. This genuinely shocking statistic shows why the time has come for policy makers to recognise that a plentiful supply of new and affordable homes is of the greatest importance the nation’s future health and prosperity.”

Demand for extra homes in England is now estimated at around 210,000 properties a year, compared with average output from housebuilders and social housing providers of 154,000 extra homes a year over the past five years. The accumulating gap between demand and output points to a shortfall of 1.1 million homes in 20 years’ time. Although all regions are expected to see growth in the number of households, JRF notes that the greatest pressure will continue to be felt in southern England. Lord Best said: “In our view, housing shortages are set to become one of the most significant social issues of the next 20 years. Unless we act now, shortages will lead to overcrowding and homelessness. But they will also have knock-on effects for the whole of society, driving up house prices in areas of high demand, inhibiting economic growth and making it harder for good quality public services to be delivered.” We have heard this argument for many years and whilst successive governments have acknowledged the problem, they are unable or unwilling to address the problem. With restrictive planning guidelines in place etc, the situation is only getting to get worse.

What does this mean for the overseas investor? The obvious answer is that they should buy property in the UK. The basic law of supply and demand means that with a limited supply and growing demand prices are bound to rise. Unfortunately, whilst a lot of people will agree they should buy property in the UK, many of them can’t buy in their preferred location of London. The cost of buying even a one bedroom apartment there is prohibitive and so they stay on the sidelines and don’t invest. Historically, buying in London has been a sound strategy and there is no reason to believe this will change. However, London does not have the sole rights to good property investment locations and other markets in the UK can be considered. It is all about the four ‘rights’ – The right property in the right location for the right price and at the right time. Rental demand in the more popular southern England locations is strong and if you follow the four ‘rights’ and have the property managed properly there should be attractive tax- free returns over the medium term.

Sydney opera house

Is the Australian residential property market set to recover?

The Australian residential property market got off relatively lightly during the financial crisis of 2008/9 and surprised many people with its resilience. A recovery in 2010 raised hopes that the market would power on but 2011 saw price reductions and a lack of interest from overseas buyers as the strong Australian dollar deterred investment. As we head through 2013 there are signs that the market is recovering with The Real Estate of Australia advising that prices have risen by up to 4% over the year. The Australian Bureau of Statistics supports this view and advises that for the year ending Q1 2103 the house price index for the country’s major cities rose by 2.6%. So should investors jump into the Australian market now?

As with any market, it is almost impossible to accurately forecast what will happen with prices. However, the basics for a rising market appear to be in place with lower interest rates and improved affordability in most states. The economy is still moving along nicely, growing by 2.5% over the past year and inflation is expected to remain in 2% to 3% p.a. so there should be no need to increase interest rates in the short term. Rental yields are at around 4.5% to 5.5% and are in line with most developed countries. Rents are rising particularly in growing cities such as Perth and Sydney.

Whilst all this sounds good from an investors point of view, residents of Australia may have a different view. The country ranks as one the top five most unaffordable countries in the world. For individual cities, Sydney ranks alongside Hong Kong and Vancouver in terms of un-affordability. This has driven many people, particularly those at the bottom of the property ladder, to become long-term renters. Like many countries, Australia is simply not producing enough homes to meet a growing demand. With restrictive planning policies, onerous tax burdens on developers and a lack of development finance this situation is unlikely to change in the foreseeable future.

One issue concerning some overseas investors is the possible effect on the Australian economy from falling demand from China for its natural resources. However, according to the Australian Bureau of Statistics the economy grew by 2.5% for the year ending Q1 2013 and similarly acceptable growth is expected over the medium term.

As advised above, another issue putting off some overseas investors is the strong currency. However, the Reserve Bank of Australia Governor Glenn Stevens recently said “The Australian dollar has depreciated by around 10 per cent since early April, although it remains at a high level. It is possible that the exchange rate will depreciate further over time, which would help to foster a rebalancing of growth in the economy.” Nevertheless, the days of an under valued Australian dollar seem to have gone for the foreseeable future and parity with the US dollar is likely to become the norm.

We have been involved in the market there for many years but have stayed out of it since 2008. The signs are that now may be the time to jump back in. As with all investments, there is always a risk that it will not perform as expected. Having said that, if the aim is to own a safe and profitable property investment then the Australian market is certainly worth considering as we head towards the end of 2013.

Lavender copy

The UK residential market on the road to recovery

With the UK struggling economically, the housing sector there has surprised many people with its recovery this year. The Nationwide Building Society has reported that prices rose by 0.6% in August. This was due to an improvement in mortgage availability and a continued lack of homes to buy, according to figures from the UK’s biggest building society.

Of course, there is still a long way to go, but for investors who are put off buying in London due to high prices, the market in the rest of the UK may offer some profitable opportunities.

Nationwide’s latest snapshot of the property market, based on mortgages it approved over the month, put the average price of a home at £170,514 – more than £8,000 higher than in January but still well below their 2007 peak. This was the 11th consecutive month the index showed a rise and is likely to increase concerns that government efforts to stimulate the market are fuelling unsustainable growth.

The monthly rate of growth was less than the 0.9% recorded by the index in July, and the annual rate of inflation also fell, from 3.9% to 3.5%. However, the society noted that the previous month’s year-on-year figure was boosted by a low base for comparison.

The three-month-on-three-month measure, which offers a better indicator of the underlying trend, showed growth of 1.4% – its highest level since mid-2010.

Nationwide’s chief economist, Robert Gardner, said house prices were rising at a “brisk pace” thanks to a number of factors. “Consumer confidence has increased significantly in recent months thanks to further modest gains in employment and signs that the UK economy is finally gathering momentum,” he said. “An improvement in the availability and a reduction in the cost of credit, partly as a result of policy measures such as the Funding for Lending and Help to Buy schemes, is also enabling more people to take their first steps into the property market.”

However, Gardner said that while there had been signs that house building was starting to recover, construction was still running well below what was likely to be required to keep up with demand.


Exchange rates and the London property investment market

The London residential market certainly appeals to overseas property investment buyers and the reasons are fairly obvious: international business centre, tolerant society, stability and effervescent property prices. But what about the currency? For certain non-UK nationals the currency driver appears to dwarf other advantages. Leaving aside variations in figures according to source and interpretation, beneficial exchange rates effectively give certain nations buying into London huge purchasing power, with some currencies having appreciated as much as 45 per cent against sterling over the past five years.

With 45 per cent to 62 per cent of London’s most desirable areas owned by high net worth individuals (HNWIs) from abroad who divide their time between multiple homes, London, more than any other world city, suffers from the doughnut effect: the hollowed out centre in which few people now live permanently.

Research recently undertaken covering the period May 2008 to May 2013 has revealed the extent of discounts on prime central London property enjoyed by overseas buyers benefiting from exchange rates against a weak pound. Some researchers are indicating that at the top of this scale of beneficiaries are the Chinese, who have seen the renminbi rise 30 per cent against sterling during the five years in question, while the prices of property in prime central London (broadly defined here as West-minster and the Royal Borough of Kensington and Chelsea) have risen 25 per cent in the same period.

As one party said “If a given house cost £1m in 2008, and £1.25m in 2013, because of the strengthening of the renminbi, a Chinese buyer today would only be paying Rmb11.7m as opposed to Rmb13.6m in 2008: a saving, in real terms of 14 per cent on the 2008 price.” On this calculation, buyers from Singapore and Malaysia (both receiving a 12 per cent discount) and Switzerland (saving 11 per cent) are the next largest beneficiaries of currency exchange fluctuation, while the US dollar affords a 5 per cent saving.

Meanwhile, the 7 per cent stamp duty levied on houses priced at more than £2m, introduced in the 2012 Budget, has had little impact on this market. According to agents, the number of new applicants for the most expensive London properties was 40 per cent higher between January and April 2013, than over the same period in 2012. In addition, the 15 per cent stamp duty on any property over £2m purchased through companies and special purchase vehicles – a favoured method of Chinese investors seeking to circumvent their country’s currency controls – has led to more inventive solutions, which do not necessarily involve Macau’s casinos and pawn shops.

Where there is a will, there is a way. Such huge purchasing power would suggest a dominance in the market of those nationals whose currencies derive the most favourable exchange rates, namely, the Asian market; but is this what is happening? It appears that by 2011, half of all homes in prime central London were purchased by non-UK buyers. Candy & Candy’s development at One Hyde Park has been sold almost exclusively to foreigners at prices allegedly reaching £7,000 per sq ft. One leading London agent claims that international buyers account for 62 per cent of the prime central London market. But who, exactly, is buying?

