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Posts for london



On The Threshold: Where is the UK property market heading in 2019?

By Alessandro Pasetti, 21 December

2019 is just around the corner, and there are signs it could be another decent year in terms of capital appreciation for real estate in Britain, if you listen to the experts, who in recent weeks have downplayed political and economic uncertainty in terms of growth prospects. The mid-term outlook remains encouraging, based on several projections.

According to market specialist Savills, house prices in the UK are set to rise broadly in line with income power over the next five years, “but the traditional north-south divide will turn on its head”, as one should expect. Between 2019 and 2023, prices are projected to rise by 14.8% across the country, ranging from 21.6% in the North West to single digit growth in London, the South and East.

These forecasts are consistent with data from Zoopla, which says that despite Brexit-related uncertainty, “Brits are staying positive when it comes to property” – with 55% expecting house prices to rise in the next 12 to 18 months. According to its State of the Property Nation report, consumer confidence in house prices is up from 44% in 2016, with most people expecting single digit price rises, although real estate agents are more cautious.

Meanwhile, Stephanie McMahon, head of research at Strutt & Parker, recently talked of “forecast for UK growth at 2.5% for 2019 – with the 5-year forecast from 2018 to 2022 standing at 18%.”

Total transactions for England and Wales in 2018 were flat, and similar trends are likely to persist next year, according to McMahon, with the number of registered buyers and viewing numbers gradually up, although Prime Central London is a rather different matter, with volumes continuing to be low by historic standards. As far as the number of transactions is concerned, a fall of “6.9% since the Brexit vote to 1.145 million” has been recorded so far, according to data from Savills, which says it demonstrates the resilience of the UK housing market.

A mild 1% drop to 2023 is now expected – in this respect, some useful data can be found here.

In big cities where Inveztments is heavily involved in new development projects, such as Manchester and Liverpool, trends remain structurally favourable on several fronts – for more evidence, please click here. Of course, some underlying data is mixed on a monthly basis across the country, but seasonality often renders very short-term trends highly volatile and less reliable than others.

Research published by PriceWaterhouseCoopers this year noted that under a base-case scenario, a further softening of house price growth to around 3% in 2018 was expected to continue at a similar average rate to 2025. This implies that the average UK house price would rise from £221,000 in 2017 to around £285,000 by 2025.

“Price growth at this pace would mean that the ratio of house prices to earnings would remain broadly stable, but still at high levels by historical standards,” it added.

As The Irish Times wrote, most property experts predict steady but unspectacular property growth in 2019, as lending rules and higher stock levels help slow house price inflation. Sherry FitzGerald chief economist Marian Finnegan argued that transaction activity improved marginally during 2018; however, “this expansion has been driven almost entirely by the new homes market”.

“The latest data from the Residential Property Price Register reveals that about 23,300 single transactions were recorded during the first half of 2018,” she said, adding “this represents a 5% increase on the same period in 2017.

“Notably, almost 4,300 new homes transacted in the first six months of the year, a 31% increase year-on-year. Sales activity in the established or second-hand market was much more subdued, with about 19,000 sales representing just a 1% rise.”

Action… and Happy Holidays!

We remind you that the flagship projects managed by the team of Inveztments – click here, here and here – have received a strong response from the market, and we would be glad to help you find the property investment that suits your risk/reward profile.

We wish you and your loved ones happy New Year and a fantastic holiday season!

(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: Some words on the streets of pre-Brexit Britain

By Alessandro Pasetti, 17 September

British households’ confidence about their financial situation held at its highest since 2015 this month, as their concern about inflation eased and they were relaxed about prospects for the year to come, a survey showed on Monday.” – Reuters, 17 September.

“Uncertainty brings opportunity” is one of the most recurring clichés in the investing world, but there’s some truth in it, particularly if you are a real estate investor trained to read the runes.  

Risking everything to risk nothing at all

Let me share with you, briefly, the story of my lovely sister, my business partner in the UK who is in her mid-30s.  

In the immediate aftermath of Brexit in mid-2016, she negotiated a sound property deal worth £390,000, mainly financed by equity. She bought a semi-detached house in West Sussex, funding a large portion of her purchase in euros, which strengthened dramatically against Sterling after the UK voted to leave the European Union.

