We are gearing up for a busy year in the property market, prices in many locations will increase beyond their glass ceiling heights of 2007. The signs on the ground are confirming this trend. Last week we closed a development deal with a group of investors for £4.4m, we purchased this off someone who had bought it for less, there’s even a chance we will be reselling this on prior to completion.
When property is being resold on several times between exchange and completion it’s a sure sign the market is heating up. Severe lack of quality stock forces this to happen. I am sure this will continue and intensify through the coming year, along with the practice of gazumping which will start to emerge where buyers of property are dumped half way through the purchasing process by other buyers with higher offers.
Another deal, that was supposed to happen on Friday, then again today, which will hopefully happen tomorrow is a flat in Mayfair for which we had double the investment money for. One investor was umming and aahhing and in the mean while we got someone else in the deal as we only had a short time to close, then he woke up and also sent his money in. This particular deal has a long completion after exchange and therefore there is a strong chance it will be resold prior to completion. Given the cheap price and a four month completion, who knows perhaps it too will be sold twice before completion.
Another deal we will be exchanging on this week will be a development deal in Sloane St. This is being purchased at £2.25m, it’s off market. It comes with a short lease of 39 years which actually is not as short as it sounds given the location. Believe it or not it’s sellable as it is with even this amount left in the lease. However we will be inheriting the right to extend the lease when we purchase this property. According to a surveyor’s opinion the lease extension will cost £500k. Allowing for a refurbishment cost of £300k we will wind up with a property which has cost roughly £3.05m and has a resell value of £4.5m. The property is in a quaint courtyard, aloof from the busy High St, and is in a portered block in a rich and fashionable area of Sloane St. It is in a very prestigious location and has the classical entrance you would expect to see typically in a London flat with plenty of brass and wood in the reception. The entrance is important and this is the one which is not in your control. So it is very important it has a wow factor before you even get to the apartment, this will be the potential buyer’s first impression.
Here none of the shops have price tags and there is a guard posted outside them. You will find the wives of footballers and rich business men shopping at these exclusive venues. What seems expensive to most is relative; here £3,000 to £4,000 per sq ft is the standard bread and butter prices.
Mostly deals are not packaged up for you and handed over on a plate, they need to be worked. Here we have a few is sues to contend with, a shortish lease and a planning permission which needs to come through in order for work to start on this property. None of these seem prohibitive.
It is moments from the famous One Hyde Park, a development done by Candy and Candy, which I haven’t seen internally, but good sources who have seen it have stated they wonder where the money paid at £10,000 per sq ft, paid several years ago, has gone. There are also vicious rumors, which state many of the flats had been sold in house to establish the initial comparable to maintain the illusion of the price. Who knows for sure?Apart from the buyers and the sellers.
There is another deal to be done as well this week, it’s a property in St John’s Wood where prices go for £1,500+ per sq ft. This is a flat which consists of circa 500 sq ft is going for only £500k. This one is cheap and can be easily resold on for £650k on the open market with some slight works on it.
One of the questions we have to always ask is which client do we put into which deal? There are several factors to consider. First of course is budget , those with smaller budgets are advised to go into syndicates , which buy large value properties, this way a small amount of £50k can give very high returns. Some clients are averse to syndicating their investment and wish to go alone, this is fine as long as you have the budget to do so. For a£500k purchase you will need £150k to allow for 25% deposit and associated costs.
The other criterion is time, many investors want to keep recycling their investments whilst others prefer to keep it in one and hold, and pass it through generation after generation. Some prefer a combination of both.
Another major consideration is tax, many say they want income producing properties yet not realizing they are high income earners and therefore half of the excess income will go to the HMRC. Another factor is cash flow, is it necessary for you to have money coming in every month? Or would you prefer your money to work harder with a payout instead every 6 – 12 months. Some clients even have strict criteria of where the door faces or even the number of the property. One of our current clients has a strict criteria regarding which direction the door should face, and he’s not even Indian!
Often these questions are not considered with any clarity by investors, and part of our role is to help define the investment depending on their circumstances which are unique to every individual.
At the moment we have a rather unique circumstance which I have not come across before. It’s someone who has a pension fund in the form of an SSAS which is a Small Self Administered Scheme. This type of pension allows tax free contribution into it and allows the holder to control the investments they make subject to some criteria. An SSAS does not allow one to purchase residential property outright but allows one to develop property and pay for legal costs, money is not invested but loaned to the scheme.
Ultimately the aim is to increase the investment amount within the scheme aggressively and then go overseas, where after five years the whole thing becomes tax free, all within the rules of the HMRC.
It’s actually been a learning experience getting to grips with this and has opened my eyes to a new realm of investing.
This is an interesting scenario and one I am confident we can adhere too and one our lawyers will be able to understand and execute.
Knightsbridge, London, SW1X
Purchase Price: £2.25m
- A first floor apartment in this highly sought after location
- Excellent ceiling heights
- Comparable properties are priced at £3,300 per sq ft and above while this comes at around £1,600 per sq ft
- End value after works and lease extension expected to be around £4.5m
Call us now if you would like to have a piece of the pie!
Sow & Reap
Property Investment Company
!Tips of the Week
Remember the mantra of property investment! You must forget your whims and follow the mantra, in property it is Location, Location, Location!
Buying a property is a package deal; don’t look at it from only one angle, if you concentrate only on yield you may find the capital appreciation is not so good.