Figures for the past 12 months from one agent shows that 43.6 per cent of its sales in the £5m plus bracket, were to UK buyers. Russians, whose oil and commodities businesses are transacted in US dollars, are the next largest group of investors, constituting 10 per cent of the prime central London market, while US buyers account for 4.3 per cent, with the Swiss at 2.1 per cent, and Australians (whose currency affords them a 10 per cent saving on 2008) at 0.7 per cent. Of the rest, a mere 0.6 per cent were Malaysian, despite the strength of the ringgit, while China and Singapore make an appearance only in Knight Frank’s £2m-plus table, representing 1.5 per cent and 0.6 per cent of purchases, respectively.

Another agent reports that 29 per cent of its residential sales in prime central London, in the first quarter of 2013, were to members of the EU, all of which suggests that exchange rate considerations are not the principle driver of investment in London’s prime property markets.

It is fair to say that currency is only one factor out of many. The euro crisis has been a big driver of market demand in recent years, pulling in more buyers from the eurozone who have been looking to diversify their investments and move money out of euros and into a sterling environment. There is no doubt that rising wealth taxes within countries like Italy, France and Spain has also encouraged some buyers from those markets to look to London.

Demand for a ‘safe haven’ investment has led to French web searches for property in prime central London peaking in February this year following President Francois Hollande’s proposal for a new wealth tax. Worldwide turmoil, both economic and political, has been fuelling further demand for prime central London homes, from buyers in Greece to members of those countries affected by the Arab uprisings.

Meanwhile, as UK nationals wanting to buy property are forced to migrate from central London, the weakness of sterling suggests that competition for prime central London properties among international buyers is set to increase, with agents and advisers predicting more than 20 per cent growth in all prime residential values over the next five years. For the time being, however, the investment potential afforded by strong currencies appears relatively unfulfilled as more complex factors come into play, trumped by the historic view of London as a safe financial, social and political haven, whatever the cost.


Growth returns to the USA market

In February of last year we released two Property Bulletins and it is worth reviewing them in the light of what is happening in the USA market.

Property Bulletin – 4/2012
US market regains its lustre

Florida: The state where the US housing slump started now shows the best potential, analysts say
Jobs are coming back and home prices are stabilising. America looks like a land of opportunity

Property Bulletin – 5/2012
Warren Buffet : I’d buy up a couple hundred thousand single family homes if I could

The point we stressed was that when people like Warren Buffet are saying now is the time to invest it is time to sit up and take notice. All markets recover in time and some recover quicker than others. The USA is a prime example of this. Not everyone agreed that it was time to enter the market though, and one person even questioned our sanity (humorously, we think).

Well, Mr Buffet was right and last year would have been a great time to enter the USA property market. It has certainly started recovering and prices have risen by 10% over the past year. The graph below from Case – Shiller shows the performance over the past 25 years. All 20 cities have just shown increases on an annual basis for at least three consecutive months. Atlanta, Detroit, Las Vegas, Los Angeles, Miami, Minneapolis, Phoenix, Portland, San Diego, San Francisco, Seattle and Tampa all posted double-digit annual returns.

The good news keeps coming – a recent report from CoreLogic showed there were 9.7 million properties underwater (whose owners owed more on the mortgage than the homes were worth) during the last quarter. This was down from 10.5 million in the previous three months. That amounts to 19.8 percent of all properties with a mortgage, down from 21.7 percent. In the past year, 1.7 million borrowers have regained positive equity. “We are still far below peak home price levels,” CoreLogic Chief Executive Officer Anand Nallathambi said in a statement, “but tight supplies in many areas coupled with continued demand for single family homes should help us close the gap.”

As you would expect in a market the size of the USA, the recovery is quite fragmented. Nevada had the highest percentage of properties in negative equity at 45.4 percent. Rounding out the top five were Florida, Michigan, Arizona and Georgia. These five states combined accounted for 32.8 percent of negative equity in the United States. These are the markets astute investors should target.

So why didn’t more overseas investors enter the USA market last year? Lack of familiarity with the market there is the reason most often cited. Investors in Hong Kong, Singapore and Malaysia are much more familiar with the London market and many are reluctant to go outside their comfort zone. The important thing to remember is that if you have the right adviser, investing in the USA can be a trouble-free and profitable exercise. A lack of knowledge and familiarity should not deter you. The right adviser will handle all aspects of the purchase process, ongoing letting and management and eventual resale of the property. The USA is a sophisticated market and the level of professionalism and service in the property sector is second to none. In addition to this, we have had over 20 years experience in serving the needs of international property investors.

Whether it is a freehold house, condo or development land, the USA is the place to invest at the moment. When you can buy land through a company with a hugely successful track record from as low as US$10,000 or a Tampa freehold house in a marina development close to shops etc for under US$250,000 there is no downside.

Spain - flag

Spanish property market – is now the time to invest there?

We are often asked whether now is the time to buy an investment property in Spain. The answer is not as straight-forward as many people think. Some astute investors, including large institutions, are looking at investing there and are driven by distressed prices, an attractive rental yield and a weak currency. One essential ingredient to make it a great property investment is missing though – rising house prices and therein lies the dilemma facing the investor.

The economic situation is certainly not good at the moment. The economy is expected to contract by over 1% in 2013. Unemployment is rife, with youth unemployment at over 55% and there are ongoing talks with the EU over how to reduce the country’s budget deficit, which is likely to cause further pain for the market there.

The Spanish residential property market has seen prices fall by up to 40% since 2008. It is estimated that 500,000 home owners are in a negative equity situation and the government has had to pass laws to prevent banks repossessing homes and evicting families. However, the government is less inclined to help developers and banks who are sat on a large number of unsold homes. Both are being forced to sell at distressed prices, sometimes at up to 70% below their 2008 peak. This is not going to solve the problem overnight though. The international credit rating agency Fitch estimates there are more than 1m unsold homes in Spain, including hundreds of thousands of newly-built properties.

New construction has also been affected. In 2006 over 750,000 new homes were built. In the last two years it has been less than 100,000 per year. There is no point in building new homes if there is no demand and too many houses are already available. Developers didn’t grasp this point when they were building homes in expectation of future demand. A dangerous strategy that has now come to haunt them.

Unfortunately, house prices are showing no signs of recovery. They fell by 11% in 2012 and are expected by fall by around 10% this year. The good news is that some people expect the market to stabilise next year as the steps taken to assist the economy and re-structure the banking sector begin to take effect. Having said that, it is difficult to see when prices will actually start rising again.

One point supporting the argument now is the time to invest there is the relative weakness of the Euro. If the Euro strengthens over the next three to five years as the economy there improves, which many people expect it to, then the currency gain could be attractive.

If you do buy a property, there are fewer lenders who will finance overseas buyers in Spain. If you can find one, the maximum LTV is likely to be 60pc with interest rates starting at 4.5pc.

Some good news is that you will find the rental market is sound in the major cities and residential areas, but less so in some of the over-developed resort areas. Gross rental yields of around 4% p.a. should be achievable and of course, if you buy at a distressed price your return may be substantially higher than this.

For those seeking somewhere to live, the Spanish government is about to offer permanent residency to people who invest at least 500,000 Euros in the property sector. The program has been discussed for some time and it was originally muted that the figure would be 160,000 Euros. The sum appears to have gone up, but final details will not be available for several more months.

In summary, Spain may be viewed as speculative, opportunist market where some investors will make a great deal of money and some will sit on a non-performing asset for quite some time. However, if you buy the right property in the right location for the right price there isn’t much downside. This is especially the case if you are enjoying an attractive rental yield and an appreciating currency – both of which may be applicable in the case of Spain.


The USA house market going from strength to strength

We have been saying it for some time now – the USA market is certainly recovering.

U.S. home prices rose in March, marking the biggest annual increase in seven years, in the latest sign of strength for the recovering housing market. CoreLogic’s home price index jumped 1.9 percent from the previous month and accelerated by 10.5 percent compared to March last year. That was the biggest year-over-year increase since March 2006.

Home prices have been rising since last year, helped by investor demand and tighter inventory. The recovery is also evidenced in the number of homes being constructed. Groundbreaking to build new U.S. homes rose in March to the highest level since 2008. The Commerce Department said on Tuesday that starts at building sites for homes rose 7.0 percent last month to a 1,036,000-unit annual rate. That was higher than analysts’ expectations of a 930,000-unit rate.

A recovery in housing, driven by growing demand and record-low mortgage rates, is boosting other sectors of the economy Home building added to national economic growth last year for the first time since 2005 and is expected to provide support this year.

Even the Fed agrees – “A sustained recovery in the housing market appears to be under way,” Elizabeth Duke, a board member at the Fed, said in a speech last week.

Warren Buffett said ‘I’d buy up a couple hundred thousand single family homes if I could.’ (see page 3 of our News Archive) It is hard to disagree with the greatest investor of our time.

