What Could Possibly Go Wrong? London’s Property Tipping Points (Part 3 of 3)

DCHere it is: the final instalment If you haven’t read parts 1 and 2, you should take a look at those first. If you’re returning to pick up where we left off, I can only advise that you remember the many positives outlined in the first instalment. For now, ‘The Dark Side’ continues…

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WHAT? Domestic politics

HOW? The UK has been a relative stranger to political turbulence in recent years, lending it a safe and reliable glow with which to court international investment. But with the 2015 general election and a possible European referendum, and the recent vote on Scottish Independence (regardless of the outcome), the threat of political uncertainty has been looming on the horizon. The various party political election campaigns, and the associated glut of political rhetoric, could have a significant impact upon investors and their decisions in the run-up to the 2015 vote.

The clampdown on foreign property owners, for example, who hold assets through a company structure, has already had a negative impact on the building of new residential properties for the rental market. While some property owners regard the new rules as a fee for privacy, which they are willing to pay, others in the industry have blamed the regulations for signs of cooling in London’s high-end luxury housing market.

HOW QUICKLY COULD IT CHANGE? Months to years.

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WHAT? Geopolitics

HOW? London has long been seen as a financial safe haven by wealthy investors seeking to move money out of their home markets. Property in the capital is a popular choice as a store of value because its relatively opaque ownership structures make it more difficult to trace assets’ ultimate ownership. Property owners who hold their homes through a company structure need only to register the name of the company with the Land Registry, not the name of the beneficial owner. And, given the various Middle Eastern conflicts and rising tensions between Russia and the west, it is almost impossible to see how these safe-haven effects will not continue for the foreseeable future.

HOW QUICKLY COULD IT CHANGE? Much too difficult to say.

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WHAT? The global savings glut

HOW? International investors from developed countries such as South Korea and Taiwan, where savings rates are high, are currently finding that their home property markets are already saturated with investors looking for somewhere to place their surplus cash. Consequently, they are tending to look for investment opportunities abroad in ever-increasing numbers. In London, such investors can find yields of 5-6%, while in their home markets promise less than half that figure. However, with investors increasingly focused on secondary assets and yields on prime central London property already approaching pre-crisis lows, rising prices and falling yields might reduce the attractions of property in the capital.

HOW QUICKLY COULD IT CHANGE? Months to years.

What Could Possibly Go Wrong? London’s Property Tipping Points (Part 2 of 3)

DarksideLogo5If you missed our look at the exceptional confluence of events that has helped the London property market to boom, see Part 1. If you’re already up-to-date, prepare for the dark side of the story: what could possibly go wrong?

It’s impossible to say exactly how, when, or how quickly London’s current property boom will come to an end. It does seem likely, however, whether in a year or a decade, that the time will eventually come. Old hands in the London market can remember a time and a place, not so far away, when they were not in favour. And they know that it will happen again. All things, after all, are cyclical.

In the immediate future, as campaigning for the 2015 UK general election gets into full swing over the coming months, analysts fear that just a single misplaced policy announcement could be enough to panic existing and potential investors across the world. The big issue is political uncertainty, specifically in anything relating to the tax regime, appealing to overseas capital and the immigration rules.

Meanwhile, the prospect of a referendum on Britain’s EU status – something the Conservatives have promised voters if they stay in power come May – is another significant political risk. Anything introducing uncertainty, and the EU issue has the potential to do so on a massive scale, is a worry both for the market and for investors.

But what are the specific tipping points that could herald the end of the situation we are currently experiencing?

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FIVE POTENTIAL TIPPING POINTS:

WHAT? Ultra-low interest rates

HOW? Many countries’ interest rates are at historic lows. As a result, mainstream investment classes are generating low yields. Fund managers who need to deliver certain levels of performance to their investors are searching desperately for assets that will produce higher returns. With London property averaging yields of 5-6 per cent, the sector looks very attractive. As a result, cash is pouring into property assets. But this trend is not expected to continue indefinitely. As countries begin to consider raising interest rates in the coming years, other investments are likely to start looking more attractive again.

