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Don’t put all your eggs in one basket

Why foreign money is fuelling Central London property.

The increase in Central London property prices in my opinion has been largely due to foreign buyers, however they are not buying with the primary aim to make money, neither are they buying to live in. Their objective is to park their funds in a safe and secure environment. This phenomenon serves to fuel the rise in property prices in Central London.

There exists much distrust regarding what is actually going on with the economy, and whether what’s being reported in main stream media is the actual truth. Many are of the opinion there are strong under currents regarding what is actually happening in the world. Many newsworthy items are not reported in the mainstream press, one example is what has recently occurred in Iceland, where there has been a revolution and the country’s constitution has been rewritten.

In times when money is being printed at ludicrous levels, and when there exists so much economic turmoil, prices of real goods will rise.

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People will go back to what they know best, what has been traditionally regarded as forms of wealth, this is of course real goods: one being property and another is gold. These two have been regarded as forms of wealth for thousands of years, long before the invention of clever financial instruments.

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These buyers aim to keep their funds in a safe place. London offers transparency and security when purchasing and owning property.

During the time when Greece had issues, a local prominent agent told me he had received instructions from someone in Greece to purchase four properties immediately – he needed the completion to be before a certain date. These properties were to be purchased blind, meaning the purchaser would not be seeing them. The properties would be purchased in cash and a budget of £2m was given. Clearly the goal here was to park funds in a safe place, not necessarily to get the best returns, or to find a bargain.

A country which has recently been through some political changes is Georgia, formerly part of the Soviet Union. As a result, there has been a lot of interest from this small country to purchase property in Central London.

A change of political leadership occurred in October 2012 with the New Dream part coalition coming into power.

On a trip to Tbilisi in June 2012 we had much interest from many business people in Georgia who were keen to invest in the UK but didn’t have access to the right channel to make this happen. Our initial aim was to arrange a seminar in a hotel and have investors come there, the idea being that with the help of translators we would get our message across.

However we were strongly advised not to go down this route as we could end up with an empty hotel room, even with the high level of interest in UK property. Given the unstable political situation this would not be a good idea… People who want to invest will not want to be seen by others as getting their money out of the country especially if they were reported to the new authorities which may be coming to power shortly.

The impression I got from speaking to those connected politically, was that the parties seemed to be more like business clubs. When one is ousted, all the former members of the opposing parties are stripped of power and persecuted. This leaves the road clear for the new party to exploit the economic opportunities.

As a result of the change in power, an investor who was about to invest in a property through Sow & Reap following our trip there, could not do so. The reason we were told is he had suddenly been arrested by the newly formed government and his assets had been frozen.

There is often very little main stream press on these kinds of news items as the newly formed governments ensure they have control over the media.

A similar scenario occurred in China. A prominent family came to invest in Central London as a way to diversify their investments, they have had some experience of property in the UK but not in Central London.

The aim of buying here was guided by location. Previously they had their fingers burnt by purchasing a piece of ill advised land outside of London. They had consequently sold at a loss and now had a mandate of buying existing property only in Central London given the issue they had with planning previously.

They are big developers of property in China and also have a hotel business. In short they were not investing for the returns, their aim was to park funds in safer places than their homeland.

The investor had informed me that one of the very wealthy families in China had recently had their assets stripped overnight and been put in prison as they had upset the wrong people in government. This then serves as a signal for those in the business circle to ensure they do not put all their eggs in one basket.

The returns many of the foreign businessmen make in their respective businesses far outweigh the returns gained from property investment.

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However, a recent survey conducted by Cluttons showed 6 out of 10 millionaires said residential property in London was still their favourite asset class. 43% said the Eurozone had no impact on their decision and almost 30% said London is better placed as an investment as a consequence of the Eurozone crisis.

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Even the stamp duty hike has done little to taper the demand for property. The decoupling between house prices in London and the rest of the UK has been a recent phenomena and did not occur in the last recession when a rise in the Capital meant it will soon spread to the rest of the UK. Currently there is a two tier and unrelated market.

And so it can be seen that many investors in Central London do not have a primary aim for returns but rather it is to purchase a quality asset which will keep their money safe. In short it’s to keep wealth in safe.

Not all places in the world offer the transparency and security London does. Most Indians do not have this level of faith when purchasing property in India.

When purchasing a property here in the UK, nobody would question whether there is anything wrong with the title or whether there is a clean ownership. They leave it to their solicitors to check all of this. This is because they have faith in the UK legal system, at least when it comes to conveyancing. Many countries do not offer this level of reassurance including places like Spain and Italy.

There are also restrictions placed in certain countries regarding the number of properties one can purchase, and issues with the repatriation of funds etc. London has no such restrictions; a foreigner can purchase one or hundred properties.

The Real Deal

Purchase price £325,000

  • Beautiful ground floor two bedroom garden flat
  • In Maida Vale in a gated block with outside space
  • Market value of £375,000
  • Off market
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  • Long lease
  • We have purchased four properties in this block for our clients
  • Brilliant long term investment for returns and growth

Suresh Vagjiani

Sow & Reap

A Property Investment Company

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!Tips of the Week

When considering investing in buy to let property establish what price range you’re looking at. There are 3 main things that influence this – Cash you have to invest, amount of mortgage you can get and the rental income.

On a BTL mortgage the rental cap may reduce the amount you can borrow, typically your rental must be 25% higher than the mortgage payments.

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