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Is UK student accommodation an ideal property investment sector?

Student accommodation in the UK is experiencing sound growth as investors see it as a viable and profitable property investment sector. What was once the domain of the institutional investor is now being marketed to individual investors with investment levels starting from around GBP45,000. Many smaller investors have entered the sector, but is it simply a ‘flavor of the month’ opportunity or will it be a sound medium term investment sector?

To answer that question we must first look at the underlying demand for student accommodation in the UK. A common concern among investors was whether the recent increase in tuition fees would reduce the number of applicants and universities would have unfilled vacancies. The good news (or bad news depending on your view point) is that the fee increase had minimal impact on applicants, which still exceeded the available places. For 2012 the total applications in the 18 – 20 age group were over 90,000 above the number of acceptances in 2011. These students still need somewhere to live and there has been no shortage of demand for well located, purpose built accommodation.

The ideal answer to the shortage of accommodation from a student’s point of view is for the universities to provide the accommodation at a subsidized rate. However, this is certainly not going to happen now or in the future. The government hasn’t got the political will let along the financial resources to fund such development. There would also be a public outcry, since overseas students would take many of the available spaces up.

The above means that the private sector has to step in and provide that accommodation. Whether we like it or not, today’s youth don’t want to live in Mrs. Smith’s back bedroom five miles from the university. They want to live within walking distance, close to their friends and in modern blocks with all the amenities including en-suites, common rooms etc. Whilst these places cost more than Mrs. Smith’s back bedroom, many parents can still afford to pay the figures being asked and this will continue indefinitely.

Of course, some locations will fare better than others over the long term. A few will be over developed which will put a strain on the rental yield as students have more choice and are in a stronger negotiating position with a landlord. However, places like Canterbury, Chester, York and Durham should not suffer from this problem, as the local councils will not allow over development to adversely impact their cities. Of course, some investors will be attracted to the major cities, but care should be taken in this regard. At the end of the day it is all about how many students are studying in the location, how much suitable accommodation is available and how much future development will the local council allow. If development is restricted and there is currently a substantial shortage of accommodation the prospects for income and capital growth should be sound.

The above is clearly demonstrated in the case of Chester. This is a historical, walled city dating back to the Roman times and the council will not allow over development as it seeks to main its heritage and tourist appeal. The University of Chester provides accommodation for 1,000 students, but there are over 16,000 studying in the city. The current shortage of suitable accommodation will remain for the foreseeable future.

Another concern of smaller investors is the ability to re-sell the unit in the future. The secondary market is certainly not as well developed as the general residential sector, but this is gradually changing. The sheer number of quality units that are being sold means that in the future financial advisers, local estate agents and web portals will be actively involved in the sector. Where people want to sell and others want to buy, advisers and agents will always put themselves in the middle and student accommodation will be no different.

One particular aspect of student accommodation that appeals to smaller investors is the rental guarantee offered by some developers. We have been developers ourselves and we are a little cynical about such guarantees. However, in the case of student accommodation, particularly in the better-suited locations, rental demand is so strong the guarantee has some validity. Some developers are offering a 9% net yield and even after some pruning by our ever-cautious team the net figure still comes out around 8% p.a.

In terms of capital growth, the sector will, in our opinion, lag behind prime central London apartments which has enormous international following. However, given its growing popularity both in the UK and overseas it should at least match, if not out-perform, the general residential sector. Student accommodation should be regarded as an income play and will appeal to those who are looking for an ongoing, secure and attractive rental income. Many investors feel that in times of uncertainty this is preferable to the vague prospects of capital growth in the general residential sector in the future. If you don’t want to buy in prime central London, they are probably right.

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San Francisco Bay Area – a great property investment market for 2013

The Bay Area housing market continued to improve as property investment location in 2012. The area enjoyed strong sales and rising sale prices fueled by increased demand, strained inventory, record-low mortgage rates and robust investor interest. The market’s performance in November reflects the improved performance. A total of 7,296 new and resale homes were sold in the nine-county Bay Area in this month and was the highest for any November since 8,042 homes were sold in 2006.

‘With the mismatch between supply and demand, there’s upward pressure on prices,’ said John Walsh, president of real estate information company DataQuick
The median price paid for a home in the Bay Area was $438,000 in November 2012. That was up 5.3% from $416,000 in October and up 20.5% from $363,500 in November 2011. The November 2012 median price was the highest since August 2008, when it was $447,000. Inventory is declining, and in particular the amount of distressed property, which undermines property prices, is falling. In November distressed property sales – the combination of foreclosure resales and “short sales” – made up 35.0 % of the resale market. That was down from 35.2% in October and down from 50.1% in November 2011.

Foreclosure resales – homes that had been foreclosed on in the prior 12 months – accounted for 11.5% of resales in November 2012, down from 11.7 % in October, and down from 25.2% in November 2011. The level of foreclosure sales in November 2012 was the lowest since 10.1% in November 2007 ie before the property crash and well below the peak level of 52.0% in February 2009. The long term average for foreclosure resales over the past 17 years is about 10% and so the level is now almost back to this ‘normal’ proportion.

Short sales – transactions where the sale price fell short of what was owed on the property – made up an estimated 23.0 % of Bay Area resales in November 2012. That was down from an estimated 23.5% percent in October 2012 and down from 24.9 % a year earlier. Investment buyers, many from overseas, continue to be active in the Bay Area market and in November purchased 24.4% of all Bay Area homes, up from 23.7 % in October, and up from 21.7% a year ago. For investors looking for good rental returns and capital growth the San Francisco Bay area may be the ideal property investment location.

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London property investment – 2012 and into 2013

The central London market performed well as a property investment location in 2012 as international money continued to pour into the market. The consensus is that prices rose between 8% and 9% over the year. The market has certainly recovered since the crisis in 2008. It is now over 10% higher than the peak in the first quarter of that year.

Asian based buyers, principally from Hong Kong and Singapore, dominated the ‘off plan’ market with some agents commenting that up to 40% of such transactions came from these locations. The market for £1m plus properties was much more evenly spread. Russia led the way, supported by India, Hong Kong, Italy and the USA in this sector.

According to one leading agent, overseas buyers purchased new build properties worth over £2.2 billion in 2012. Foreign buyers now account for more than 50% of sales in central London and there are no signs of this slowing.

The upwards push in values over the year impacted on rental yields and these fell marginally. Whilst yields vary from between 4% and 6% depending on the location, some prime properties are struggling to show even 4%. Importantly, good quality, well located properties continue to be in demand. As with sales, over 50% of prime properties are now being rented by international tenants. In the year ahead London will continue to enjoy a strong inflow of expatriate workers and we can expect the rental market to remain strong.

From an investment perspective, London is continuing to be seen as a ‘safe haven’. Importantly, its residential market is also being viewed as a very profitable sector. Problems with the Euro and political unrest in areas such as the middle east only adds to its appeal and with its favourable tax regime for overseas investors it is not difficult to see why it will continue to attract international investors.

As we head into 2013, the general UK market for housing will see little if any growth. Although sectors like student accommodation will perform well, growth in the rest of the country will be in isolated locations. Fortunately for investors, central London has become a totally different market to the rest of the UK. Whilst we should see real growth in this location, this is unlikely to be spectacular. Some analysts and agents are forecasting growth of between 3% and 5%. Although some are more bullish than this, there are ‘bears’ out there who feel there will be little if any growth. The good news is that the consensus appears to be that prices should not drop so there should be little downside. Prices should continue to go in one direction and many investors will take the view that now is as good a time as any to buy in one of the world’s safest and most profitable property markets. It is hard to disagree with that.

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House in Multiple Occupation – a sound property investment

A niche property investment sector in the UK that is often overlooked by investors is the HMO.

A typical HMO comprises between five and twenty individually tenanted rooms. It is usually a large house which has been converted for the purpose. It will have one or more shared kitchens and may have shared bathrooms and lounges. Whilst rooms with en-suites are popular, these are not essential as there is good rental demand from more budget conscious tenants who are happy to sharea bathroom.

On April 6th 2006 mandatory HMO licensing came into force across England. The intention was to raise the standard of accommodation in HMOs. HMOs need to be registered with the local council, which will assess whether the property meets the requirements to be a HMO and whether in its view there is enough space for the occupants and the property is well managed.

Some investors may be concerned about the quality of tenant, but as with any property if the right letting and management agent is used there should be few problems for the landlord. Tenants vary from professionals seeking a room in London to stay in for several days a week through to construction workers and students. Rents in London are extremely high by general UK standards and accordingly tenants are prepared to live in smaller spaces if they offer convenience and are reasonably priced. The good news for HMO owners is that rents are unlikely to fall going forward. Demand is set to grow for relatively low budget accommodation and this will produce even better returns for owners.