Source: Bloomberg

When negotiations with the seller began, it was immediately clear that she had gained pricing power because the owners of the house she bought were in a chain, and felt the urgency to grab the opportunity, mainly due to Brexit-related uncertainty. That meant the parties agreed a deal well below (~10% or so) the asking price.

Cash outflows from her then-whopping £450-a-week rent in Ealing Broadway, West London, where she lived for almost six years, were immediately halved when her new mortgage – which was struck on convenient terms and on a long-term fixed rate – kicked in, as well as due to the conservative funding mix. The Bank of England has raised benchmark policy rates twice in the past year, so that proved to be a wise decision, although interest rates have gone nowhere fast since 2016 and consolidation of the 2% area appears to be the most likely outcome through to 2019.

Source: Bloomberg

Decision time

In those days, in our second year of business, with all the hard work and uncertainty that setting up a new shop brings, my sister traded her dependency on rent to become the owner of a place she loves. And, more importantly, she ended up owning an asset that gives her greater financial freedom – paper gains, too, need a mention, given that prices in her residential area have been holding up well over the past 24 months.  

More recently, a relatively young couple I know well relocated to SW London, and their property, worth just below $1 million, was worth every penny they paid. There was some currency arbitrage involved, too, but the side effects of a highly volatile exchange rate during the purchase process were broadly contained.

Another married couple who work in finance are confident that a $1.5m bid in NE London will be soon accepted, while some other friends have bought a nice piece of land in the countryside; their cash outlay was not that significant, but anything over $100,000 is meaningful, right? For them, too, more freedom, a healthier lifestyle and a chance for their children to grow up outside of the pressure cooker of London were too hard to pass up, and the economics were surely worth it.

Elsewhere, a fund manager I am doing some work for recently complained that its house in posh North London was not appreciating at the same speed as previously, “although I have never thought of selling it for any price, because I enjoy it and this is the right place for me”. Prime London is resilient, as research from specialist Knight Frank shows.

(Source: Knight Frank)

As far as I am concerned, I am an asset-light guy, but when the outcome of the Brexit vote emerged two years ago, I tripled my equity position (I had a relatively small exposure as a percentage of my total portfolio allocation), eventually profiting awesomely from a surge in selected equities with meaningful UK exposure – Yoox Net-a-Porter, which was later taken over by Richemont, was my biggest win.

All the UK investors I know, one way or another, have decided to bet on a stable outlook for a country that would be daft to so simply allow a no-deal Brexit deal, given the consequences, to come to pass, as I have argued ever since the doomsters have to tried to scare us with the most bearish scenarios. Yet, if you do not trust our judgement, how about the view of some of the largest corporations and investors on earth?

Well, only a few months away from the final Brexit deadline, it could be your turn to profit from broader uncertainty before the dust finally settles.

More than a just bunch of friends

Not only is British households’ confidence at its highest in years, but, in case you missed it, the largest Spanish lender, Banco Santander – which gained larger exposure to the UK after the purchase of Abby National in the pre-crisis credit binge years of 2008 – recently announced that “it would build a new technology hub in the English town of Milton Keynes, representing an investment of £150 million ($196.82 million)”.

Elsewhere, oil behemoth Exxon is “preparing £500 million upgrade to UK’s largest oil refinery“, marking its “biggest investment in the UK sector in nearly 30 years”.

As it happens, Record London rents lure overseas landlords” to the housing market, Bloomberg wrote recently, adding “Brexit-driven pound weakness gives buyers more for their money”. So, unsurprisingly, “Korean investor Hana (is) in talks to buy WeWork London landmark“.

If all this is not enough to convince you, consider that investment guru Warren Buffett is doubling down on the London property market, with Battersea, Fitzrovia and King’s Cross (where Google is based) topping his wish list.

