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C

Posts for herd-instinct



On The Threshold: Is a bedroom bonanza beckoning for London landlords?

By Alessandro Pasetti, 31 July 2018.

Most of the typically bearish headlines about the UK property market highlight the role that London has played since Brexit, with pundits often pointing to the difficult times experienced by the capital – “difficult times” which are here to stay, some argue. But recent research and trends suggest that by no means is London terminally ill.

Moving parts, prime London & changing habits

Take its rental market, for example, where Inveztments is looking at alternative ways to help landlords better monetise their assets at a time when for traditional property owners – those did the bare minimum except cashing in the monthly rent – the real estate heydays are a distant memory.

There are many moving parts here, including property prices trends, yet the rental market is often a good gauge of health in the private sector, and deserves attention. Given house prices dynamics in certain areas, London has been a national drag for some quarters now – although some sort of slowdown was surely inevitable after years of stellar growth, and latest signs this week were encouraging, particularly when other factors, apart from house prices, are considered.

(Source: 4-traders.com)

At the end of the first quarter, market specialist Savills noted that price falls across the “prime London rental market have continued to ease as a shortage of stock means supply and demand levels are becoming more aligned”, although the increasingly picky nature of tenants “has prevented any significant upward pressure on rents”. 

“Picky nature” means changing habits even for wealthy tenants who have become more selective than in the recent past.

Prime North West London, in particular, has recorded a strong demand for family houses but lower levels of “appropriate and available” supply, which has contributed to drive up prices. Stock of the best quality commands pricing power, with tenants prepared to pay a significant premium (up to a whopping 30%, according to Savills) for prime properties which are in immaculate condition compared with those considered moderate or poor.

Either way, value hunters are wary of paying up for the properties they are looking to rent because most tenants are looking for bargains: in fact, research shows that most are willing to relocate within prime London, which badly reflects on some areas (Kensington, Chelsea, Westminster) more than others, impacting landlords’ total returns.

Earlier this year, another market specialist, Knight Frank, analysed the performance of single-unit rental properties in the prime central London market (worth between £250 and £5,000-plus per week), and its findings were not surprising. In a nutshell, the annual rental value change was a modest –0.8% in April…

(Source: Knight Frank)

…standing at -0.1% in May, with better numbers for prime outer London, too…

(Source: Knight Frank)

…and look at the latest stats for June, which were even better and showed growth again in annual rental values.

(Source: Knight Frank)

On the one hand, rental growth could continue to outpace expectations. On the other, landlords ought to remember that income growth could be capped by the number of newbuild completions, which are expected to surge next year. 

Trends have not materially changed in recent weeks, so not only is London’s rental market possibly plateauing, but it’s getting stronger by the day, forcing landlords to find creative ways to boost returns – where applicable and feasible – such as adding rooms to their properties that can be rent out, while outsourcing the initial investment in order to extract value from their assets.

Break-down by type of available space on the market

Data on private rental market from the Valuation Office Agency shows that between July 2017 and June 2018 the “count of rents” (the number of rental agreements agreed on a monthly basis) for a single room in London has found a floor since the Brexit referendum at 1,220.

The average rental income for a single room stands at £628 per month, obviously lagging that of studio flats (£988) and all other property types, with anecdotal evidence showing that while count of rents have fallen, landlords have gained in terms of pricing power in this category. The same applies to other categories in the past twelve months.

All the latest stats available can be found in the table below.

One-, two- and three-bedroom flats typically account for 80% of total rents, and have been particularly resilient in terms of growth in the upper quartile, which validates the findings of market research specialists.

These bedroom categories are where the team of Inveztments plans to help landlords explore ways to boost their income streams and make a difference in the months to come, and we look forward to sharing some really exciting news with you later this year.

Are you a landlord and do you want to learn more about how to maximise your property-related returns in London? Do you want to talk to us and find out more about other projects in our pipeline?

Do not waste time and contact the INVEZ team today!

(This post was written by Alessandro Pasetti. Ale is the founder of Hedging Beta Ltd. He writes about investment strategy and assets valuation for European clients as well as Seeking Alpha, The Loadstar, Transport Intelligence and others. Based in London, he previously worked for about five years at Dow Jones/The Wall Street Journal, producing analysis for the IB community. Prior to that, he contributed to the launch of London-based Loan Radar, where he worked for three years. He had stints in equity research at Bear Stearns in London, HVB in Munich, and Unicredit in Milan.