Whilst few overseas owners have entered this sector, HMOs are popular in the UK. The major attraction for investors is that they provide a higher income stream than traditional buy to let properties. An income of 5% – 6% net of all costs is available with some London HMOs. With typical apartments only receiving this as a gross figure at best, it is easy to see the attraction.

Prices for good quality properties vary according to size and location. A smaller HMO in a decent area might start at GBP400,000 and some larger properties will cost in excess of GBP2m. Buying an established property and converting it to a HMO is an attractive proposition which will increase the return to the investor. However, professional assistance is recommended if this is to be done successfully.

For investors seeking an attractive income stream, a HMO may be a sound investment. For further information on this sector please contact us.

Property investment – income or capital growth?

We are often asked by investors whether they should focus on rental income or capital growth when considering a property investment. The answer is very simple – it depends on whether you are confident that the capital growth product will perform at the level you expect it to.

Some investors believe that while they are working and earning an income the emphasis should be on capital growth. They have no real need for an additional income and the aim should be to maximise their return over the period they hold the property. If the market performs well and prices rise substantially the return on their investment in geared/mortgage investment should be higher than the typical rental income they would have enjoyed. As he or she moves towards retirement the emphasis should then change towards income producing assets which would replace the previously earned salary. There is nothing wrong with this strategy, although in practice few people adopt it when it comes to property. Investors become familiar with a sector such as residential where the emphasis has been on capital growth and do not have the confidence or knowledge to diversify into income producing sectors such as commercial or industrial. The danger with this strategy of course, is that all markets suffer corrections from time to time. If you are forced to sell when prices have dropped you may lose all the gains made to that point.

Someone once remarked ‘You never go broke making a profit, no matter how small that profit is’. It sounds simplistic, but when it comes to property there is a lot to be said for it. Lots of astute investors believe that a high net rental income is far more important than the unknown variable called capital growth. They are satisfied with a real net return, after all costs and taxes, of 5% – 8% p.a., and believe that any capital gain through an appreciation in the value of the property is an additional bonus. It is hard to argue with this point of view, especially given that even relatively low capital and rental growth should match inflation over the medium term so the real value of the income enjoyed does not fall. The rental income investors adopting this approach enjoy is certainly better than current bank interest rates and it is accessible now rather than sometime in the future when the property is sold.

Before we are deluged with emails telling us that we should not forsake capital growth, let us clarify what we are saying. We are firm believers in capital growth opportunities. However, there are times and circumstances where, within a diversified property portfolio, the income oriented properties should dominate. Retirement is the obvious one we mentioned above, another is when there is considerable uncertainty over the prospects for capital growth within a preferred market. In any event, both opportunities should be included in most portfolios with the only real issue being in what proportion

As our clients will know, we recommend the residential sector in central London and New York and Walton pre-development land in the USA as safe and financially rewarding capital growth opportunities. They offer exposure to different countries, currencies and sectors and the historical returns have been attractive. Condos and single family homes in the USA offer a mixture of high income (5% -7% net) plus capital growth over the medium term. Some will see them as more capital growth plays, but the income is attractive enough for them to qualify as a hybrid opportunity. Student accommodation and storage units are examples of opportunities where the emphasis is on income (7% – 8% net) with some capital growth.

Determining the correct strategy for an investor is best achieved by first discussing his or her needs and objectives. Once these have been identified it is then a question of selecting the opportunities that meet these. Some investors will want primarily capital growth, some will want income. At least with the right advice and opportunities, investors can make an informed decision and make the right property investment.

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London market enjoys rising prices

The central London market continues to show why it is regarded as one of best property investment locations in the world. According to CBRE, prices for houses has risen by 6% over the last quarter and by 18% over the past year. The gap between Prime Central London and Greater London is expanding; average prices across the whole of London rose by only 2% over the last quarter and 5% over the course of the year.

A lot of this growth has been fueled by demand from Asia, particularly at exhibitions in Hong Kong, Singapore and Kuala Lumpur. Interestingly, demand is also growing from investors in countries such as Thailand, Indonesia and Vietnam. With the problems of the Euro, many European investors are also entering the market and there has been an increase in buyers from Spain and Greece. London’s reputation as a ‘safe haven’ is likely to continue to attract overseas investors for some time and with limited supply this will inevitably force prices up even further.

It is worth noting that across Greater London new builds are selling with a 5% premium and in the boroughs of Kensington and Chelsea, and Westminster over the last quarter, they are, on average, double the value of their second hand counter parts.

Whilst the sentiment is the same, according to Knight Frank the growth rate over the past has not been quite so impressive. According to the agent, the annual increase was a mere 10.1 percent with demand for apartments outstripping that for houses. Prices are now 52% higher than in March 2009, so investors who bought at that time should certainly be happy.

No property market is immune from a correction and eventually central London prices will fall. Many investors feel this will not happen in the short to medium term and in the meantime there are some healthy profits to be made. It is hard to disagree with this point of view. It is pretty safe bet that London will continue to be a sound property investment location for the foreseeable future.


USA single family homes – major funds continue to enter this property investment sector

Many property investors are concerned over whether the single family home sector in the USA is one they should invest in. Well, in addition to Warren Buffett extolling its virtues (see our web site news archive), investors can take heart from the news that Blackstone Group has apparently become the biggest U.S. investor in single-family rental homes by spending more than $1 billion since the start of 2012 to acquire more than 6,500 foreclosed houses in eight metropolitan areas.

News reports indicate that numerous private-equity firms have crowded into the business, some as early as last year, looking for a way to bet on the recovery of the housing market. Blackstone’s growing commitment to this strategy offers fresh evidence that the purchases of foreclosed homes, which began as a mom-and-pop pursuit, is gaining legitimacy among the biggest private-equity firms. The demand from these firms and other investors could help strengthen the housing recovery, analysts say. Earlier this year, the Federal Reserve expressed support for the strategy as a way to clear the backlog of foreclosures that has weighed down the market.

People involved in the market estimate that private-equity firms and other investors have raised $6 billion to $8 billion to invest in the sector, as they try to take advantage of prices that have fallen nationwide on average by more than a third. That could buy 40,000 to 80,000 properties, according to a recent report from Keefe Bruyette & Woods.

Blackstone and other firms are expanding rapidly partly because the housing market is firming up. In some markets, home prices have risen to the point that firms might not be able to achieve their initial return objectives from renting them out.

“I believe the smart thing to do is to ramp up really quickly, because I think the dynamics are going to change dramatically in the next 12 months,” said John Burns, an Irvine, Calif.-based housing consultant. “We’re going to see a lot of price appreciation at the low end of the market, which means lower cash yields.”

Blackstone has previously said it expects to achieve initial yields of 6% to 7% on the rental income. But the firm also will need rents and home values to rise if it is going to hit the double-digit returns that it typically promises its investors.

Private-equity firms also are looking to boost their property investment returns by putting leverage on their portfolios. Blackstone is close to finalizing a loan from Deutsche Bank for $300 million, an amount that could expand to as much as $600 million, reports indicate. The loan is the largest made to a private-equity fund for this strategy so far, executives at several firms say.

A $25 million fund raised by Delavaco Properties Inc., a Fort Lauderdale, Florida-based owner of about 450 single-family properties, was “more than two times over-subscribed” with investors drawn to the 7.5 percent interest on the debt plus options to buy shares of the company. Another party, The Alaska Fund, expects unlevered returns on its investment of 6 percent to 7 percent a year.

The expected yield from this sector, while better than Treasury bonds, is an indication that the single-family rental market’s risk is lower — and so are potential rewards — than the usual draw for opportunistic investors, said Steve Duffy, managing director of real estate investment banking at accounting firm Moss Adams Capital LLC.“It’s logical that early capital had the view to get a higher return from their investments,” Duffy said. “That’s no longer the case. The risk is down because the economy is recovering and there’s stabilization in housing.”

The flow of discounted foreclosures has certainly slowed since late 2010, when some of the largest mortgage servicers, including Bank of America, imposed a temporary moratorium on home seizures amid allegations they used faulty or forged paperwork to seize properties from delinquent borrowers. Even after a $25 billion settlement in February between the five largest loan servicers and attorneys general from 49 states, foreclosure processing hasn’t recovered. Banks repossessed 185,451 homes in the first quarter, a 14 percent decline from a year earlier, RealtyTrac data show. The number of REOs bought by third parties in the first quarter was 123,778, down 15 percent from a year earlier, according to the Irvine, California based company.

With its low risk appeal, the USA single family home property investment sector has all the ingredients to appeal to property investors.

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Expansion of our London property investment operation

We are pleased to announce that we are extending our London operation to be able to offer our full range of property investment services to European based investors.

