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Turnover is Vanity, Profit is Sanity

We are in the process of closing a studio flat in Kensington, the price of the property has been struck at £485k.

This is cheap given the location, lease (which is over 100 years), and the block. The memorandum of sale should be in by today. The vendor wanted a quick sale, an exchange imminently and completion by the end of the month, hence we were put forward for the deal.

Properties at this value are going fast, anything below £1m is flying. However anything above this level is sticking, there are price reductions and nervousness in the market as you go further up the scale. Understandably so, given what’s going on not just in the property market but globally.

The property is worth £520k as it is. The aim is to purchase, freshen up and refinance in six months’ time; this will extract some juice out of the property. You would ordinarily expect the property to have gone up by this time given the location.

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However given the stamp duty increase in April you don’t quite know how the market will react. I would expect a sluggishness for a few months, more of a token sentiment by the market. As where else will people put their money if not London property? Hike or no hike. The stamp duty hike is of course undesirable but the market will absorb this and move on especially at entry levels. What’s interesting is after the hike and the anticipated plateau in the market, the market will carry on rising again. Hong Kong was one country where the dreaded mansion tax was introduced, the market flattened for a little while and then carried on its rise. London is a more resilient market than Hong Kong.

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On the plus side this deal is considered to be at the bread and butter level in terms of price, meaning whatever happens in the economy people will always be buying bread and butter and you cannot go lower than this in this part of town.

Studios in Kensington have doubled in value over the last ten years in a steady fashion, even over the credit crunch years of 2007 to 2009, the statistics show only a slight dip in 2008. This demonstrates this investment is a resilient one. Even in the midst of a down turn you will not go far wrong. What’s surprising however is the prices for three bedroom plus properties in this location have increased far more than studios. This obviously reflects the demand on the ground, and suggests perhaps more families are moving into the area.

The three bedroom plus market is more volatile it can drop in price heavily when the market goes soft, as intuitively expected. Not a huge issue if you’re living in it, but a problem if it’s an investment and you have a loan, especially if the bank knocks on your door one day and asks you to put more money in the deal since the value of the property has dropped too much.

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I met someone who has a very colourful history and has built himself a tidy fortune through investing in property. His strategy is to build and hold. His words to me were “Turnover is Vanity and Profit is Sanity”, meaning to turn, sell or flip properties may make you feel good momentarily, but this is not the way to make real money from property. Property investment is a long term and even permanent hold.

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He has been in the game for a long time, and he has developed his own model of studios which he implements into his large portfolio of buildings, which number over 1,000 units all in prime locations. He commissioned a report by one of the leading agents which shows what the rental demands for studios in London are, the research reveals studios rent 98.6% of the time. The other 1.4% is not because they are empty but this is the time required for the refurbishment.

This demonstrates the demand for entry level accommodation in London is almost insatiable, and the investor I came across has got the right focus and strategy.

Despite the huge mass of properties under his belt he’s still hungry for more, clearly property is not just an investment but it has become a drug. He needs to keep taking a hit of doing a deal, and needs to be experiencing the adrenaline of doing property deals. It is no longer a means to an end but an end in itself.

This deal will require an investment of about £180k with all the fees included. It should return this amount back I would estimate within three years. The important point of investment is location. This is certainly one of the most desirable locations in London, and even if measured on a global platform this investment will hold its ground. It’s rare to get any discount when purchasing at this level, as they come in short supply.

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We will be releasing a new deal which we are putting together in our seminar which will be taking place on the 25th February 2016 in Wembley, those who attend will have a chance to invest. The deal has been structured in a way which will insulate investors from the changes the government will be introducing in stages from 2017. It is no longer the time where you can invest blindly into property, the structuring has to be well thought out, otherwise you could well be giving a chunk of your investment to the Tax Man.

Suresh Vagjiani

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!Tips of the Week

Central London property prices are higher than rest of the country, however they’re always in high demand. So if you have to sell a property you will be able to do so quickly in this location. There is always a strong demand and liquid market.

Buying an investment property is not like buying your home. Don’t get emotional regarding the investment property, you’re allowed to get emotional about your home.

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