It was edited by Gavin van Marle, managing editor of London-based The Loadstar. Gavin is also the author of the book Around the World in Freighty Ways: Adventures in Globalisation. He has won numerous awards, including the Seahorse Journalist of the Year 2011 and 2009, and Supply Chain Journalist of the Year 2010 and 2014.)

On The Threshold: Not Every Monster Has FAANGs

By Alessandro Pasetti, 15 March.

At times, reading the doom and gloom surrounding the real estate market can be rather entertaining, especially given that what one reads in the British press appears to be driven by political ideology rather than an objective assessment based on hard figures — properly balanced analysis seems absent, in my opinion.

Latest news about the health of the real estate market in February, which points to the weakest growth in six months, was a case in point, and clearly omits other factors that are perhaps more important when it comes to determining the big picture for investors. Yes, London is struggling — click here to find out how Inveztments can boost your returns nonetheless — but look at the chart below.

(Source: ONS)

Residential prices in London have more than doubled over a decade, so even if they correct or plateau over the mid-term it will ultimately be considered “a healthy adjustment”.

That said, ever heard of the “FAANG trade” in the stock market?

Here is why it is relevant if you are a property hunter.

Heavyweights Investing In A Top-Class Strategic Hub

FAANG is the acronym for five global high-tech companies —- Facebook (FB), Apple (AAPL), Amazon (AMZN), Netflix (NFLX) and Alphabet (GOOGL) — that have made big investment plans in London.

Even if you haven’t heard of them from an investing perspective, their combined market value (FB’s $538bn; AAPL’s $913bn; Amazon’s $ $764bn; NFLX’s $143bn; and GOOGL’s $806bn) is higher than the GDP of the UK, and these five alone are behind the rally in the Nasdaq Composite Index, whose trends are shown in the charts below.

(Source: Yahoo Finance)

(Source: Yahoo Finance)

How much these companies invest in the UK is a direct function of the appeal that the UK historically has exercised over foreign investment. In early 2017, Reuters reported that the UK had “landed record foreign investment in year of Brexit vote“, while the chart below should help you understand why Brexit means less than you think it might if you are in the bear camp.

Ironically, 2016 was a record year for Foreign Direct Investment in the UK.

 

Now look at the table below, and spare a thought about the value of FDI inflows on a comparable, annual basis.

(Source: Office for National Statistics)

If you believe the bears are right, you might be inclined to suggest that the suitors of SAB, ARM and BG (AB Inbev, Softbank and Shell, respectively) squandered about $200bn in total (7.5% or so of the domestic GDP) in deals that were done exactly at the right time, and possibly at the right price, while paying awesome premiums to the shareholders of the targeted companies.

Then combine that knowledge with latest available trailing data for FDI as of January 2018, as shown in the chart below.

While the environment is ripe for consolidation in many industries, with the final offer by Melrose for engineering company GKN comfortably surpassing the $10bn price tag this week, it appears evident that deal-making is part of a dynamic and more efficient competitive landscape (than elsewhere in Europe) where some of the stories about the FAANG’s plans also should have left you in awe.

(Perhaps you saw other headlines this week, such as Unilever Abandons UK Headquarters — but so what?)

How about:

F) Facebook London HQ set to be build at King’s Cross (5 February 2018)

A) Apple’s park takes root inside the $5bn HQ (15 January 2018)

A) Inside Amazon’s giant new UK HQ in London (26 July 2017)

N) Netflix crowns strong year for London tech with new HQ (22 December 2017)

G) Google hails Britain as a ‘great home’ as it starts building its new £1bn London HQ (21 November 2017)

If FAANG trends are an obsession for you, as they are for me, their individual performances in the table below might explain why.

(Source: Yahoo Finance, 2-year performances of FB, AAPL, AMZN, NFLX and GOOGL.)

Counterintuitively, however, their rise says a lot about how far the perception of risk has gone in a market where property investment continues to be a safe haven for many retail investors I talk to.

The Banks

The war of words between Paris, London and Frankfurt concerning who will take control of financial matters on this side of the Atlantic if the UK doesn’t strike a good deal is nothing new — the topic has been debated for decades, but the reality is that London belongs to a different league, and it’s not fighting for European hegemony. Rather, it’s in the race for worldwide dominance.

London Retains Its Crown as World’s Top Financial Center” ran the Bloomberg headline in September

My sources in financial circles acknowledge some degree of uncertainly, but all of them still live, produce and get richer thanks to the emoluments they earn in the City.

