Fertile ground for investment
Today I write from Tbilisi, Georgia, next door to Russia and previously part of the Soviet Union. This country is populated by only just over 4.5million people and geographically is stuck roughly in between Russia and Turkey.
Mr Bidzina Ivanishvili is Georgia’s richest man, with a net worth of $6.4billion according to Forbes magazine March 2012. His plush office is in the capital, Tbilisi. His net worth amounts to half of Georgia’s GDP. In the recent months he has become a fierce critic of the current government and has started a political party called Georgian Dream, with the aim of running for presidency. The rivalry is all the more bitter given previously he was friends with the current President Mikheil Saakashvili.
Mr. Ivanishvili announced in October 2011 that he would use his fortune to oppose the government and finance his own political ambitions.
It was a shocking challenge to Mr. Saakashvili, who has comfortably dominated politics here since the 2008 war with Russia, and the authorities took immediate steps to stop him.
Georgia’s government acted immediately after Mr. Ivanishvili’s bombshell.
Just four days later, the billionaire was stripped of his Georgian citizenship, on the basis that he had never informed officials that he was a citizen of France. (Georgian law permits dual citizenship only with special permission. Mr. Ivanishvili also had Russian citizenship, though he renounced it in December). Two weeks later, the central bank seized millions of dollars as part of a money-laundering investigation of his bank. The governing party then introduced limits on corporate campaign financing, which would prevent his companies from bank rolling candidates.
Last month 21 teachers were fired because their family members were members or supported the opposition party Georgian Dream.
An employee of a bank called Privat-Bank was also fired because his sister and mother attended a Georgian Dream meeting. He was formally considered as one of the banks most valued employees. He was told he was fired because ‘members of his family think in an opposition way’.
This is very briefly the current political situation in Georgia. The original purpose of my visit was to hold a seminar on investing in Central London property. Given the current situation we were advised people would be very hesitant to attend. The reason is the current government needs funds and with the current situation people with money do not want to be seen openly to be investing overseas. Hence the seminar would not be well attended. It seems to be a very cloak and dagger situation.
Instead what has been proposed is separate meetings, one on one, in order to give the discretion required.
From one perspective this is fertile ground to encourage people with funds to invest in London, given the current instability in the country. London has also been highlighted in the global arena, given the Queen’s jubilee and the imminent Olympics.
Most business people around the world like the idea of owning property in London. They have no doubt about its growth potential.
According to Cluttons Residential Investment Monitor Q1 2012 amid concerns about a double-dip recession and nervousness over GDP figures, long-term overseas investors are continuing to seek out prime Central London residential stock.
Doubts over Eurozone growth, political uncertainty in France, and the potential implications for robust responses to future sovereign debt crises have created uncertainty in stock markets.
Despite this, investors continue to look to London residential property to protect and grow wealth.
Cluttons’ latest research has found that gross yields for residential property in Central London stand at 4.06%, the lowest figure since the end of 2010. Average rental values have fallen by 0.6% and capital values have grown by a further 1.9%.
The report’s findings indicate that although short-term rents are readjusting, the long-term trend proves London remains hugely attractive.
This is despite the new £2 million Stamp Duty tax rates; 7% for properties bought by individuals and 15% for properties bought through or in the name of a company. Cluttons is clear that demand will remain, particularly from overseas investors who are continuing to track opportunities.
Clearly it is not rental yield investors are going for, it must be sheer capital growth. Prices have increased by 20% from the peak of 2007. Foreign buyers account for 62% of purchases in Central London.
I would suggest given the background of those investing in Central London, the main reason is not even capital growth. The main reason is the stability and transparency of the London property market.
Though the growth haves been huge in Central London, many of the investors are likely to be in business and are probably making these if not higher returns from their businesses.
Investing in Central London is a means of diversifying their wealth and more importantly getting it out of unstable countries to a more stable country is the real aim.
Given the current turmoil around the world this trend is likely to increase. In short you have a lot of money around the world chasing a finite amount of property in a small location. This will cause property prices to increase further, despite the recent ruling regarding stamp duty.
This week we bring you a deal with meat on the bone ready for the taking. The property is a freehold period conversion consisting of two one bedroom ground floor flats and one two bedroom first floor flat. The upstairs flat has development potential to turn into a three bedroom by going up into the loft. Others on the street have done so, and this may come under permitted development. The property is located on 47 Blomfontain Rd, Shepards Bush W12 close to White City underground station.
The property is being advertised by agents Faron Sutaria in Shepards Bush for £375k for the two bedroom and £250K each for the ground floor flats.
The offers expected realistically are £350K for the top floor and £240K for the two ground floor flats. This comes to a total of £830k.
The block comes with the benefit of a rental income though it is currently under rented. The current rent is £35,000 per annum.
Given the locality the flats are in a strong area for both rentals and resales.
The vendor wants a quick exchange on all three flats and is prepared to take £700k from someone who can exchange straight away on 10% deposit. The property can be sold as one freehold title, or three leases can be granted.
There are two options to this investment,either purchase and resell straight away or rent as a long term BTL investment. If the properties are held long term, after a six month period you will be able to refinance at the market valuation currently at £830,000 and extract most of the deposit put in to purchase the property. At 75% LTV you will get £622,500 which means you will have only £80,000 buried in this project.
If the development on the top floor flat is undertaken within the six month period this amount will be further reduced.
The cherry on the pie is there will only be 1% stamp duty when purchasing this deal as opposed to the 4% normally payable, this translates to a saving of £21,000. If this is a bit rich for you, why not group together? With three people this will only be £233,000 each. Call the office now to view this deal.
Sow & Reap
A Property Investment Company
In times of financial instability it is sometimes best to put your money in real assets, which have been real for millennia.
Don’t get carried away with rental yield, capital growth is how you make the bulk of your money in property.
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