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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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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.

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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.

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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.

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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.

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London Search Service

St. David provides a comprehensive search service, which includes identifying suitable investment properties, handling all aspects of the purchase and providing a professional lettings and management service.

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The benefit to you in using our Property Search Service:

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  • By using the service you will have unrestricted access to a large range of properties for sale.  You will not be restricted to those properties handled by any one agent.
  • Out of the large number of properties that are available, St. David will identify and provide an objective assessment of those that best meet your requirements.
  • St. David will assess the rental and capital growth prospects and where appropriate will assist with any refurbishment work, furniture package etc.
  • Your valuable time will not be wasted considering unsuitable properties.
  • St. David will negotiate on the client’s behalf to ensure the minimum price is paid for the property.  The cost saving may easily be in excess of St. David’s fee.

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Once St David has been appointed it will undertake its research and subsequently forward details of suitable properties that meet the client’s requirements. For every property it recommends it will provide:
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  • Location map
  • External photographs of the street
  • Internal photographs of each room
  • Lay out plan and dimensions
  • Lease details, rental assessment etc.
  • Recommendations re refurbishment work etc.

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If the properties are deemed not suitable, St. David will refine the search criteria and provide additional properties for consideration.

Once the property has been chosen St. David will assist with all aspects of the transaction, including price negotiation, appointment of a solicitor, property conveyance and mortgage advice. It can also provide a full lettings and management service.

St. David is only paid if the client buys one or more of the properties it recommends. For details of our fee arrangement please contact us.

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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.

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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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 Streeteasy.com 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.

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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.

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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.

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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.

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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.

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.

Renaissance

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.