Talking of bankers, Bank of America, SMBC and Deutsche Bank (click here, here and here) are just three of the major global banks to have renewed their leases in London, it recently emerged, while Citigroup (which decided to move some of its operations to Frankfurt) surely knows the importance of the UK, and decided to set up an innovation centre in the capital.

The bears could point that JP Morgan has plans to “give up on new HQ in Canary Wharf” but the site was reportedly earmarked for £1.5bn. And anyway, perhaps one could argue JP Morgan doesn’t need additional space in Canary Wharf at all, as it acquired the office of Lehman Brothers in 2010, and the assets up for sale could be remunerative.

Trends

In terms of non-residential space at a premium, I think you might want to pay attention to the latest annual figures recently reported by Segro.

As I recently wrote for Transport Intelligence, this logistics property developer gained about £1.5bn in market value over the past 12 months and it is now worth £5.5bn thanks to solid growth rates and falling loan-to-value ratio. While management was certainly upbeat about trading conditions, it is interesting to note how the message surrounding Brexit risk has changed in only twelve months.

Values of UK commercial real estate fell in the aftermath of Brexit, but the impact was limited for industrial assets compared to other real estate sectors, and last week’s filing with the London Stock Exchange barely mentioned Brexit, simply noting that “structural drivers of demand appear to have continued to outweigh Brexit-related uncertainties”.

In a way, we are currently in a vacuum, as the prices of several asset classes prove.

The exchange rate, for example, has been on standby mode since it rallied last summer, having consolidated the 1.13 area against the euro…

(Source: Bloomberg)

… while the yield of the 1o-year gilts have slightly retraced from the multi-year highs earlier this year, thanks to more accommodating monetary policies than at any given time in the past decade.

(Source: Bloomberg)

But look at the latest headlines about mortgage approvals, and the structures that are being marketed:

On cue, nominal growth rates stats are also impressive — “ONS Finds Investment Property Prices Up 5.2 Per Cent In 2017” Residential Landlord reported last month.

While many wonder what kind of deal politicians would cut — and obviously some downside is possible  if a hard Brexit scenario emerges — the remain odds long the UK government will be left grappling with highly unfavourable exit terms. So, the obvious question for me is how could you profit from protracted uncertainty in the UK landscape?

I suggest you read our previous coverage, and reach out to the Inveztments Team at the link below if you have questions.

On The Threshold: Simple Sums

On The Threshold: Opportunities Shrouded Amidst The Risks Of British Mists

On The Threshold: Brexit’s Silver Linings Could Turn Out To Be Gold

To contact the team and discuss the prospects of their flagship projects, please click here.

(This post was written by Alessandro Pasetti. Ale is the founder of Hedging Beta Ltd. He writes about investment strategy and assets valuation for European clients as well as Seeking Alpha, The Loadstar, Transport Intelligence and others. Based in London, he previously worked for about five years at Dow Jones/The Wall Street Journal, producing analysis for the IB community. Prior to that, he contributed to the launch of London-based Loan Radar, where he worked for three years. He had stints in equity research at Bear Stearns in London, HVB in Munich, and Unicredit in Milan. 

It was edited by Gavin van Marle, managing editor of London-based The Loadstar. Gavin is also the author of the book Around the World in Freighty Ways: Adventures in Globalisation. He has won numerous awards, including the Seahorse Journalist of the Year 2011 and 2009, and Supply Chain Journalist of the Year 2010 and 2014. )

 

On The Threshold: Simple sums

By Alessandro Pasetti,  December 2017. 

I was lucky enough in a previous career to work with a brilliant writer for the Wall St Journal who once sagely advised me when life periodically took a wrong turn: “There are some problems you can blame on the government; the rest you can blame on your wife.” I have since used that as prism – if neither applies you can only blame oneself… and frankly, if you can’t see the opportunities in the Inveztments portfolio neither the government nor your marriage is at blame; it’s more likely simple maths.

Arithmetic

Inveztments managing director Tonino Montesanti has reassured me about the returns that investors today can expect by deploying capital in two types of real estate picks contained in its portfolio. 

Tonino Montesanti, Managing Director of Inveztments

It’s pretty simple arithmetic: you shell out £120,000 at 7% for a residential investment or unit, and in year five you’ll have pocketed £42,000. With a capital appreciation of 5% per year (amounting to £30,000 by year five, assuming the value of the initial investment was £120,000), and you would have recouped 60% of your initial investment by 2022 — in addition, it is very likely that you’ll be able to sell the asset at that point, while dictating the price for the unit/apartment.