Some bankers are leaving the City, complaining about the regulatory framework and how it is affecting the competitive landscape: I continue to pay attention to these moans, given the importance of services to UK GDP, but banking trends and investment have shifted in importance, while bankers’ net worth is much less relevant to London than tech-land’s investment plans. I recently had a lunch meeting close to Google’s HQ in London, and the place was buzzing, as opposed, lately, to the usual staid feeling of the Square Mile, which really has lost some sparkle in the past decade – although admittedly, in 2008 I was in the early, exciting years of my career just off Ludgate Hill in EC4, and nostalgia is certainly reflected in my disappointment .

(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: London's (still) calling

By Alessandro Pasetti, 15 May 2018.

Research house prices in London and you almost immediately realise this is exactly the time to have a few properties on your radar, just in case Brexit plays out according to a base-case scenario hinging on future relationships between London and Brussels that will likely involve free movement of capital and people.

“More Than Half of London’s Luxury Homes Are Getting Discounts” ran the headline in Mansion Global earlier this month.

Need I say more?

Deep Pockets 

All you need now is deep pockets and a good understanding of what is going on in the UK market, where disintermediation of real estate services is having deflationary effects already well under way in the commercial property market (subscription may be required to access the link). 

“Up to 5,000 traditional agents are struggling to survive amid growing threat from low-cost, fixed-fee online firms and larger rivals, say accountants,” The Guardian wrote last summer 

Trends have hardly improved since.  

Cyclicality and value 

Counterintuitively, the best places where to look for a bargain in the property market are the city’s hotspots.  

If, for example, we witness a recession as soon as next year, then reassurance is offered by the typical resilience of luxury when the business cycle turns south. Think about the performance of several assets in the luxury space in the aftermath of the Great Crisis in 2008. “Stellar” springs to mind.

Today’s record share price of Apple, whose most expensive smartphone sold out in minutes when it launched, is another case in point, albeit slightly off topic.

Value

Talking of value, I recently reached out to a fund manager who is heavily invested in the City, and he told me his residential real estate empire was not worth renting out because any such cash inlays would not cover certain outlays in a tax efficient manner.

So, to paraphrase his thinking, he’d be better off swallowing his pride at some point — “maybe now, you know” — and take the best offer he gets if he needs to raise cash while, equally important, wanting to lower his exposure to the property market.

“There are not many other substitute assets worth the risk out there,” he warned.  

Other real estate investors eyeing residential properties, I understand, are waiting before accepting lower offers, though also knowing that holding forever is not exactly a good idea.  

(Source: Unsplash)

Mind the gap  

You need some serious funding, of course, to invest in high-end London. This approach makes a lot sense, when one gauges capital deployment options while considering the widening gap between the rich and middle class in the UK.  

Last year, This Is Money wrote that the UK’s middle class remained “one of the smallest and poorest in Europe despite having expanded the most over two decades”. This topic has been debated for years, and while the rich get richer wealthy clients would be well advised to keep an eye on Knightsbridge (London, SW1), Mayfair (W1), and Chelsea (SW10), where Inveztments offers property hunting services.  

Luxury trends

These are three of the most prestigious areas in the UK’s capital, so if you have dry powder you should notice that the average price paid (APP, £1.6 million) for all properties sold in SW1 was flattish in the past six months (-0.25%), according to Zoopla, and was also down significantly for the year (-4.3%). 

However, in the past three months APP has bucked the trend, up 2.1% during the period.  

By comparison, W1 has been more resilient, with APP (£2.1 million) up 5% over past twelve months, +1% over the past six months, and +2% in the past three.  

Meanwhile, SW10 (APP £1.7m) is the laggard at close distance in the past three months, but trends in all three postcodes point to a market that might be testing the bottom — naturally, I have no idea how long weakness is going to last and how it is going to play out.

But I do believe that Brexit risk is often overstated and all three areas are closely monitored by Inveztments, which could help you identify a hard bargain today given its directors’ vast knowledge both within and outside the M25.  

In town and elsewhere 

In north London, — N1, N2, Bishop Avenue and the wider Hampstead area and Maida Vale are traditionally outstanding residential suburbs, where to my knowledge the poorest tenant – a friend of mine — used to pay £800 or so monthly, excluding bills, for a tiny little room with a shared bathroom. 

The South West is further out from the centre, but Richmond (TW10), Twickenham (TW1), Teddington (TW11), are easy to commute to and from, and the same applies to Wimbledon and Putney, which are obviously on Inveztments‘ radar, and are all on the way to Surrey, where there are lovely areas such as Esher (KT10) and Cobham (KT11).

