Property Investors Look for Life Beyond London

This article by Art Patnaude of The Wall Street Journal on October 30th, 2013 tells us that commercial real estate investors are scouring for London property market.

London's hot property market has commercial-real-estate investors scouring the rest of Britain.

Investors all but ignored cities like Manchester, Edinburgh and Birmingham while the U.K.'s economy faltered in the years after the financial crisis. They preferred the safety of London and its appeal for global buyers. But prices for office buildings and retail space have risen so much in the capital that returns on purchases are anemic.

A London property investor last month bought the site of Edinburgh's former Royal Infirmary. A complex of offices, hotels, apartments and shops is in the works. Murdo MacLeod for The Wall Street Journal.

 

Not so in the rest of the country, where even riskier development projects are proving to be a draw. Last month, London-based property investor Moorfield Group bought the site of Edinburgh's former Royal Infirmary for an undisclosed sum from Gladedale Capital, an Edinburgh-based developer. A complex of offices, hotels, apartments and shops is in the works. Development of the project, called Quartermile, stood still for much of the financial crisis.

In the past four months, real-estate investment firm Benson Elliot has spent £100 million on property in Manchester, Cambridge and the northern town of Preston.

The trend in the U.K. mirrors what has happened in the U.S. commercial-real-estate market in the wake of the financial crisis. Investors initially started buying trophy properties in the biggest markets with the most international appeal, like New York and Washington. As prices in those markets increased, demand has shifted to other cities such as Minneapolis and Denver.

Bold Move

London's property market has long benefited from the city's status as a global capital of finance and culture. Prices are stable, there is relatively strong demand from tenants, and foreign buyers like the stability of owning an asset denominated in Britain's currency.

London's appeal as a safe harbor rose during the financial crisis, and prices have continued to climb since then despite new construction. Increasingly, the city's lack of affordable options and low returns are turning investors' focus to areas they had largely ignored.

In 2012, deals outside London accounted for about 40% of all commercial property investment in the U.K. In the first half of this year, that figure edged up to nearly 50%, according to Savills, a real-estate services firm.

The largest deal in Leeds this year was the £29 million sale of the Toronto Square office complex. At the time of the sale in August, it was 20% vacant. With a net initial yield of 7%, "a year ago, this wouldn't have been an attractive proposition," said Clare Bailey, commercial property analyst at Savills.

High demand and low returns in London are "forcing people to see what can be done in the regions," said Edward Trevillion, head of real-estate research at fund manager Scottish Widows Investment Partnership, which manages £146 billion ($235 billion) of assets.

During the financial crisis, investors placed their bets in London, which is less subject to fluctuations in the U.K. economy. Many worried the economic downturn could hurt occupancy levels outside the capital.

Vacancy rates in U.K. offices jumped to 15.8% in 2009, after dropping as low as 7.1% in 2007, according to Savills. They are on the way back: Savills projects the rate to fall to 11.5% next year.

Investors looking for higher yields are focusing on places like Edinburgh, where a complex is being built on the site of the former Royal Infirmary. Scotsman/Zuma Press.

 

Confidence that a growing economy will help bolster businesses outside London has helped swing real-estate investment. While some regions are outperforming others, "all regions are sharing to some degree in the current U.K. economic recovery," said Richard Holt, regional economist at Capital Economics. The U.K. economy is expected to expand 1.5% this year, the firm projects; Scotland is expected to post 1.3% growth.

Peripheral cities is offer larger yields to commercial-property investors, who typically raise funds to buy a property and earn a yield on their investment through rents.

In London, rising prices have left yields low. In the city's financial district, the yield on office buildings peaked in January 2009 at 6.75%, not far under the 7% for property outside the capital, according to Savills. As of last month, the London yield had fallen to 4.75%; outside the capital it had only dropped to 5.75%.

Marc Gilbard, chief financial officer at Moorfield, which has £2 billion under management, said that while investors have pushed out to the regions before, this time around has been "particularly acute." That is partly due to foreign buyers seeking to buy real estate in central London as a place to park their money, he said.

There are others signs that money is flowing back outside London. Stephen Rees, head of real-estate advisory at Coutts, the private bank used by Queen Elizabeth, says competition for deals has stiffened.

On a recent commercial deal in Edinburgh, Mr. Rees—who was looking to buy the property on behalf of a wealthy client—said three of the four bidders were institutional investors. "I wasn't expecting that," Mr. Rees said. "That wouldn't have been the case the previous summer."