Our London office, which was set up in 1997 when Dan Wainwright our current UK Director joined us, has always focused on sourcing opportunities and offering an ongoing management service. It has never marketed to UK based investors. With the expansion of the office, investors in the UK and Europe can now access our opportunities and deal direct with London rather than our Hong Kong.

Dan will continue to oversee the London operation and in the coming months we will be expanding his support team. We will also be taking part in various exhibitions and events throughout Europe and we will keep all our clients and associates up to date with these activities.

The London expansion will not in any way effect our Hong Kong based operation. Tony, Diana and the team will continue to service clients in Asia as they have always done. It will be business as usual in that part of the world.

We are all excited by the challenge of growing our London operation. We always seek to establish long term relationships and look forward to doing so with European based property investors in the years ahead.

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Manhattan confirms its appeal as a property investment market

The supply of new apartments for sale in Manhattan supports the fact it is a sound property investment market. Supply fell significantly last month, slipping 17.2% to 1,185 from August of last year. The result reinforces the belief that a lack of inventory will force prices higher across all segments of the market.

“New development inventory has continued to decline, year over year’ said Sofia Song Vice President of who commented on the market there. She added that declines have now occurred for twelve consecutive months.

The median price in Manhattan has certainly shown improvement rising 11.1% to US$1.45m. ‘With tight inventory, sponsors have been standing firm on prices’ said Ms Song. This is supported by the fact there were only 128 price cuts on listings in August, 28% fewer than a year ago.

Buyers do not seem deterred by the firmer prices with signed contracts up 26.3%. ‘With inventory being tight everywhere and as pent up demand grows, the new development projects currently in the pipe line are becoming more and more highly anticipated’ she said.

Whilst the above comments refer to new developments, it echoes what is happening in the larger established homes market. Manhattan did not experience the crash markets such as Orlando experienced and has maintained its status as a ‘safe haven’ location. With strong rental demand and prices forcasted to rise it should also be considered as a sound property investment location which will show good returns over the medium term.


Student accommodation impresses property investment analysts

The UK student accommodation sector continues to impress property investment analysts and commentators. Good growth is expected over the medium term and the sector is gaining wide market acceptance. The introduction of higher university fees does not seem to have affected the market, with demand still out stripping supply (and likely to do so for the foreseeable future). Prices for individual units are around GBP50,000 and net rental yields are 5% plus. This makes the units appealing to smaller investors seeking security and attractive return.

We have just released our 2012 report on the sector and it makes interesting reading. If you are interested in researching this sector of the property investment market, please contact us to receive a copy of the report.

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UK residential figures support property investment but questions remain

There has been a lot of negative press about the UK residential sector over the past year and this has had a detrimental effect on property investment there. With the exception of London the view is been that investors should stay away from the market. However, figures just released by the Office for National Statistics present a different picture.

In the 12 months to June 2012 UK house prices increased by 2.3%, unchanged from the 12 months to May. House prices continue to remain relatively stable across most of the UK. The year-on-year increase reflected growth of 2.8% in England, which was offset by declines in Scotland and Northern Ireland of 1.0% and 11.9% respectively. House prices remained unchanged in Wales.

Some parts of the England fared better than others, with London seeing prices rise by 6.5%. Increases in the South West and South East were 2.3% and 2.2% respectively. The only decrease in England was the North East, which fell 1.3%.

New homes were ‘more popular than ever’ according to Barratt Homes. According to a survey this leading builder carried out, there has been a 27% increase in the popularity of new build property, since a similar survey was carried out in 2008. This is supported by ONS figures which show prices of new dwellings rose by 5.9% during the 12 months to June 2012, while the price of pre-owned dwellings increased by 2.1% in the same period.

The first time buyers market also showed some improvement. In June 2012, prices paid by first time buyers were 3.1% higher on average than in June 2011. For owner occupiers (existing owners) prices increased by 2.1% for the same period

Our readers should not get carried away by the above though. Whilst London should continue to perform well over the medium term the rest of the UK faces an uncertain time. If you are buying outside London you should look for a niche sector and a secure income stream. It’s a sound strategy for property investment in uncertain times.


Dublin property investment update

The Dublin property market has seen a surge in interest in the last six months from European buyers who are keen to snap up sound property investment opportunities there. This is a market that has received little publicity in Asia and is not on the property investment radar of most investors based in that region. So are there sound opportunities in the buy to let market that our clients can take advantage of?

Ireland’s economic problems have been well documented and they are certainly not going to go away in the short term. Nevertheless, the country’s approach to solving its problems has been warmly applauded by its fellow EU members. It may have got itself into a mess, but at least it is taking the painful steps necessary to get itself back on an even keel. It will take time, but the Irish government at least has the political will to do it whereas may other European governments haven’t.

The property market has been a victim of the country’s woes, although some would argue it was partly the cause. Prices sky-rocketed in the mid 2000’s fueled by cheap money, speculative building and lax lending from financial institutions. Sounds familiar? The USA and Spain are classic examples of markets that fell into that trap. The result of the 2007/8 crash in Ireland was house prices falling by around 35% and the banking crisis resulting in housing loan approvals falling by over 70%.

Since the crash the market has continued to trend downwards and house prices in Dublin are now 56% lower than at their peak in 2007. Apartments have fared even worse, with priced down over 60%. Despite nominal growth in the last few months, the market reverted to type in June and fell again to show a fall of 16% over the past twelve months.

Trying to put a positive spin on the situation, one commentator said ‘So far this year, we’ve seen varied reports on house prices in Ireland but this official record should provide more certainty for investors. The fact is that while residential house prices have declined slightly more in the year to 2012, the levels of decline are broadly speaking, stabilizing.’ That is an interesting way to view the market in our opinion. It may keep falling, but at least it is only at 16% a year?

The possible collapse of the Euro and the effect this would have on the market is certainly an issue for Asian investors. However, it doesn’t seem to concern many Europeans. They are taking the approach that over the medium to long term prices will recover and buying at or near the bottom of the market is always a sound strategy. That is not to say we are near the bottom of the market though. Many investors are sitting on the sidelines waiting for firm evidence that the market has bottomed. Others will look for the first signs of growth before they invest. Even if the bottom of the market is close at hand, it could bounce along at depressed levels for some time. The general economy is unlikely to rebound strongly any time soon so it could be a bumpy ride for investors jumping in now.

Still, estate agents are telling us there is a shortage of product in and around the Dublin city centre and sales levels are picking up. If you are very brave you could enter the market now or you could adopt a more cautious approach and wait until later in the year or even next year. Our recommendation would be the latter. Property investment in Dublin is a sound strategy, but perhaps not just yet.

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Napa Valley – property investment on an upward trend

The residential sector in Napa Valley is opening up great property investment opportunities. A Californian real estate service, DataQuick, has estimated that in June prices in the greater San Francisco Bay Area were up by 10.4 % over the past twelve months. The good news for property investors entering the market now (but unfortunately not people who bought at the peak) is that the median house of $417,000 is still a long way short of the peak of $665,00 in 2007.

Reassuringly for investors, distressed sales fell across the market with the percentage falling from 44.3% a year earlier to 36.1%. The overhang of foreclosed properties is disappearing, which is good news going forward. Investors are certainly seeing the opportunity and accounted for 23.4% of sales compared to 20% last June.

Interest is particularly keen in Napa Valley, the USA’s premier wine region. It had the second highest change for homes sold in June in the Bay Area. There are planning constraints in place which help prevent over development and help make it a sound investment location. We were there looking at the market in June and it certainly has a lot going for it. The key is to find the right product in the right location at the right price. When we find it, our clients can enjoy the rewards from a sound property investment in one of the USA’s premier locations – Napa Valley.

Statue of Liberty

It is official – the US housing market has turned at last.

At least, according to the Wall Street Journal it has and that is great news as far as property investment is concerned. An article that was published in the WSJ on the 12th July opened with ‘The housing market has turned at last. The US finally has moved beyond attention-grabbing predictions from housing ‘experts’ that housing is bottoming The numbers are now convincing.’

There are several articles available which confirm that most analysts believe the worst is over. Of course, they could be wrong and things could get even worse from here. However, that is highly unlikely. After the worst property recession in living memory there are positive signs that the market is recovering. The inventory of established homes for sale has fallen, despite the number of foreclosures, and the number of vacant homes is also down.

We have previously advised our clients that a number of analysts or ‘experts’ were of the opinion that the US market was bouncing along the bottom. We have also said that picking the bottom of any market is notoriously difficult. If investors buy within 10% of the bottom they will have done extremely well. We are now in that position so by buying now and exercising a little patience there should be some sound property investment returns going forward.