Multiply £72,000 (£42,000 plus £30,000) by two, and – in what is effectively a worst-case scenario given historic trends for capital appreciation – you should be looking at a pre-tax gain of £24,000 in year 10. Even with minimal capital appreciation, in a decade you’ll have covered the majority of your initial invested capital, whilst also owning the underlying asset. £84,000 will have covered 70% of your investment. 

(These calculation excludes tax considerations, management fees, service charges and ground rent, which Inveztments estimates could amount to about £1,050 yearly, based on the aforementioned example. A £11,600 tax allowance acts as a shield on the annual yield. An excel calculator is available upon request for clients.)

Base-case scenario

More realistically, your yield will work as if the real estate investment were a fixed-income security, one rated almost investment grade, “but yielding more, and your capital appreciation will likely be higher, considering trailing trends”, Tonino pointed out. 

(Source: Trading Economics, UK House Price Index. “House prices in the United Kingdom rose 4.5% year-on-year in the three months to October 2017, following a 4% gain in the previous period, in line with market expectations. It was the steepest increase in house prices since February but still below a peak of 10% recorded in March 2016,” according to Trading Economics. Other data on house price inflation can be found here.)

Let’s try another calculation. Rather than applying a 5% rate to the initial investment, what about a more modest 3% growth rate annually (it’s the magic of compounded interest vs simple interest)? The total amount investors will fetch in year 10 is over £240,500, for a respectable compound annual growth rate (CAGR) of 7.2%, on an all-in basis (capital appreciation plus yield) against roughly 2% previously.  

The above is modelled on the North House (Liverpool) investment, part of Inveztments portfolio, and full details can be found here.

“Yes, that is a good proxy indeed,” Tonino told me.  

(Full details and break-down by geographical areas are available here, with data from 1973 on.)

Irons in the fire 

The team has other irons in the fire, with student accommodation properties also in a sweet spot.  

A smaller investment amount of £60,0000 for a unit will yield 9% annually, and over five years gives you £27,000 in total coupons, which covers almost half of your initial cash outflows on a pre-tax basis. Again, if we apply a 5% rate to the possible appreciation of the capital invested on day one for the entire duration of the investment (and also assuming inflation will likely remain subdued for some time despite all the quantitative easing we have witnessed over the past decade), the numbers look very appetising – and if you apply annual market rates, your CAGR will be just awesome.  

Newcastle-under-Lyme’s Orme House is a top student accommodation development we currently offer, and it’s rather appealing,” Tonino said. 

Of course, a key question concerns the liquidity profile of the investment – and one gauge here is to check the “project turn” based on the total number of projects managed by Inveztments against how long they stay in the market for. in other words, how long it takes for each unit or apartment to be sold since the day it entered the portfolio.  

It is difficult to set this in stone but usually the window of opportunity shuts down after six months, based on the internal data I sighted, which is pretty good.

There is appetite for finished properties as well as new developments, but the ultimate choice depends on your risk profile.  

As a final side note, the latest Budget (November 2017) is likely to be a net-net positive for the industry, as it might boost first-time buyers’ appetite despite certain tax considerations that could harm short-term returns.

Want to discuss further this topic and other investment opportunities in real estate? Please contact our team here.

(This post was written by Alessandro Pasetti. Ale is the founder of Hedging Beta Ltd. He writes about investment strategy and assets valuation for European clients as well as Seeking Alpha. Based in London, he previously worked for about five years at Dow Jones/The Wall Street Journal, producing analysis for the IB community. Prior to that, he contributed to the launch of London-based Loan Radar, where he worked for three years. He had stints in equity research at Bear Stearns in London, HVB in Munich, and Unicredit in Milan. 

It was edited by Gavin van Marle, managing editor of London-based The Loadstar. Gavin is also the author of the book Around the World in Freighty Ways: Adventures in Globalisation. He has won numerous awards, including the Seahorse Journalist of the Year 2011 and 2009, and Supply Chain Journalist of the Year 2010 and 2014. )

 

On The Threshold: "Not one moment of uncertainty" a Q&A with Inveztments' founders

By Alessandro Pasetti, November 2017.

I recently hit the road with Tonino Montesanti and Elisa Vezzani, the founders and managing directors of Inveztments, who were eager to share with me the benefits and risks involved when it comes to real estate investment in the UK, where their company is making strides in a highly competitive arena.  

What is the USP you offer investors and prospects? 

