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Innovate or stagnate

3rd February 2018

I recently met a couple of investors who came from Saudi Arabia, wanting to deploy money into the UK property market; probably representing one party amongst many who are anxious to export their funds at the moment.

I asked them what the real reason was, as to why the round up is happening.  They stated there have become too many mouths to feed.  According to them, there are about 6-7,000 members of the Saudi Royal Family, who are taking $10-20million each per annum, just for their upkeep.  They are doing little or nothing for the economy and are a drain.

This is in essence a culling process, to remove the excess fat from the country so to speak.  I’m no expert in geopolitics, but the truth normally has to do with the flow of money.

The point being, again we see the same principle, on a global level money moves from unstable to stable environments.  UK, and still London, are seen as the obvious choice, despite the stamp duty and tax changes.  There is a more compelling reason why these funds are seeking a home – safety.  These investors mentioned that many developers were coming over to Saudi to sell their new build stock, developers who otherwise wouldn’t set foot over there.  Only one reason drives them to Saudi, and that is that they cannot sell inland or in Asia.

This particular party have had dealings in the UK previously, since 2009; and have done quite well from it.  However, truth be told, if you invested pretty much anywhere in the UK at this time you would have made money.  You would have been riding the wave.

Now the terrain is different; and Central London in their minds will be a tough market for the next 3 – 5 years, which is perhaps slightly pessimistic, but I agree with the direction.

Therefore, to buy and hold, with the anticipation of growth isn’t necessarily the wisest move.

You need to find angles, to add value, do what no one else is doing, to innovate.  When one buys a property it’s easy to see the comparables and what’s on the market.  So, in very little time you can normally get a basic grasp of the situation.  When there is a development with planning permission the seller knows the build costs and the resale cost and leaves a margin of 20 – 30% for the incoming purchaser.  There is no extra value add.

The property industry in general is very backward looking.  However, we have found a chink in the market which will boost yields and turn ordinary investments into high yielding cash cows.  We are currently implementing this strategy in a property in Central London.

We have another office development deal in North West London, where our intention is to replicate the same principles, in essence build small and rent high.

This development is minutes away from a tube station, and being commercial you get away from the sharp stamp duty which is payable on residential.  You also have a brilliant little known tax advantage, where if you exit the investment after a 12 month period you qualify for only a 10% tax liability; which is a cherry on the pie.  This deal is priced at £2.25m, and is ready to be transacted.  Please get in touch if you are interested.

Suresh Vagjiani

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