Tale of two cities
Tomorrow is our presentation in the Taj Hotel, Mumbai, for investment into our London Listed Property Fund due to be launched early next year on the main market. The focus of the fund will be two fold, one will be on the fast reselling of properties or at least refinancing, so that the money can be continually recycled into other deals instead of being trapped in one property deal; the other will be on lucrative property deals which require development.
These will be surfacing in the market over the next year or two. We will be looking for problem sites, it is generally in problem sites where the biggest gold is to be made.
If you look at London property prices over the last ten years, the best time to have bought properties was in 2009. A time of great uncertainty, when most of the market was sitting on the fence. Those who acted against the market sentiment and bought property are now sitting on the highest gains.
The next couple of years will be a time of uncertainty. People are nervous about the effect on property prices the rise of interest rates will have, the possibility of mansion tax, and which way the election will go is also scaring many. It is in this back drop the fund is being launched. This is a great opportunity for those poised ready to strike – there will be deals to be done, for the one who is ready with the cash.
The point regarding interest rates is not really that strong as the mortgage products don’t reflect the current bank base rate of 0.5%. I remember better mortgage products when the base rate was 4.75% than there are currently, especially on the fixed rate side. The correlation between the bank base rate and current mortgage products isn’t that strong as it once used to be.
The people who will feel the pain when the rates rise will be those who are on floating base rate trackers, they have never had it so good. I remember there was a mortgage product which was 0.69% below the base rate, with the base rate at 0.5%, this means they owe the bank -0.19%, which means the bank now owes them money. Luckily for the bank there was a clause in the contract specifying a minimum payment.
Uncertainty brings along with it great opportunity. Opportunity which didn’t exist over the last few years, when buyers were clambering over each other to grab deals, where good London properties being sold in auctions were going for higher prices than through the agents.
You don’t make money following the herd, otherwise the herd would be rich. The fundamentals for London property are still very strong, Knight Frank predicts over the next seven years demand will rise. However the current supply chain is very very low, it will not be able to meet the demand, meaning the distance between the demand and the supply will increase further and further, putting upward pressure on property prices.
Furthermore the employment rate in London and the rest of the UK are rising in sharp contrast to the rest of Europe. Employment is important, if a person is not employed they cannot get a mortgage, if they cannot get a mortgage demand for properties will decrease. This will lead to dampening of prices. Employment also effects the rental demand for properties.
There is a strong appetite for London property here. Just down the road is Mr Shah Rukh Khan’s house, made conspicuous by everyone taking pictures of themselves outside of it in typical Indian style. He purchased an apartment in Park Lane, rumour has it the property was flipped to him with the middle man netting a cool £1m in between. I’m sure it will make little difference to him now, as he bought at the right time in 2009. He paid £20m for the apartment, it would be interesting to see how much it is worth now.
Many Indians are purchasing property in London, however what is surprising is one of the leading Mayfair estate agents is also now selling properties in Mumbai to their clients, and this is a traditional London based firm. Clearly it has the clientele to generate the interest from.
Many would like to purchase the assets directly in their own names, rather than go through a fund. Both have their own pros and cons. Purchasing properties through the fund means you don’t have to deal with any of the problems associated with owning property more directly. The problems are removed from you. You are only concerned with performance, hard profits -nothing more, if this is not delivered you can walk with your feet.
The downside can be you don’t have any control over the asset. The charges and fees can be a problem especially if the management teams are not performing. The management teams’ job is to add more value to the investment than you can directly.
I believe Indians invest in London property for a couple of main reasons, one is they simply like the idea of owning something in London. You can blame Bollywood in part for this. They only like certain key postcodes. This means the purchase is not done for sound investment reasons but it’s a mixture of emotion. Also the desire to tell others that they have a property in prime London plays a large part. The other reason is they wish to keep some money outside of India in a safe environment which London offers.
The fact that investing in London property is a good investment is not at the top of their agenda, this is almost a by-product of their purchase.
The presentation is to a set of family offices, their sole intention is not to make money but to preserve it. Different skills are required to preserve money than make it. This means they will not be necessarily so motivated by the high levels of return on offer but more with the security and protection the fund offers.
The Real Deal
Thornton Heath, CR7
Purchase Price: £260K
- A three bedroom end of terrace house on a popular residential road
- Close to Thornton Heath Village and its amenities
- We believe the value of this property will be
- around £315k
- Very good buy to let property
Call us now to secure this deal!
A Property Investment Company
!Tips of the Week
The rental yield in property is not where you make the bulk of your money, the capital growth is where you will see your money grow.
The market will not be rising in all locations at all the times, therefore when developing property it is wise to have another exit plan besides reselling.