Tonino: “I am particularly inspired in helping customers unlock and realise the potential in current assets which earn very little in interest, and educate them on achievable and realistic returns and capital appreciation in the markets that we also invest in.”

Tonino Montesanti

 

Reputational risk, in a sector fraught with moral hazard, is part of the problem 

Elisa: “We have two unique selling points that our clients ought to consider: we have skin in the game, and we are investors who have lived both in the UK and in the part of Spain where also we offer real estate investment. This is our core business. Others sell a bit of everything, promising high returns while concealing the risks. Ours is a truly unique combination, and those who have dealt with us over the years know that trust plays a key role all the way through the process. Clients’ needs are our focus.” 

Elisa Vezzani

 

But what about inherent risk in the market itself? How have you dealt with uncertainty over the past 20 years? 

Tonino: “We are talking about 20 years of growth, as the charts show — and another 20 years of solid returns are likely to be on their way given the current imbalance between demand and supply in the UK. Uncertainty, what uncertainty? We have never seen prices go down, and while a mild correction could happen, long-term trends are benign.”  

(Source: Trading Economics)

 

 

(Source: Trading Economics)

 

Elisa: “I have not witnessed a single moment of uncertainty, not even in the dark days of 2008.”  

Tonino: “Exactly, not even in the days of the Great Crisis did we feel the pressure. Real estate cyclicality belongs to other European countries.”

I have heard amazing things about the returns you secured over the years. Tell me about your investment in Twickenham.

Tonino: “We bought a Victorian house there for £272,000 in 2005 and exited the investment in 2014, accepting a £630,000 bid, having spent about £60,000 in renovation.”

(Note for the reader: That is a solid nine-year compound annual growth rate, or CAGR, of 8.3%, once renovation costs are considered.)

Elisa: “We are still looking in Twickenham for a second home, but prices do not point to a bargain at present.”

I know you have a strong track record. Can you tell our reader a bit more about other investments you have made in the past decade? 

Elisa: “We bought in Clapton, aka London’s Bronx at the time, one of its streets was known as Murder Mile, in anticipation of the Olympics Games. We sold an apartment for £470,000, and we had paid about half that price only a few years earlier.”

Tonino: “Then we have invested in Brentford, which at the time was all about industrial warehouses and close to Heathrow, in what has always been an event-driven strategy — essentially we try to predict future trends and events that could boost all-in returns. This is why we are looking at Liverpool now, where we have recently invested.”  

Does it make sense to look for deals in London or outside London? 

Tonino: “We have always looked at London, but the time is not right, and there is no reason we should bite there, not now anyway.”

Elisa: “Lately we have seen London as being unfairly priced, and although we have looked for opportunities, nothing was worth our time and money in the past three years.”

Tonino: “Yields are down to 3%/4% and this comes as first time buyers are pushed outside the M25, although they can easily commute.” 

What kind of market is this for buyers? 

Tonino: “It’s a sellers’ market, Birmingham, Manchester Liverpool doubles the yield you see elsewhere.”

Elisa: “I saw Liverpool two years ago and I loved it, I went to look for a few developments and ended up buying two apartments off plan. We researched in-house, I called all the private agencies, there was a long waiting list, the stars were aligned.” 

Tonino; “And that is a high single-digit yield.”

London vs Liverpool. What’s the deal there? 

Tonino: “The Liverpool-London investment ratio is about 1:3 or 1:4, in some cases — which means that an investment in London will cost you three/four times more in term of initial commitment. And short-term letting is another wonderful opportunity to propel returns.”

Elisa: “Need I say more? Weekend/short term let stuff is always fully booked. And the beautiful Lake District is within reach, just over an hour’s drive away…”

How about Manchester?  

Elisa: “There is a different vibe than in Liverpool, which I prefer, but it is business-orientated, and some properties are on the outskirt of the city centre.” 

Tonino: “And that is exactly what makes these areas attractive if you have that forward-looking view that is necessary when it comes to this kind of investment.”  

Would you recommend a real estate investment with a buyback option?

Elisa: “Many think that a guaranteed buyback offers reassurance, but it is worth considering that it works in favour of the developer, not the investor. A 125% buyback option means that investors will be offered a 25% premium at maturity to give up all the other capital appreciation considerations, and the market offers more than that – and then, of course, you want to retain full control. So, the buyback option is not necessarily a good thing.”

What else do you want to tell your readers and investors?

Elisa: “We are an independent company with a healthy amount of experience in properties and a proven track record. If you want us to help you understand the markets, all the sub-sectors in the real estate world, how we can help you invest in property and what you will achieve through a steep learning process that will become much easier with our help: Contact us and we’ll guide you through this wonderful investment journey.”

