This week we have been analysing a development deal which is on a very affluent street in Notting Hill W2. The road is called Durhum Terrace. The property consists of a ground floor garden flat and a lower ground floor. It’s what’s known as a duplex. The road itself has a wow factor to it in that it is a wide tree lined street with period properties on either side.
The property itself is south facing and therefore benefits from sunlight coming into the reception.
The history of it is that it was a probate property. The lady that had owned it died and left the property to her boyfriend. Her family contested the will and therefore the matter was dragged through the courts. He recently was awarded possession of the property.
The property is not on the open market, it came to us from a dealer who prefers to get the deal done rather than marketing the property. In some ways if you think about it you only need one person to purchase the property. Having a hundred people come to view may or may not get you that one person. Furthermore when a property stays on the market for a long period of time, sometimes because of a couple of failed sales, the property loses its sheen, and then people don’t want to buy it because they think nobody else wants to buy it.
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For this dealer time is just as important as the price, so he is willing to compromise on the price as long as the deal will be done quickly and efficiently, hence the reason why it was presented to us.
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The way to gauge the price of a property is to see what other properties in the street have sold for. There is a problem with using this in the Central London property market, the price of the properties change rapidly, and therefore you cannot use past prices to gauge the present values, especially if you consider a property takes about three months ordinarily to complete. This means from the time the price is agreed there is a time lag of three months before completion and when it hits the records of the Land Registry. If the market is increasing the value would be going up month on month.
Currently when we look on the market there are identical flats on for sale done up, one is on for sale at £1.475m. This property is on the same side of the street and is an exact replica of the one we are looking to do a deal on.
The ‘market’ price is obviously not what it would sell for. The only way to get to understand what’s going on is to see the property and speak to the agents.
We discovered the property on the market for £1.475m had a few offers at the higher end of £1.2m and the lower end of £1.3m. The seller was holding out for the asking price or very close and the agent was confident of achieving this given the location, and the scarcity of stock on the market.
The property has been on the market for two months, but in all fairness they have been the quietest months of the year. All the attention and energy which normally go into the property market had been soaked up by the Olympic Games and the Queen’s Jubilee. So it would have been unfair to use the last two months to understand why the property has not sold yet.
We are purchasing our deal for £1m and negotiating to possibly even £950,000, which I have been told by someone in the industry is extremely cheap.
The past is not always an indication of the future, so let’s look at the report from Knight Frank for Autumn 2012.
Overview from Knight Frank’s Report, Autumn 2012
Since March 2009, when the tide began to turn after the global credit crunch, prices for prime London properties have risen 49%. In fact, prices have now risen to stand 14% above their pre-crisis peak back in March 2008.
Prices are not the only market metric to have surged. The nature of the market has shifted; in 2008 Knight Frank sold prime London properties to 36 nationalities while in 2011 the total hit 62.
Interestingly Indian buyers are now the third biggest buyers in Central London after UK and Russia.
The other issue here is the property is on a 65 year lease with the freeholder being the council. This does not make this an excouncil property, it just happens to be that the freehold is owned by them. This is a good thing as far as extending the lease goes as the cost is likely to be minimal, in the tens of thousands, rather than a hundred. One option is to go for the freehold; if more than 50% of the block wishes to purchase the freehold of the property the council must agree to sell. This of course is the preferred option.
The property requires a complete refurb and will cost in our eyes £100k. We have yet to confirm this with a builder.
As it stands now after taking all costs into account the profit margin in this project will be 20% on the money invested. We have allowed 12 months for this project. In reality 6 months will be our personal goal. And there is no reason why this cannot be met. We have done these figures on the purchase price of £1m, yet we are in the process of negotiating this down to £950k, again this will all add to the profit margin.
If the prices continue to rise as they have been the property is likely to increase in value month on month until completion.
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The other point is this will be a newly refurbished property coming on to the market which attracts a premium, as nobody has lived in it since being completely done up, much the same way as when you buy a new car.
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For the above property a client of ours has grouped his friends together so they can pool their money and purchase this as one. They get the benefit of buying into a property in Notting Hill, which would have been unreachable had they tried to do this individually. Property generally by nature is a secure investment, in this location it is even stronger, this is the reason why if this hits the open market this property could attract offers of up to £1.1m. Many end users like the idea of purchasing a blank canvas to do with as they wish with.
If you’re interested in grouping together for a purchase why not give us a call to see how we can help you.
The Real Deal
Development Deal with a Freehold in West Kensington
- Two flats with a development angle in a nice residential part of West Kensington
- Can be purchased as a whole or as two flats.
- Garden flat can be purchased for £350k – after extension and refurbishment it would be remarketed at £525,000.
- Top floor flat will need a roof extension – purchase price of £315,000 and expected resell value after works of £525,000.
- Freehold at an additional cost of around £40k.
- Contracts are with our solicitors and waiting for somebody who can move fast.
Suresh Vagjiani
Managing Director
Sow & Reap
A Property Investment Company
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!Tips of the Week
A property crash is not like a stock market crash, you cannot lose all your money as the property is tangible, it cannot disappear
You can easily understand the expenses and income associated with property investment, the same cannot be said of many financial products
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