Report advises that student accommodation is a sound property investment

Savills has released its summer 2012 research paper on the UK student accommodation sector. It certainly confirms that the sector has much to offer investors who are looking for a secure income stream. The report is summarised below;

Summary of Summer 2012 research paper

Student housing may be considered a maturing sector but it has performed well over the last five years, showing average annual total returns outperforming many commercial property asset classes.

Not surprisingly, demand from investors for high quality stock in safe locations has been increasing in the light of this performance along with the number of equity investors looking for sound, long term income streams. We anticipate this will continue for the rest of the year at least.

In the longer term, we see prospects for increased investor demand with investment yields moving in for long dated income streams. Meanwhile, the demand-supply imbalance in the sector should ensure rental growth.

The prospects for additional demand to UK institutions from overseas students are good, at a time when global student mobility is increasing, together with a doubling of higher education students to 262 million by 2025, provided UK immigration policy allows for this growth.

Supply growth is severely constrained despite a relatively healthy flow of development activity during the downturn in prime locations.

The market will remain under supplied at current levels in relation to both the growth in student numbers and latent demand from students currently housed outside the sector, as banks disappear from the debt and development markets.

Increasing risk aversion, combined with scarce availability of senior debt for construction finance, correlated against a period where there is a need to refinance a number of significant maturing five year loans will allow opportunistic investment from globally mobile equity providers looking for secure, long dated income streams and to diversify portfolios.

There is a strong likelihood that universities will increasingly seek to avoid calls on capital and revenue arising from their own ageing accommodation and will look to generate capital receipts (and improvements to their accommodation) from investors through stock transfer.

This offers unprecedented opportunities for investors in high-quality university
locations not otherwise available to them due to lack of newly built supply.

Single family homes

Major players enter the USA single family home market

The following article in its extended version was published by Bloomberg on the 3rd July. It highlights the fact that major institutional investors are now entering the single family home market. For more information on how to access this market please contact us.

Blackstone Group LP, the biggest buyer of U.S. commercial real estate since prices bottomed, is jumping into residential property as housing recovers.

The private-equity firm has spent more than $250 million this year buying foreclosed single-family houses with the intention of renting them out, said two people with knowledge of the effort. The goal is to acquire enough assets to potentially take public as a real estate investment trust, or sell to another company or even to tenants, said the people, who asked not to be identified because the plans are private.

Blackstone Group LP has acquired more than 1,500 houses around Phoenix and Southern California.

Blackstone, which has loaded up on strip malls, warehouses and suburban office buildings in the past two years, is turning to residential real estate after a 34 percent plunge in prices since the 2006 peak.

The New York-based company is the biggest investor seeking to enter the single-family leasing market as rents climb and the U.S. homeownership sits at a 15-year low, joining rivals including KKR and Colony Capital LLC.

“It’s turning into a $10 billion industry,” said Colin Wiel, managing director and co-founder of Waypoint Homes, an Oakland, California-based company that has bought about 1,800 distressed homes for rent with backing from investors including GI Partners and Columbia University. “There’s a lot of competition.”

Blackstone’s real estate group has teamed with principals of Treehouse Group LLC of Temp e, Arizona and Dallas-based Riverstone Residential Group to buy and fix up the homes, find tenants and maintain the rentals, said the people familiar with its strategy. Riverstone is an apartment-management company founded by brothers Nick and Peter Gould, owners of U.K. property-investment firm Regis Group Plc.

The venture marks Blackstone’s first major foray into the U.S. residential market. The company was the top buyer of commercial real estate in 2010 and 2011, spending about $16.7 billion, according to Real Capital Analytics Inc. in New York. Deals included the $9 billion purchase of more than 500 shopping centers from Centro Properties Group and industrial properties valued at $1 billion from Prologis.

U.S. commercial-property prices have gained about 26 percent from a post-crash low in January 2010, according to an index compiled by Moody’s Investors Service and Real Capital.

In the housing market, price declines are easing. The S&P/Case-Shiller index of values in 20 U.S. cities fell 1.9 percent in April from a year earlier, the slowest pace since 2010.

While mortgage rates are at record lows, rental demand has climbed because many Americans can’t buy homes because of insufficient income or bad credit, or because they prefer the flexibility of renting. Monthly apartment rents in the U.S. have jumped almost 6 percent since the end of 2009, to an average $1,018 in the first quarter, according to Reis Inc.

Blackstone has an advantage over competitors in the housing rental market in terms of readily available capital. The firm is raising $13 billion for what will be the largest-ever private equity real estate fund.

Others are using a series of small private funds. KKR is working with Atlanta-based homebuilder Beazer Homes to raise money by selling shares for a non-public REIT.

Buyers of foreclosed houses face the challenge of managing properties scattered among different neighborhoods and states, compared with managing an apartment building with hundreds of units within one property. Bargain-seeking investors also are finding that home prices have begun to rebound in many markets, making it harder to accumulate homes at deep discounts.

For Sale

Has The Housing Market Hit Its Bottom?

We have recently come across the following article which was written by Morgan Brennan of Forbes business news and financial information. It makes interesting reading, especially her comments on the Orlando and Miami markets.

Has the U.S. housing market hit a bottom? Do we have further to go? When will a recovery start? These are the questions every homeowner and real estate investor are currently asking themselves — or should be.

Wall Street firms have optimistically been betting that the bottom’s here. Research firms like Zelman & Associates predict the sector will pick up this year and hedge funds have been jumping into real estate-related investments from brick and mortar building purchases to shares of home builders stocks. In December Goldman Sachs Group released a report stating that “The home price bottom [is] in sight,” according to my colleague Agustino Fontevecchia.

Indeed national home price data indicates that the worst of the catastrophic home price implosion is behind us. Clear Capital, a Truckee, Calif.-based real estate research firm, reports that 2011 saw a national decrease of 2.1% in home prices when compared to 2010. While still a loss, it’s measly drop compared to the double-digit plunges felt in the years before. For 2012, the firm’s Home Data Index (HDI) Market Report also predicts a humble 0.2% gain across all markets. “Overall, 2011 was a relatively quiet year for U.S. home prices compared to the last five years,” said Dr. Alex Villacorta, Clear Capital’s director of research and analytics, in the report. He further notes that “the current balance the market has found will continue through 2012.”

What does all of this mean? Housing from a national standpoint is flattening out; the macro level data suggests we could possibly be at the bottom or near to it.

A Tuesday report from Zillow, a publicly-listed Seattle, Wash.-based real estate data and listing site, shows that November home values “remained essentially flat” from October of 2011 through November, falling only 0.1%. The Zillow Real Estate Market Report, which analyzes home values in 165 metro areas, notes that the addition of 200,000 jobs in December, improving consumer confidence and stronger retail sales indicate that home sales may be more consistent and more frequent in 2012. “With stronger home sales, we’ll see a reduction in the amount of vacant housing inventory and an improved ability to absorb foreclosed homes. This increased demand will eventually start to put a floor under home values later this year,” the report says.

It sounds rather promising, doesn’t it? For Wall Street firms snapping up stocks and/or using the market as an indicator for economic activity, it is. For homeowners, however, a different story prevails.

If you are a prospective home buyer or seller wondering if now is the time to make a play, the decision should come down to something much more tangible than a “flat” national market number. It should come down to location.

Clear Capital warns that the relatively flat national average is comprised of metro markets that have been anything but: “Individual markets reacting to their local economic conditions continued to exhibit a wide range of performance levels in 2011, with only 12 of the top 50 metro markets (24%), returning year-over-year price movement that can be considered stable,” the HDI report cautions. ‘Stable price movement’ means price swings of less than 2.5%. The company believes only 40% of the country’s largest metro areas will be stable in 2012. Among them: Denver, Colo., San Jose, Calif., Boston, Mass., Oklahoma City, Okla., and San Francisco, Calif.

As for the areas where prices may actually appreciate the most this year, the firm expects Orlando, Fla. home prices to rise 11.7%, hard-hit Bakersfield, Calif. 11.1%, government jobs-driven Washington, D.C. 9.3%, foreclosure-riddled Phoenix, Ariz. 8.9%, and sales-heavy Miami, Fla. 8.8%.

Markets that will experience further price drops this year include Atlanta, Ga. (14.4% anticipated loss), Los Angeles, Calif. (10.3% anticipated loss), Seattle, Wash. (7.5% anticipated loss), Oxnard, Calif. (6.7% anticipated loss), and foreclosure capital Las Vegas, Nev. (6.4% anticipated loss).

Zillow’s November data shows price fluctuations from metro area to metro area, as well. It clocks 66 markets where home values depreciated in November, 66 markets where values rose and 33 where values simply remained flat. Zillow’s economists caution that elevated foreclosure rates and negative equity will continue to impact local markets in 2012, meaning still lower values yet-to-come in some markets. For that reason, the company doesn’t expect a true stabilization in home values to occur until the end of this year or early 2013.