If you want to learn more about the appealing features of the portfolio managed by Inveztments, please contact Tonino and Elisa here.

Disclosure:  Clients do not pay a penny to the team of Inveztments. The commission is paid by developers who have been painstakingly selected according to very strict criteria, and trust plays a key role from the early negotiations to the final closing of the deal.

(This post was written by Alessandro Pasetti. Ale is the founder of Hedging Beta Ltd. He writes about investment strategy and assets valuation for European clients as well as Seeking Alpha. Based in London, he previously worked for about five years at Dow Jones/The Wall Street Journal, producing analysis for the IB community. Prior to that, he contributed to the launch of London-based Loan Radar, where he worked for three years. He had stints in equity research at Bear Stearns in London, HVB in Munich, and Unicredit in Milan. 

It was edited by Gavin van Marle, managing editor of London-based The Loadstar. Gavin is also the author of the book Around the World in Freighty Ways: Adventures in Globalisation. He has won numerous awards, including the Seahorse Journalist of the Year 2011 and 2009, and Supply Chain Journalist of the Year 2010 and 2014. )

 

On The Threshold: Beware Investment Red Herrings Posing As Cash Cows

By Alessandro Pasetti, October 2017.

In late November 2014, when few observers in financial circles predicted that then-prime minister David Cameron would shoot himself in the foot by calling the Brexit referendum fourteen months later, the relative performance of 10-year gilts against the £/€ exchange rate had reached a crossroads. In hindsight, this is quite revealing.

(Source Bloomberg: 10-year UK government debt yield vs. GBP/EUR; open, day range and previous close refer to the 10-year UK government debt yield)  

Unsurprisingly, similar trends occurred in the performance of UK Treasury yields against the £/$ exchange rate, as the chart below shows. 

(Source Bloomberg: 10-year UK government debt yield vs. £/$)  

Why does it matter?

The yield curve prices in several elements, including expectations for inflation, real wage growth, appetite for risk and a slew of other macroeconomic factors that matter a lot to real estate investors, who are typical clients of Inveztments, because they have to decide whether this is a good time to part with their euros to invest in GBP-denominated assets.

While we were right to call the bottom in the £/€ exchange rate recently, the picture remains mixed at a time when the bears are making sure their voices are heard, although certain headlines — HSBC reverses bearish pound view after BOE rate hints — and GDP figures released on 25 October make me feel more comfortable with Sterling’s risk profile.

This five-year cycle shows that debt yields, and therefore bond prices — the two boast a typically inverse correlation — reacted more rapidly and violently to macroeconomic changes than the exchange rate, although inevitably, yield swings have affected the value of Sterling against other major currencies. 

(Source Bloomberg: 10-year UK government debt yield vs. GBP/EUR; open, day range and previous close as well as 52-week range and YTD return all refer to the 10-year UK government debt yield.)  

Of course, this could be considered a guessing game at best, as the two charts below indicate…

(Source: Bloomberg; £/€ exchange rate down 24 October.)

(Source Bloomberg; 10-year UK government debt yield up on 24 October.)

… but the stars could be aligned for those who appreciate the risks involved.

Risks

In short, yields are acting as a floor for Sterling although there remains downside risk for certain risky asset classes, and it is unclear whether the Bank of England will actually hike base rates next month or whether its stated intent to do so in September was simply aimed at providing a short-term fillip to the domestic currency.

This is a delicate balancing act, because so often hawkish monetary policies bring more risk than benefit if they are not followed through by swift action in the short term, while many experts argue the Central Bank doesn’t have enough ammunition to hike rates rapidly in future — which, of course, would be bad news for yields, and, in turn, for Sterling, particularly if the Fed and the European Central Bank become more aggressive.

This approach, it is worth noting, does not take into consideration that lower yields (hence higher bond prices) could be boosted by diminishing appetite for equity risk in the UK, but what appears evident is that the £/€ exchange rate is trying to consolidate around the 1.11/1.13 area, and recent moves in the benchmark 10-year rates suggest that we might have to expect a high degree of volatility going forward.

Last week alone, the 10-year yield rallied strongly on several occasions, such as on 19 October…

(Source: Bloomberg.)

… but its intraday performance sent really mixed signals in the week commencing 16 October (as well as in previous weeks), when investors decided to buy bonds as cover from equity losses, which are clearly linked to exchange rate trends.

(Source: Bloomberg.)

