Safe as houses
21st April 2018
I was recently referred to a contact who is looking to deploy a large sum to invest in the UK, he is based in India. He needs a place to stay for a couple of years and in parallel wishes to invest. His requirement is two fold, an immediate place to reside and also a good investment to develop out. It was only after the meeting when I Googled his name, I found out he is a big shaker in the movie industry, and surprisingly also a big player in the Mumbai real estate industry. The exodus of funds from India are still flowing strongly.
In fact he has been in the real estate business in India for over three decades. It is unusual to have a strong foot in both industries. But actually, when you think about it, it is a very sensible move to make, as the movie industry is one of the most unpredictable industries to be in. Real estate would be a way to neutralise the fluctuations. It is a good safety net for any business.
There have been many case studies of entrepreneurs drawing upon their real estate portfolios during times when their main business was not performing so well, and even on the brink of collapse. Even self-invested pension funds allow investment into residential property, via some controls being in place. The point being, as far as business goes, property is probably the safest business to be in. After all, the bank is still prepared to lend up to 75% of the value of a property investment, and though mortgage requirements have increased, there are still a few lenders out there who will pass the application with relatively little paper work, when it comes to Buy to Let cases.
There is good reason why the term ‘safe as houses’ exists.
On the plain vanilla Buy to Let side, this statement is true; especially at the bottom end of the market. As you go higher, the risks increase, as on a down turn these will be the properties which get hit the most. This is something we have become painfully aware of on one of our deals.
Last week, I viewed a couple of freehold houses which were just stunning. One of them has an outside area and even a separate dwelling for staff. It even has planning potential. The property consists of over 6300 sq. ft., and the asking price is £8m, which equates to only £1,200 a sq. ft. This is only the asking price, I was told they would take an offer and the vendors need to sell.
Unfortunately, the seller fits into one of the three D’s, in this case Divorce. They are in the midst of divorce proceedings and need to sell the family silver and the matrimonial house to be able to move on with their lives. This is what a buyer seeks – a motivated seller. To put this deal in perspective, council flats in nearby locations are selling for circa £1,000 per sq. ft. Here you have a property which is like a rare diamond. There are only two like this in the street, and it is difficult to purchase freeholds in this location. This end of the market has been hit hard. Previously, this type of property would have reached as high as £2,000 per sq. ft, achieving a price of £12.6m.
This kind of deal suits an investor with deep pockets, someone who can ride through the sluggish market over the next two to three years. If they can hang on, this property refurbished with some light development should be well able to achieve this kind of figure, giving a very handsome return to the right type of investor.
Please get in touch if this type of deal interests you.