10th September 2016
Last week I was asked to see a number of new build properties in a prime location, they were discounted by 30%, which I found hard to believe.
It transpired the original buyers who were a middle eastern fund had made installment payments of 30% whilst the properties were being developed. The recent oil crisis meant they would have to liquidate other assets which would lead to a bigger loss than not completing the property deal. They took the decision to drop the deal and forfeit the amount they put into it.
The developers took the decision to pass this discount on to the incoming buyer, wisely given the soft market conditions. The comparables in this block confirms this is a bona fide discount. With the discount the prices are just below £1,000 per sq. ft.
These are great buy and hold deals, perhaps with the view of reselling in two to three years.
Another deal we have closed is a one bedroom flat in W1, cheap at £1,140 per sq. ft. What made this deal even more lucrative is the potential to short let the property. After visiting the block it became obvious the whole block was a short let haven, The freeholder himself owns a number of properties in the block and is doing the same. A short let means you are renting the property from a few days to several months, as opposed to a standard AST which requires a minimum term of six months.
With the rise of short lets and the dampening of yields in central London many landlords have pursued this method of renting with great enthusiasm, some purchase properties only with the aim of short letting in mind.
Most leases forbid short letting in their blocks, and some even ask for all tenants and ASTs to be vetted prior to them moving into a block. Clearly this block is not as strict, and this one point really opens the deal up.
This investment can generate over 8% gross as opposed to 3% gross, this means there’s cash left after the mortgage is paid – about £20k per annum depending on the mortgage details. And this is not where you make the bulk of your money, the bulk will be on the capital growth of the deal.
It’s a buyers’ market out there, and you can pick up some real diamonds. Hurry this window will not be open for long.
Suresh Vagjiani