For the time being, I’ll leave my crystal ball to one side, and focus instead on what Inveztments can actually predict: how risky investments, some of which are simply scams, the team deals with on a weekly basis? 

The obvious risk is to invest in a sector where are scams are plentiful 

Billboard advertising risk is apparent, and those dealing in the market where Inveztments operates will undoubtedly have received emails of a such alternative investments that offer “8% fixed yield for the first 2 years and can roll this on for the following 4 years if they wish or alternatively can opt for 2/3 split of revenue.” 

That advert typically continues as follows: “(…) in the next few weeks we will be also be listing a tradable bond and have also have been given a green light in principle from the most credible pension companies for Pension funds and ISA transfers. Despite this I feel the returns would be much higher on the alternative offering.”

Elsewhere, parking investment scams have been under the spotlight for a couple of years — “Pensioners warned over airport car park investment ‘scam’ as police launch investigation” ran the headline in This Is Money at the end of 2015, but these kinds of investments are commonly offered these days.

They have returned with a vengeance in recent times, I have learned from the managing directors of Inveztments — fraudolent schemes are nothing new, but nonetheless some agents seem confused about what they should actually offer to their clients, and many agencies are way too complacent. The key takeaway here is that investing is a risky business, and should be taken seriously: in this regard, Inveztments is pleased to offer two projects that have reached completion, and where the returns clearly outweigh the risks.

Check out now the appealing features of Halifax House in Liverpool and Oakwood House in Sheffield.

Disclosure:  Clients do not pay a penny to the team of Inveztments. The commission is paid by developers who have been painstakingly selected according to very strict criteria, and trust plays a key role from the early negotiations to the final closing of the deal.

(This post was written by Alessandro Pasetti. Ale is the founder of Hedging Beta Ltd. He writes about investment strategy and assets valuation for European clients as well as Seeking Alpha. Based in London, he previously worked for about five years at Dow Jones/The Wall Street Journal, producing analysis for the IB community. Prior to that, he contributed to the launch of London-based Loan Radar, where he worked for three years. He had stints in equity research at Bear Stearns in London, HVB in Munich, and Unicredit in Milan.

It was edited by Gavin van Marle, managing editor of London-based The Loadstar. Gavin is also the author of the book Around the World in Freighty Ways: Adventures in Globalisation. He has won numerous awards, including the Seahorse Journalist of the Year 2011 and 2009, and Supply Chain Journalist of the Year 2010 and 2014. )

On The Threshold: Grown-Up Investors Graduate On Student Risk

By Alessandro Pasetti, September 2017.

Bertrand Russell once said that “collective fear stimulates herd instinct, and tends to produce ferocity toward those who are not regarded as members of the herd”.

(Source: YouTube)

One of the founders of modern philosophy, Mr Russell’s observation is echoed in Warren Buffett’s motto — “be fearful when others are greedy and greedy when others are fearful”. Certainly, it would appear there is a lesson here for those faint-hearted investors who only make safe bets.

Risk, what risk?  

The team at Inveztments acknowledges the risk of betting on certain areas of the buy-to-let market with the blind conviction that everything will go well forever and ever (while we’re talking philosophy, that kind of thinking falls into what David Hume called the fallacy of inductive reasoning).

Investors who fail to undertake strict due diligence processes are always likely to be influenced by bad headlines and unsettled by political and economic uncertainty, which are making the rounds these days. But just as it has always done over the years, Inveztments continues to advise caution, regardless of the daily headlines.

“We talk daily about headline risk and daily we are asked about the attractiveness of alternative, high-yielding and highly speculative real estate investments in the buy-to-let arena as well as elsewhere in the real estate field,” Elisa Vezzani, managing director of Inveztments, told me.

“And our response is always the same: ‘thanks, but no thanks’, we are not interested. We are about sustainable returns rather than making a fast buck in a market where moral hazard is a serious problem.”

(Elisa Vezzani, Managing Director and Co-Founder of Inveztments)

“We advise clients to move on to a more balanced risk-adjusted return-led investment; the sort that we offer.”

The managers of Inveztments are wary of signs that property prices are cooling off in certain areas of the UK, but as I recently argued on this platform, their portfolio of projects has more defensive characteristics, although investors might have to compromise in terms of yield for the lower level of risk they offer.

Unsurprisingly, one of its flagship projects – Q Studios, which required capital investment of just under £70,000 – was sold out just recently, but there remain pockets of value in the student accommodation market.