If you are posh and love British football, you should know why the latter area could be where your residential dream is located.

From SL3, in 20 about minutes you can reach the magic Henley-on Thames (RG9), where the true British aristocrats live — as well as one key investor who has enjoyed our services for years.

In fact, we can arrange for you to talk to him if you want to know more about deals we offer as well as a bit more about the fantastic area where he set up his own business with the help of Inveztments.

(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. )

 

Inveztments On The Road: The Spotlight On Water Street

It is a good time to be on the hunt for a deal in the British real estate market.

Earlier this month ABC Money wrote that “although many UK investors have been straight onto the student property trend, investors from overseas are no strangers to this flourishing market that owes itself to the solid foundations of the UK’s higher education system. With most student properties fully-managed by local agencies, investors can commit to a venture in the student sector from the comfort of their home country.”

There are similar trends in the residential segment of the real estate market, and there are plenty of reasons why Liverpool, in particular, continues to attract new investment. In short, its property market stands out as one of the most alluring spots in the UK, given the yield and capital appreciation it offers.

On the road

Tonino Montesanti, managing director of Inveztments, has been on the road with clients to show them what it really means to invest in one of the most dynamic economic hubs in the UK.

In the following videos you’ll learn more about two flagship projects that were recently sold out — Sir Thomas (student and residential) and Reliance House (residential).

As far as another key development is concerned, 8 Water Street, books are now closed for phase one, but the good news is phase two is about to launch — click here and contact the team to learn more.

(Our British clients and readers are kindly asked to click on “cc” in the appropriate section of each video and select “English” in order to be able to upload the subtitles before clicking “play”.)

Sir Thomas from the outside
Sir Thomas: Interiors and common areas (1 of 2)
Sir Thomas: Interiors and common areas (2 of 2)
Sir Thomas: Heading to the rooms…
Sir Thomas: Here’s what you are buying 
Next stop: 8 Water Street
8 Water Street: More details
Reliance House: Sold Out, up over 10% in value in just one year 
More about the surroundings…
… and, finally, from the Three Graces to Albert Dock.

 

Why wait to make your next investment?

Hit the road with Tonino or contact the team of Inveztments to discuss the prospects of their flagship projects!

Inveztments On The Road: Liverpool Beckons

By The Editorial Team, 29 March 2018.

Tonino Montesanti, managing director of Inveztments, has been on the road since the beginning of the year to track the development of several projects his company has marketed over the past 12 months. Its latest trip was documented by a series of videos — some can be found here, while others will be uploaded on Facebook as well as this platform next month. Tonino flew from Malaga to Liverpool, where the typical British spring was unforgiving, as usual… never mind, money doesn’t care about the weather.

(Our British clients and readers are kindly asked to click on “cc” in the appropriate section of each video and select “English” in order to be able to upload the subtitles before clicking “play”.

From John Lennon Airport…
…to Mathew Street (L2 6RE)
…stopping by the Cavern Club…
…it’s always worth spending time in the city centre…
…before ending up at One Islington Plaza!
Here’s what we should expect to see only 100 meters away from One Islington Plaza
…before checking out the latest developments of Phoenix Place, which will be completed in the fourth quarter. 
Finally, Infinity Waters…

 

If you want to hit the road with Tonino and/or you wish to contact the team of Inveztments to discuss the prospects of their flagship projects, please click here.

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: How Inveztments can boost your returns in yield-resistant London suburbs

By Alessandro Pasetti, 28 February.

In the nineteenth century, British philosopher and political economist John Stuart Mill said that landlords grow rich in their sleep without working, risking or economising. Nearly two centuries later, much of his philosophy continues to hold true.

(Source: Pixabay)

Exhibit A: despite all the talk of Brexit risk since the referendum, The Guardian this month wrote that the average price of a UK property “coming on to the market has risen by more than £2,400 in a month to just over £300,000 amid evidence of ‘record’ levels of house-hunting activity”.

So, what’s the fuss with property investment and associated risks in the UK?

