Recycling your Money

We are in interesting times.  Currently, we are in a high inflationary environment, with relatively low interest rates.  One way to look at interest rates is to say the rates have gone up 500% within a 2-year period.  Another way is historically we are still in a low-rate environment.

What’s more interesting is the real interest rate, which is the nominal rate minus the inflation, is actually negative.  That is an interesting concept.  Normally in a high inflationary environment interest rates are hiked to combat inflation.

We are in a unique situation where the interest rate is still extremely low, and we have high inflation.

As time goes on there will be many businesses which will suffer, and the consequences will be empty commercial units.  The bigger margins are to be had outside of London, in my opinion; as there is still too much money and too many players floating around in London.   Note, this is a 500-year-old property market, attractive not just to national investors but across the world.

Recently, we had a meeting with a Bollywood connected producer, who wanted to wind down his properties in Mumbai and start investing in the UK.  London properties are attractive, for reasons of a transparent and reasonably clear market.  And I think Indians and many others like the idea of owning a piece of London real estate.  This is egotistical, as they ruled us, so now we own them mentality.  It also gives them bragging rights.

Empty commercial is no good to the Jersey owned property funds, as they have stopped producing income.  This was the premise on which many had been bought.  Now, from an income producing asset they have become a liability.  The insurance for a vacant building is hiked, and the rates still need to be paid.

Therefore, they will be disposed of quite probably by way of auction.   The key to unlock this asset is by repurposing it as residential.  This is done through PD and not full planning, an important distinction.

Rather than selling on, it would be better to refinance on a 5 year or longer fixed rate, and then refinance out your initial funds.

The demand for rental is strong and should increase.  Nonetheless it would be prudent to take out a rent guarantee insurance for some protection; a small price to pay for peace of mind.  This protects one from the tenant deciding not to pay, and the legal fees involved in the eviction process.

Once this cycle is complete the aim would be to do this again and again, until the game changes.

Suresh Vagjiani

Suresh Vagjiani
Suresh Vagjiani
Articles: 819