The other side of the moon

“As students turn up at universities across the country in the next few weeks, their landlords will be hoping for another bumper year. The outlook is promising,” the Daily Mail wrote last week, adding: “So why not toy with the idea of becoming a buy-to-let landlord?

“It makes sound sense.”

It’s never wise to trust a British tabloid, but it is also clear that student accommodation is no longer just a niche in the buy-to-let market.

Market specialist Savills said earlier this year that investors continue to pay premiums to aggregate greater student bed numbers, while “68,000 beds traded last year with a total value of £4.5bn. In 2017 we expect this to rise to 75,000 beds trading for £5.3bn, a rise of 17% year on year.”

(Click to expand. Thanks.)

(Source: Knight Frank, rental growth)

The catch, of course, is that this could be a self-fulfilling prophecy rather than hard evidence, although that appears highly unlikely.

There is no divide between north and south as we traditionally know it, and the appetite witnessed by the Inveztments team for some developments is such that the pipeline for student accommodation and residential projects remains as strong as ever, despite Brexit.

Elsewhere, in a second-quarter roundup headed “Student housing continues to achieve positive rental growth,” market specialist Knight Frank wrote that “headline rental growth for purpose built student accommodation (PBSA) increased by 2.55% for the 2017/18 academic year, according to Knight Frank’s Student Property Index.”

“The index is a comprehensive study of PBSA rents in the UK, analysing year-on-year growth across 75 cities on a room-by-room basis. We acknowledge that some operators employ dynamic pricing models and that rents may be subject to change. Whilst the macro picture shows steady rental growth, individual markets are seeing varying levels of performance, largely dependent on supply and demand dynamics within cities.

“Cities with large, growing student populations and modest delivery pipelines, such as Manchester, are outperforming the wider market in terms of rental growth,” it noted.

Trends are confirmed by other research.

Commercial real estate agent Cushman & Wakefield (C&W) said last month that “£4.8bn worth of student accommodation stock will be transacted by the end of the year. Based on current projections, a number of large portfolios could change hands by the end of Q4 2017 taking transactions even beyond this level. In the first half of 2017, £2.41bn was transacted, a 24% increase on the equivalent period last year.”

(Source: Cushman & Wakefield)

Mike Mitchell, partner of C&W’s student and residential investment team, noted that “despite applications to universities falling by 3.7%, the sector has witnessed year-on-year rental growth”.

One possible hurdle is that students from overseas will face increased financial scrutiny when renting a property in the UK, and often they do not have a guarantor — but guarantor services are on offer, mitigating financial risks for letting agents and tenants.

Can those in the bear camp ignore all these signs?

Of course they can, in the same way as those who ignored our recent take on the currency market. In fact, some argued in private messages to the Inveztments team that “everybody knows the UK is troubled and it doesn’t make any sense to talk about it”, without producing any hard evidence.

Conclusion

Recent trends I have witnessed confirm that bearish headlines should be taken with a pinch of salt — which particularly applies to investors from Continental Europe who can exploit favourable exchange rate dynamics and funding conditions across the buy-to let market.

Look at trailing trends for domestic funding conditions supporting the market in the chart below: UK loans are not exactly plummeting, are they?

(Source: Financial Times) 

And more freedom in the allocation of the domestic pension pot is also encouraging, although there remain tax considerations — read about the so-called landlord tax here — that play against the bulls.

Nonetheless, doomsday is not around the corner, and in any case the projects that Inveztments oversees are launched and wrapped up within weeks and months rather than years.

Q Studios was a case in point, and it would be unsurprising if other projects in the student accommodation field — Oakwood House (Sheffield), Beaumont Square (Plymouth) and Phoenix Place (Liverpool) — also sell out swiftly.

To learn more about all these development projects please contact our team here.

(This post was written by Alessandro Pasetti. Ale is the founder of Hedging Beta Ltd. He writes about investment strategy and assets valuation for European clients as well as Seeking Alpha. Based in London, he previously worked for about five years at Dow Jones/The Wall Street Journal, producing analysis for the IB community. Prior to that, he contributed to the launch of London-based Loan Radar, where he worked for three years. He had stints in equity research at Bear Stearns in London, HVB in Munich, and Unicredit in Milan.

It was edited by Gavin van Marle, managing editor of London-based The Loadstar. Gavin is also the author of the book Around the World in Freighty Ways: Adventures in Globalisation. He has won numerous awards, including the Seahorse Journalist of the Year 2011 and 2009, and Supply Chain Journalist of the Year 2010 and 2014. )