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Aspirational Investment

11th March 2017

This week we are looking to tie up a deal in W1.  I have been tracking this property for about four months now.  I was promised the deal by an agent, who couldn’t really deliver, we even went as far as the sale memorandum being issued and lawyers being instructed.

I liked the property as soon as I saw it, it is in a discreet block in W1, which I didn’t even know existed despite being in the area for over a decade.

The property had a shortish lease, I say shortish because a 56 year lease may seem short, but as far as Central London standards go this is acceptable, and surprising to most, mortgageable.  Margaret Thatcher’s old flat in Chelsea is currently on the market for £1.235m and only has a 24 year lease.  This equates to roughly £1,000 per sq. ft. for a 1,200 sq. ft. property.  The lease extension has been quoted at £600k, therefore you would be all in for £1,600 per sq. ft.

I was speaking to someone in the industry, and it transpired that he was also going for the same property, contracts were already in and only the management information was remaining.

Only last week I heard everything was in and the deal is now ready to be executed at a price of £725k, the lease extension will cost another £150k.  It’s worth going in hard to negotiate the lease extension costs down further, as there is an argument which can be made backed with selective evidence in this post Brexit environment.

Works are expected to cost a further £100k, for a top finish, and the valuation is expected to be over £1.2m.  Not that we’re recommending a resale; it would be best to hold on to this property for three to five years, or even long term.  It’s tough to get a 20% margin in this location, not only is this a desirable block, commanding strong resale figures and demand, it’s in the prime location of W1.

We feel this deal will go very quickly, as the location is aspirational and many people like the feeling of owning a piece of W1.

A deal we had on the table for £600k a few weeks ago is on the verge of exchanging for a higher price, the demand for property is still strong.  This is why people all over the world choose to invest their wealth in London.  Hesitation will lose you deals and money; please note that’s not the same as consideration.  We had a client who signed up with us, and has viewed properties, but when it comes to doing the deal, he comes up with one reason after another for not proceeding.  I counted a total of four in our last interaction.  From the cash flow not being strong, to religious festivals getting in the way.  The cash flow will never be strong in London, if you want cash flow you can go outside of London where yields of 10% have been reported.  However, these properties will probably never rise in value in the same way as the capital.  What’s more is he didn’t even need the cash flow.

If you want hard capital growth, then stick to Central London.  Given the recent changes in Tax, capital gains might be more desirable.

Suresh Vagjiani

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