I think they are right. Even if the worst of the price depreciation hemorrhage is over, we still face a wave of distressed inventory undergoing the tedious foreclosure process and an estimated shadow inventory of 1.6 million bank-owned or distressed homes that have not yet hit the sale block, according to CoreLogic. It will mean millions of discounted units flooding markets already saturated with more units than buyers, dragging overall home prices down in terms of both listing prices and property appraisals.

So whether a bottom in housing is here or not depends on the local market. Most foreclosure-riddled markets will likely have years to go before values meaningfully move upwards. Markets where employment is plodding back and/or where overbuilding didn’t occur in the mid-2000s will and are showing more promising, more stable prices. ”It will be very important for consumers to draw a distinction between the end of sustained home values declines, which are maybe a year away, and the return to normal market conditions with historically normal appreciation rates,” Zillow notes.

Poinciana 2

Poinciana, Florida – a great place to live and invest in

As our clients will know, we are firm believers in the freehold house market in Orlando, Florida. Quality 3/4 bedroom homes with tenants in place and net rental yields of 4% plus p.a. can now be bought from under US$100,000. Poinciana is a quality residential area that offers a wonderful lifestyle for its residents. You can find out all about it by visiting;

It is worth taking a few minutes of your time to look at what Poinciana has to offer. You will quickly see why we are firm advocates of the area and the homes on offer.

Silver Wharf

Central London apartments – 10% discount

We are pleased to able to advise that we can now offer apartments in Silver Wharf, London E14. It is rare that we are able to say you can secure a genuine 10% discount to the current market/list price but this is certainly the case with Silver Wharf. There are only nine apartments available and the vendor is prepared to lower the price to sell them quickly. We have confirmed that other apartments were sold at the list price. At the discounted price the apartments represent exceptional value.

The development is in a great location and will appeal to both tenants and owner-occupiers. The market in central London continues to look strong and if you are thinking of buying there in the near future you should take advantage of this opportunity and buy one of the Silver Wharf apartments.

London Big Ben

UK Budget – major implications for some buyers

The UK government’s budget announcement last week has caused concern for both existing and prospective property owners. A lot of media comment was subsequently made on how high value properties would be severely affected. Unfortunately, a lot of Asian based buyers may also be affected by the announcement, in some cases quite dramatically.

The UK government has certainly decided to get tough when it comes to stamp duty on expensive properties with the rate of Stamp Duty Land Tax on purchases of residential property over £2 million increasing from 5% to 7% from 22 March 2012. The rate for properties below this level remains the same.

Of interest to some overseas buyers is that if any ‘non-natural’ person, which includes a company, partnership etc., purchases a property for more than £2 million the stamp duty rate will be 15%. In the past investors have used companies to own property and have sold the company’s shares when disposing of the property. Under these circumstances Stamp Duty was only be charged at 0.5% and 0% if an offshore company had been used. The new rate means a minimum tax of £300,000, making it prohibitive to use such a structure.

Existing owners of such properties who are using a corporate structure may also be affected. The Government is talking about an annual Stamp Duty Land Tax for high value residential properties owned by non-natural person and this may come into effect from April 2013.

Whilst most Asian based buyers have not spent £2m on a property, it is worth noting the Government is considering imposing Capital Gains Tax on non-resident companies (BVI companies for example) that dispose of UK residential property. This potentially applies to all non-resident companies that own a residential property, not just those owning high value properties. The government wants to go through a period of consultation before committing to this, but if it is introduced it is likely to be in April 2013.

Of course, the devil is always in the detail. For example, no-one knows whether current values will be re-assessed prior to its introduction. What is certain is that if all non resident companies are taxed, a large number of Asian based investors will be severely affected. Advisers who advocated their clients use such an entity to own a relatively inexpensive London property as a means of avoiding inheritance tax will now need to identify what is now best for their clients. Of course, hindsight is always 20/20 vision and they will rightly argue that governments can change legislation at any time. Nevertheless, in these difficult economic times measures to curb tax avoidance were always going to be popular. Taking steps to discourage non-resident companies avoiding stamp duty and including them in the Capital Gains Tax net seems a logical step and one that could have been foreseen, with hindsight of course.

The good news is that there is no talk of offshore ‘natural persons’ being affected by the changes. London remains a safe and profitable haven in troubled times – just make sure you get the right structure in place at the outset.


New London project

As our regular readers would know we don’t offer new projects every week and we are very selective in terms of what we offer. We are pleased to be able to announce that we have identified a sound London opportunity which we can highly recommend. Renaissance is a newly completed residential development in Sydenham, London. Sydenham is an increasingly affluent suburb as young professionals and families are moving into the area from more expensive Dulwich and Crystal Palace. The new East London line which opened in 2010 has greatly improved the transport links from this zone three area making it attractive to commuters. The property is located just off Sydenham High Street, five minutes walk from Sydenham station, which gives fast access to Central London via the new East London line. Canada Water on the Jubilee Line, which links to Canary Wharf and to the West End, is only 15 minutes from Sydenham.

The two bedroom, two bathroom apartments, which start from GBP285,000, have been constructed to a high standard and contain quality fixtures and fittings. For investors seeking security of rental income from quality tenants and strong prospects of capital growth, Renaissance is the ideal choice.

Statue of Liberty

Growing US confidence in housing recovery

The following article appeared in the South China Morning Post today and confirms the change in sentiment in the US towards the real estate market there.

‘Potential homebuyers and sellers are growing more confident that the US real estate market will begin to recover as soon as next year according to a Prudential Real Estate survey. Sixty per cent of 1,251 people surveyed last month had positive views about the housing market and 70% expected property values to improve over the next two years. About 63% said they considered real estate a good investment, the US broker reported. Survey respondents were 25 to 64 years old with a household income of at least US$50,000 and either recently bought or sold a home or were considering a purchase or sale’ Bloomberg

Redfield Lane

London – an opportunity to buy and modernise the worst house in the street

There is a saying that many property investors are aware of – ‘You should buy the worst property in the best street you can afford’. This is an opportunity to do just that. As a result of our search service activities we have identified an outstanding opportunity to buy and modernise a freehold house in the heart of London. The street comprises quality homes and is ideally located, being a few minutes stroll to the heart of South Kensington and Earls Court. The property requires refurbishing and should be extended to provide an additional floor, rear extension and parking space. This will result in an increase in the value of the property and a finished house that will appeal to both tenants and owner-occupiers.

The opportunities are out there – you just need the right person to help you find them.


US renters are losing their leverage

Florida Realtors recently released the following which makes interesting reading;

During the boom years of homebuying, property manager Charlie Biter used to offer new apartment tenants one or two months’ free rent as a lease enticement. Now, as rental demand continues to surge, no such offers are necessary. “Back then, everybody was being creative to bring renters in,” said Biter, who oversees 2,000 apartment units in the Nashville area for Continental Property Management. “But now I’m not aware of any units offering concessions.”

Across the country, as more people compete for apartments in the wake of the housing collapse, the market has swung in favor of landlords. For tenants, that means saying goodbye to move-in incentives and watching rents edge higher. About a quarter of all apartments nationwide offered some type of concession in last year’s fourth quarter. By comparison, 53 percent of apartments offered concessions in the first quarter of 2010, according to data tracker MPF Research’s latest report. “The industry moves in cycles, and right now not a lot of apartments are available,” said Jay Parsons, an analyst at MPF Research. Until apartment construction catches up to demand, landlords will maintain their control of the market, he said.

The vacancy rate in Pittsburgh, at 2.2 percent, is among the lowest in the country, according to MPF’s fourth-quarter data from 2011. University of Pittsburgh master’s student Harrison Murphy knows the difficulty first-hand. Four years ago, he found an apartment within an hour of searching, he said. Now, not only are rentals harder to come by, but many landlords require stricter background checks. “I have been unable to find a single place that doesn’t require a recommendation from your previous landlord, with some even asking for recommendations from teachers,” Murphy, 24, said.

In New York, too, as rental demand swells in some of the most desirable neighborhoods, rates are reaching new highs. In 2011, average rents across all apartment categories rose 8.4 percent compared with the year-ago levels, according to the Citi Habitats annual report.

In Chelsea and the East Village, average monthly rent in January for a one-bedroom apartment hit $3,218 and $2,616 respectively. Both neighborhoods have vacancy rates below 1.5 percent. Furthermore, landlord concessions in New York plunged 68 percent from 2010, according to the report. “With high demand in the marketplace, landlords were not likely to negotiate with potential renters, and needed to do little to attract clientele to their available apartments,” said Citi Habitats President Gary Malin.