Catchment areas

Rental yields are under pressure in the City of London, yet a few surrounding catchment areas remain in a sweet spot, with property prices dictated by sellers rather than buyers. Inveztments offers house-hunting services in London and its surrounds, alongside typical residential and student accommodation developments in Liverpool, Manchester as well as other hotspots up north.

While certain projects, I gather, are sold soon after they hit the market, the team has been very active in certain locations in south-west London, looking for properties on behalf of investors.

One recently executed transaction testifies to what Inveztments could do to fulfil your needs, serving as a blueprint for risk-adverse investors aiming to purchase real estate assets. Working on behalf of a client eager to relocate to the UK, the team ran a search spanning several residential properties located in TW1 and TW2 postcodes. Over 20 viewings were arranged with five real estate brokers — all in less than a week, targeting properties with an asking price ranging between £550,000 and £700,000.

Unsurprisingly, given the supply/demand imbalance, the sale was sealed in just two weeks.

Factors: not just price and location 

It can be difficult to carry a transaction of this size over the finishing line, but there is little to fear, I was told.

Initially the team performed thorough research and analysis aimed at identifying the top four properties in the targeted area in terms of location, price and renovation potential, as required by the client.

Velocity – a direct function of market liquidity – was a great plus, but other considerations also came into play, such as the “renovation upside potential” and the income associated to renting out rooms and/or available spaces within the property that was acquired.

How the process works

Open days are set for property viewings, usually on Saturdays, with bids expected the same day or on Monday, by the latest. However, the deal closed by Inveztments leapfrogged this process because the planning and existing relationships with the main actors opened the door to private negotiations.

More importantly, the team was looking for scope to modify the estate not only for its residential attraction, but also for investment purposes.

The appeal, it soon emerged, was in the building’s anatomy — a semi-detached house, with an adjacent one-bedroom flat that adds value and precious income.

The mandate required securing a property that in perpetuity would guarantee a yield of 3.5% annually (based on the price at which it could be rented out), located in a safe area with outstanding schools not far away from central London.

Inveztments soon identified a semi-detached house with all these features. The extra appeal was represented by the standalone one-bedroom flat at the rear of a spacious garden that could be rented out or devoted to guests.

“That extra space, with four beds, can be rented at between £80 and £200 a night. So, when concerts, events or rugby games in Twickenham take place, it could be a gold mine. If we normalise the income to the low end £80 a night, we are looking at about £20,000 of additional income annually for the client,” managing director Tonino Montesanti told me.

Assuming the suggested £550,000-£700,000 price range, a 3.5% yield implies rental income of between £19,250 and £24,500 annually, or between £1,605 and £2,000 monthly. On top of that, it could be reasonable to add a yield ranging between 2.7% and 3.4%, if the separate flat is rented out for 20 days a month.

“The numbers add up, and then you have to think about the boost to the all-in yield that could come from a loft conversion and a ground floor extension,” managing director Elisa Vezzani added.

Obvious tweaks to the layout of the ground floor include “a 6/10 feet rear extension, a 6 feet side extension, plus a loft conversion with an en-suite”, Tonino pointed out.

These renovation works — estimated to cost up to 15% of the purchase price in the area (between £82,500 and £105,000) — could be absorbed by the market price at exit if the unit was sold immediately, while commanding an additional premium of up to 10% of the property value.

“All considered, an additional 10% is about right, but that of course depends on market conditions, which excluding the immediate aftermath of Brexit, have always been healthy in the areas we select and where we usually invest,” Tonino noted.

Moreover, the influential and long-term relationships that Inveztments has with mortgage advisers, solicitors and builders all ensure a smooth and quick process.

“We have done it time and again, and we know exactly what to do and how to behave in these circumstances, so if you let us help you we will be happy to find a dream property on your behalf,” Elisa concluded.

She also added that while in the past planning permissions were required especially for loft conversions, in some areas “according to new regulations, planning permissions will be automatically approved by the council without submitting a plan and waiting weeks for it to be approved”.

“Another strength is that we strictly focus on school catchment areas, so the kids of our investors have access to the best, highly ranked schools, as well as private schools if required.”

To contact the team of Inveztments 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. 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. )