Last week I was introduced to a business man from Mumbai, I was told he wanted a property in Mayfair and to see if we could scout out a deal for him. We managed to get an off market deal on the 6th floor of a portered building, the flat consists of 1,550 sq. ft. and the price is £3.4m, which equates to £2,193 per sq. ft., cheap considering a flat in the same block only two months ago sold for £3,800 and this was on the third floor! The price rises the higher up the block you go.
I also mentioned we have something in Marylebone which was only across the road, he wasn’t in the slightest bit interested. There’s something about Mayfair and wealthy Indians from India, these investors have ploughed £1bn into the prime central London property market over the last 18 months, and are expected to spend another £500m on redevelopment in the next five years.
Mr Shah Rukh Khan himself owns an apartment on the prime street of Park Lane; I heard from the grapevine this property was flipped to him, and the trader made several million by acting in between.
One reason for this level of inflow is the faltering property market back home; Indians are second only to British-based buyers, they spent almost £450m purchasing 221 residences in prime central London in 2013, with the top three most popular locations being St John’s Wood, Belgravia and Mayfair.
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British buyers accounted for 30% of property in Mayfair, while wealthy Indians have snapped up 25%. Middle Eastern, continental European and Russian buyers all accounted for 13% of purchases each in the exclusive London borough. At the height of the British summer some 3,000 ultra high net worth Indian families escape the heat of Delhi and Mumbai to Mayfair, but they are also moved by London’s status as a global investment safe haven.
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As the Indian economy remains under stress, residential real estate prices have been surging in an unprecedented manner, unlike income levels which are not rising, and making London more appealing. According to Peter Wetherell the owner of the main agent in Mayfair, Wetherell: ”Many have chosen to invest in Mayfair, especially in Grosvenor Square, because they can see that currently the district is undervalued compared to neighbouring locations such as Knightsbridge and Belgravia. There has been a spectacular 314% rise in sales values in Grosvenor Square since 2000, surpassing values such as Eaton Square and Cadogan Square.”
Apart from the individual money there is institutional investment coming in a big way, The Lodha Group, India’s largest residential developer, has recently purchased the Canadian High Commission in Grosvenor Square for £306m. The group plans to turn the seven floor 135,000 sq. ft. High Commission into 18 to 20 luxury homes. “It is not surprising that Indians are buying in London, their preferred postcode has always been Mayfair, and it fits with their resonance with British luxury brands,” said Adam Challis, head of residential property at JLL. “More interesting is the strategy by developers such as Lodha who are diversifying into international markets, and London is of course the first port of call.”
There is a vicious rumour that one of the main drivers of money flowing into London property is as a consequence of the new government tightening up on ‘hidden’ money. It was always expected that Narendra Modi as Prime Minister would go after hidden money abroad.
And true to expectation, within just 24 hours of his May 26 inauguration, Modi created an investigative team of former judges and current regulators to find the concealed assets estimated to be worth $2 trillion and bring them back into the country. The Prime Minister wanted to send out a loud and clear signal to all tax evaders.
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Estimates about the amount of black money vary widely. Indians had moved $644 billion to tax havens as of 2011, according to data from Global Financial Integrity. The BJP said in a 2011 report that Indians had $250 billion, or 20 percent of the previous year’s gross domest ic product, hiding in Switzerland alone.
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The government defines black money as assets that haven’t been reported to authorities at the time of their generation or disclosed at any point during their possession. A large portion is converted into gold and held in households domestically. It’s legal for Indian residents to hold money in foreign bank accounts as long as they disclose it and pay taxes.
In reality it will be difficult to trace funds which have been moved offshore, one way will be for the government to have agreements with foreign banks to sign disclosure agreements, this will serve to tackle money held in offshore accounts.
However property purchased in vehicles held in off shore companies who have a layer of trustees will be more difficult to get to the bottom off. The introduction of Capital Gains Tax to be payable by non-resident individuals on disposals of UK residential property which is due to come in April 2015 will do little to dampen the demand for prime London property. The finer details of this tax are still yet to be defined.
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The simple way to avoid this tax is to not sell, the tax is only payable at the point of sale. If one needs to tap into the equity you can refinance and get 65% to 70% of equity out, which probably isn’ t that far away from selling and paying 28% in tax.
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It is unlikely you will see many distressed sales in these areas, the buyers are astute and financially savvy. The primary reason for purchasing properties in these locations is not to make money but to keep money safe. London property is one big safety deposit box for these investors; not just for the Indians, in the coming years you will see a lot more Chinese money coming into the capital.
Therefore it is unlikely once purchased these properties will again be sold in a hurry. If there are no sales there will be no capital gains tax. This point was confirmed during the last stamp duty rise, there was much talk of this damping investment in London property, whereas in fact the stamp duty rise made no difference in the demand for London property.
The Real Deal
Middlesex, UB5
Purchase Price: £310k
- A semi detached house with three bedrooms and two reception rooms
- Freehold
- Around 900 sq. ft. area
- We expect the value of the property to be around £350k
- Very good BTL investment
Call us now to secure this deal!
Suresh Vagjiani
Sow & Reap
A Property Investment Company
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!Tips Of the Week
Capital values may fluctuate but generally regular income in terms of rent can be expected in good as well as bad times.
You can easily understand the expenses and income associated with property investment, the same cannot be said of many financial products such as pensions.
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