Investors say they still need to be cautious of occupancy levels, the reliability of tenants and the health of local economies. "You want that rent coming in every month," said Ainslie McLennan, fund manager for Henderson U.K. Property Unit Trust.

Basing an investment decision on U.K. economic-growth figures also needs to be more closely considered, said Marc Mogull, manager partner at Benson Elliot, which has €850 million of equity under management "You're not going to see fundamental growth in the regions like what you'll see in London," he said.

Article Source: http://online.wsj.com/news/articles/SB10001424052702303471004579163561521996776

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Affordable Homes to Rent – Not Buy – Will Rebalance the Property Market

John Banham of The Independent on 18th August, 2013 stated that affordable homes to rent will help property market back into line.

Headlines about rising house prices may persuade observers that the housing crisis is over, and that the nation can safely return to the behaviour that caused the financial crisis in the first place. This would be a tragic waste of a huge economic opportunity.

The national housing crisis has been a long time in the making: a lack of housing that can be afforded by young working families, while rents soar; the future of farming at risk, because there is nowhere for retiring farmers to live; unsustainable villages becoming the preserve of wealthy retirees, with schools and post offices closed down.

For decades, in contrast to every other developed Western economy, Britain has been underinvesting in new homes. The consequences are all too apparent: two million families on council waiting lists for affordable homes, annual expenditure of over £20bn on housing benefit. The number of new homes built every year needs to treble, to around 300,000. No wonder Shelter could only raise half a cheer for last week's news that housing starts in England rose 7 per cent to 110,000 in the year to June, generating headlines that "Britain is building again".

Half of the new homes should be for rent or shared ownership, built on brownfield land in urban areas and in small developments alongside villages where the new homes house local families, are welcomed by local people, and where the land is invested through a Community Land Trust.

In a report published at the end of last year, the Future Homes Commission showed how the housing crisis could be turned into a massive opportunity for economic growth. Trebling the number of new homes built every year for 20 years would add at least 3 percentage points to annual GDP growth, an economic prize comparable to the impact of shale gas on the North American economy. If half of the new homes are in sustainable communities of rental or shared ownership properties, these would be funded by pension funds and international real estate investors. No additional government funding would be needed.

Despite the scale of the housing crisis and the size of the economic growth opportunity, local authority pension funds' pressing need for better investment returns, and the relaxation of Treasury constraints on these funds (which could free up as much as £30bn for investment in rental housing and infrastructure projects), progress towards the goal of trebling the number of new homes built every year has so far been disappointing. The Government's Help to Buy scheme does nothing to make housing more affordable or for would-be tenants, and a new house-price bubble could form.

Far from being embraced as a massive economic and social opportunity, the housing crisis is deepening; and millions of couples are having to postpone setting up home together. Nationally, the average age of first-timers buying without parental help is 33; in rural areas, where wages are lower and house prices are higher, it takes even longer. Local Enterprise Partnerships (LEPs) are backing affordable housing, and Lord Heseltine ensured that over £5bn of EU growth funding was allocated directly to LEPs, bypassing both Whitehall and local councils. Now there is no planning bureaucracy standing in the way of local communities having the homes they want and at prices they can afford: well-designed and energy-efficient homes can be built for £100,000. LEPs could kickstart the expansion of build-to-let homes and communities.

By separating developments of homes for rent and shared ownership from market housing, both sectors would benefit. Market housing would not be compromised by the need to accommodate a percentage of "affordable" homes (which are anything but). Towns and villages could have the number of new homes they wanted, rather than huge developments which rarely go ahead. Existing social landlords would be well-placed to manage the completed developments. These, in turn, could be sold on to pension funds and other investors, freeing up LEP funds for more local schemes.

The LEPs now have all the tools to address the local housing crisis and generate economic growth of over 3 per cent a year which will be sustainable for a generation, without leading to another house-price bubble. Now it could be harvest time, turning the local housing crisis into the economic and social opportunity for which the countryside has been waiting for decades.

Sir John Banham, chairman of the Future Homes Commission, is a former director general of the CBI
  
Article Source: http://www.independent.co.uk/voices/comment/affordable-homes-to-rent--not-buy--will-rebalance-the-property-market-8772635.html

London Property – A True Safe Haven?

Good news for London property investors. This interesting article on August 5, 2013 by Matt Skinner of NuWire Investor revealing London still as the best attraction for international investors.