In Portland, Ore., one of the country’s tightest markets, the year-end vacancy rate was 3.1 percent, according to the Barry Apartment Report, a local data tracker. “Nobody’s giving concessions. That’s history,” said Joe Weston of Weston Investment, which owns 3,000 apartments in the Portland area.

In April, his firm plans to raise rental rates about 5 percent. “People living in suburbia are moving to the city center,” he said. “And some of those people were foreclosed on and are now renting.”

Warren Buffett

Warren Buffett : I’d buy up a couple hundred thousand single family homes if I could

When probably the greatest investor of our time makes a statement like the above then it is time to site up and take notice. Warren Buffett says along with equities, single-family homes are a very attractive investment right now. Appearing live on CNBC’s Squawk Box ( – 5.10 minutes in) Buffett says he’d buy up “a couple hundred thousand” single family homes if it were practical to do so. If held for a long period of time and purchased at low rates, Buffett says houses are even better than stocks.

All property markets recover and the USA will be no different. Markets such as Florida offer superb opportunities to buy single family homes at below replacement cost and with strong net rental yields of 5% plus. If Warren Buffet thinks now is the time to invest in this sector, then it is definitely time to do so.


Freehold houses in central London

I am in London over Chinese New Year talking to agents etc about the state of the residential sector. The one recurring theme is that there is a shortage of quality properties on the market. Heavy demand from overseas, and a little surprisingly, UK buyers means that well priced properties are selling quickly. Houses in particular seem very popular, especially in prime areas such as Chelsea. The investment bankers may have had their bonuses cut, but they still seem able to house their families in the style they have become accustomed to. Newly refurbished properties are particularly popular as people don’t seem to want to go through the building phase – they want to move in straight away and will pay a premium for the privilege of doing so.

Most investors focus on apartments in zones 1 and 2, but the acute shortage of freehold houses in these areas augers well for this niche sector going forward. Of course, the investment level for a house in Chelsea deters most investors from buying one. Prices start from GBP3m and head rapidly north from there. Importantly, that doesn’t seem to deter the investment banker or overseas national who wants a prime property with a small garden and a feeling of space from buying.

Whilst a number of new apartment developments will come on the market in the next few years, they are not building freehold houses. Prices for this type of property will continue to rise over the next several years.

Tony Davies
Managing Director


Optimism is building that the US housing industry is nearing a bottom — finally.

USA Today seems to sum up the position of a number of independent commentators. According to this source:

Home sales and home building are forecast to rise this year after sliding steeply the past five years in housing’s worst downturn since the Great Depression. Recovery is expected to be slow, and home prices are widely expected to fall this year. But investors are betting on the start of an upturn, bidding up home builder stocks and causing them to outperform the broader stock market.

Chief executives are more positive. JPMorgan Chase’s Jamie Dimon said last week that housing is near its bottom but could stay there a year. Stuart Miller, CEO of home builder Lennar, said the market has started to stabilize because of low prices and record-low interest rates. Market researcher RBC Capital Markets has also turned from a “bearish” view on housing to saying that 2012 “will mark a step in the right direction.

More improvement is expected for: ‘•Sales. Existing home sales will rise 12% this year after a 2% increase last year, and new home sales, coming off a horrid year, will jump 74% this year, Moody’s Analytics predicts. November’s existing home sales hit their highest mark in 10 months, and new home sales were the year’s second best, IHS Global Insight says.
•Construction. Single-family housing starts will rise 37% this year, Moody’s predicts, after falling 9% last year. Home builder stocks are on a run. The S&P 1500 homebuilding index is up 38% since mid October, vs. 7% for the S&P 500.

We have often been told that if you can buy within 10% of the bottom of the market you are an investment guru. You can become one by buying the right USA property now.


London update

UK house prices are continuing to fall with few if any signs of the market improving. Hometrack has advised that the average cost of a home was down by over 2% over the previous year. Demand remains weak with mortgages difficult to obtain. The likelihood is that prices will be even lower next year and it will be some time before the situation improves.

The good news for most overseas buyers is that agents will tell you that London is a very different market to the rest of the UK. To some extent this is true. The zone 1 and 2 central London market is being propped up by overseas buyers who are not experiencing the same difficulties in securing mortgages as their UK based counterparts are. Nevertheless, in many people’s opinion the London market cannot indefinitely avoid what is happening with the UK economy. In their opinion it is inevitable that given the severity of the problems the UK is going through this market will be affected.

As we have commented before, reputable parties disagree with the above view and are much more bullish about prospects for the central London market. However, it is worth noting there are rumors of falling sales rates at exhibitions in Hong Kong over the last couple of months. No-one wants to admit the Hong Kong buyer is losing his appetite for London apartments and it is fair to say some buyer fatigue was inevitable after the flurry of sales in the first half of the year. Given that demand from Asian buyers, principally in Hong Kong and Singapore, will be soft now until after Chinese New Year the real test will come in February/March when the London agents return in force and the exhibition circuit starts again. What happens at the exhibitions may have a profound bearing on what happens to the market next year. We will keep you posted.


USA Update

A well respected, internationally known newspaper’s blog has just run the headline

Housing Inventories Fall to New Four-Year Low in October

The supporting article states;

‘The 2.12 million homes listed for sale in October was down by 3.5% from September and down by 21% from one year ago, according to data compiled by’ The figures include sale listings from more than 900 multiple-listing services across the country. They don’t include all homes for sale, including those that are “for sale by owner” and other properties that aren’t marketed through multiple-listing services.

Inventories typically rise by around 0.8% in October from September, according to Zelman & Associates, a research firm. But they have been falling for several months amid a slowdown in foreclosures by banks and as home sellers, frustrated by low-ball offers, hold their properties from the market.

The National Association of Realtors also reported a decline in the number of homes on the market. At the end of October, total housing inventory fell 2.2% to 3.33 million homes, the lowest level of the year.’

You would assume from this for this that the over supply of unsold homes in the US is showing signs of dissipating. However, as several commentators to the blog commented;

• Take NAR’s figures with a grain of salt…and a beer and aspirin
• Is anyone counting the number of homes “FOR SALE BY OWNER”? Does this include homes taken off the market after long-term rides on the home selling merry-go-round?
• Does this include homes taken off the market after long-term rides on the home selling merry-go-round?
• And now, the rest of the story: the numbers of buyers also fell to its lowest level in four years. And that’s why prices keep falling. 9% unemployment will do that.
• Article doesn’t mention shadow inventory still on banks books

Agents and optimists (usually the same thing) will jump on any piece of good news that encourages people to buy. The fact is, there is little if any real evidence to support the fact the market has bottomed out. Nevertheless, if we are not there yet it is a reasonable bet we are not far off.

King's Lodge

Launch of new UK project

We have just launched our latest UK project – a care centre for complex needs patients suffering from Acquired Brian Injury, Autism, Parkinson’s etc. This is an opportunity to acquire a share of the freehold property and operating business of an established, profitable business run by a professional care centre group. Based on assumptions that have been independently verified as being realistic, the investors’ IRR is projected to be 20% p.a. over a three to five year period.

The opportunity has a number of features:

Established sector with strong patient demand : Experienced management team : Proven financial performance : Asset backed investment model with income streams and capital growth : Regulated industry : Independent verification of proposal/feasibility : Attractive returns over a three to five year period

For further information please contact us.


Student accommodation in Perth

We have had a number of enquiries recently asking us about opportunities to invest in the Australian residential market. Apparently the strong Australian dollar is not deterring many of our investors who are taking the view the currency will remain strong for the foreseeable future and it is great market to invest in for the future.

We have historically focused on the Perth market and whilst the residential sector there is in the doldrums at the moment due to soft demand, the prospects over the medium to long term remain sound. The Western Australian economy is driven by the resources sector and this should remain strong for the foreseeable future.

Student accommodation is a popular niche sector in the UK and whilst it has never enjoyed the same exposure in Australia, that doesn’t mean it isn’t an attractive option for overseas investors. Curtain University in Perth has over 10,000 overseas students studying there and there is a shortage of suitable accommodation for them. Four bedroom properties only ten minutes from the university and ideally suitable for students are available from only A$459,000. Now may be the time to buy when the market is down and rental demand is strong – the market there will recover in time and there will always be students looking for the right accommodation in the right location.

London bridge

Growth prospects for the London market

There are many reputable agents operating in the London market and Savills certainly qualifies as one of the better ones. Over the years I have been particularly impressed by the standard of its research. The company doesn’t always say the market is perfect and now is the time to buy. In the past it has forecasted prices to drop, which must have made its research department very unpopular in the eyes of its sales teams. So when it comments positively on the prospects for the market it is time to sit up and take notice. The company’s research department is forecasting a 6.5% growth rate for London in 2012 and whilst some would see this as optimistic, it is not a back street, one man operation making that claim. Sit up and take notice – it is probably right!