While the rest of the UK scrambles to get back into a sustained period of stability, enormous demand has seen the British capital establish itself as a safe haven for international investors, with figures released by property website Rightmove showing that the average price of a London property has increased by £30,000 since the start of 2013. Recent figures from CBRE suggest that London attracted 21 per cent of all European inward investment in 2012.

Investment and development firm, Shaftesbury, point to London’s West End as a hot spot, with demand causing rents to soar. "London continues to attract unprecedented levels of interest from across the world from businesses choosing to locate and invest here, from visitors seeking to experience its unrivaled variety of attractions and from those who live and work here." the firm said.

There are concerns, however, that the bubble is dangerously close to bursting. At £1.5million, the average price of a West End property is already more than 6.5 times the UK national average, and many current owners are refusing to sell, believing the market has not yet peaked. The dwindling prime supply and soaring prices are causing investors to look into secondary markets.

The number of foreign investors looking at London for both residential and commercial investment opportunities has a potentially devastating knock-on effect to local economies. Many investors are purchasing buildings as pure investment - property agency Savills suggest that fewer than half of homes purchased in the prime central London are used as the buyers main home - properties are thus left unoccupied, as with values increasing at such a rapid rate, it makes little sense to let them.

Many are purchased as trophy investments, in 2012, of 7,000 new-build homes sold in the prime central London market, more than 5,000 were sold to overseas buyers. This skewering of the traditional market model has the potential to leave prime locations as virtual ghost towns, with local businesses suffering, eventually leading to a decrease in commercial property values in these areas, particularly smaller units aimed at serving the community, such as convenience stores and other amenities.

Another concern for the market is that, while values are affected by the strength of the pound and general investor confidence, global equity markets also have a large part to play. For example, according to research by Fathom Consultants, prime properties in the capital city may see their values slashed by 20 per cent if the US' quantitative easing program ends.

Danny Gabay, director at Fathom, added: “[The Central London market] is more overvalued than we’ve ever found it to be before - and our model goes back to 1985. [The market] could inflate yet further - but we are now in a position where, once you’re overvalued, I can’t predict where exactly the trigger will come from, but you are vulnerable to a correction.”
For now, however, prime London property remains a great investment prospect, with further growth expected throughout 2013.

Article Source: http://www.nuwireinvestor.com/articles/london--a-true-safe-haven-61001.aspx

Why you should Buy Property Now?

Another interesting property investment article by news.com.au on 27th July, 2013 about buyer's low interest rate as property values are primed to grow.

SERIOUS money is waiting to be made in property investment but most Australians don't want to know about it. 
 
RP Data has revealed property values and weekly rents are primed to grow in many regions, but studies show people are reluctant to invest in property over shares and savings accounts.

A Ray White Projects survey found 11 per cent of 1500 adults owned an investment property, while only 3 per cent owned two or more.

"It's hard to believe 86 per cent of Australian adults do not have an investment property," said Dan White, Ray White Projects director.

"It contradicts the commonly held perception that bricks and mortar are one of the safest forms of future planning."

The survey showed 59 per cent of people wanted to see an increase in property prices or greater market stability before investing.

"No one knows exactly how or when a property market will change direction," Mr White said. "When it does, people are surer about the investment. They might not make as much as if they bought at the bottom, but they won't lose money."

Some of the best investment opportunities can be found in Sydney's western suburbs, where affordable properties attract high rental returns, due to a low vacancy rate.
"Areas like Liverpool, Campbelltown, Blacktown and Penrith are fantastic," said Nathan Birch, investor and founder of buyer's agency B Invested.

"There's a lot of infrastructure going in: the M4 and M7 can get you to the city or airport in 45 minutes and it's currently cheaper to buy than rent."

According to RP Data figures, houses in Blacktown Council's area can be bought for just over $200,000 and have rental yields of up to 7 per cent -- the highest in NSW.
"Capital gains are the best in affordable areas," Mr Birch said.

"A $1 million property in Mosman will not double in value any time soon, but if you invested $1 million in multiple Mt Druitt properties, the values would double much quicker."

Adrian Allen and partner Lisa O'Donnell have three investment properties in Sydney's west. "Our Bidwill property cost $181,000," Mr Allen said. "It then rented for $330 a week, which is a 9 per cent yield. It was positive cash flow straight away."

Article Source: http://www.news.com.au/realestate/investing/buyers-low-interest-rate-as-property-values-are-primed-to-grow/story-fndbarft-1226630549336#ixzz2a7u4bcjj