HOW QUICKLY COULD IT CHANGE? Years to decades.

. . .

WHAT? Currency effects

HOW? After the global financial crisis, the pound became relatively cheap compared with property buyers’ domestic currencies. Between 2008 and 2013, sterling fell by nearly a quarter against the dollar and by 11 per cent against the euro. As a result, London property prices that looked eye-watering to locals seemed perfectly affordable to foreign buyers. But this trend has already begun to wane. The pound is appreciating once more, up 5 per cent against the dollar over the past 18 months and 8 per cent against the euro. This has taken some heat out of the London property market. For example, in March 2013 a £1m London home cost 1.86m Singapore dollars; today that is S$2m. If this trend continues, investors whose assets are denominated in other currencies could switch to other property markets.

HOW QUICKLY COULD IT CHANGE? Weeks to months.

Read the rest in the final installment, next week…

What Could Possibly Go Wrong? London’s Property Tipping Points (Part 1 of 3)

shard_2583070bWith the global financial crisis finally receding, the London property market is once again booming, but many in the industry are already questioning just how long current investment levels will last.

The current attraction of London property as an investment opportunity is down to a rare conference of factors, several among which being directly attributable to the financial crisis and its immediate aftermath.

The rise of the global middle class has brought with it a new abundance of personal savings, but with low base rates worldwide, investors have been forced look for returns in alternative asset classes. Meanwhile, with increasing numbers of institutional investors, competition for opportunities is also on the rise.

As political instability from the Ukraine to Palestine has sent the wealthy on a quest to find safer places to stash their savings, the falling pound has made London property look cheap for those making the conversion to many foreign currencies. At the same time, the UK’s political landscape has been stable, with a transparent legal system and a broad cross-party consensus allying any concerns investors may have over whether their assets will be safe and free from an interfering government. In fact, government has taken a pro-active role in encouraging inward investment in the property market; in his six years as mayor of London, Boris Johnson has actively set out to attract foreign money, going out of his way to court the Chinese in particular, with several visits to Asia.

As it stands, Chinese companies are among the biggest buyers in the capital. In a bid to attract Asian businesses to Europe, Chinese developer Advanced Business Park has partnered with Stanhope, the British developer, to create a £1bn financial district in the rundown Royal Docks. Greenland Group, the Chinese state-owned developer, bought the historic Ram Brewery site in Wandsworth, south London, at the start of this year, while China Life, the insurer, recently took a majority stake in Canary Wharf skyscraper, 10 Upper Bank Street.

And it’s not just the Chinese making high-profile acquisitions. The Canadian pension fund, Omers – through its property arm, Oxford Properties Group – has backed construction of the City’s newest high-rise, the Leadenhall Building (a.k.a. “The Cheesegrater”), and Indian developer Lodha bought the former Canadian High Commission building on Grosvenor Square, Mayfair, in November of last year. While large US private equity firms such as Blackstone and Lone Star continue to be active, the new kid on the London City block is Taiwan.

Taiwanese life funds have long been expected by London property advisers, following the ruling by Taiwanese regulators last year that insurers could invest in foreign real estate. Cathay Life’s August purchase of Woolgate Exchange in the City was the first step, with JPMorgan Cazenove analysts consequently predicting that the deal would mark the beginning of a stream of Taiwanese investors into London’s commercial property market.

And to cap it all off, there is a positive feedback loop constantly fuelling the market – the presence of buyers and sellers attracts more participants, making it more liquid, which attracts more buyers and encourages more sales. And so it goes on.

This fortuitous conference of longstanding factors is unlikely to dissolve overnight, but there are other aspects behind the London boom that could crumble very quickly. More in part 2, next week…

Flat Prices Up, House Prices Down: Sales Volumes Focused On apartments


Here in the Capital, contrary to recent ‘price cut’ headlines that have appeared in some publications, we have seen PCL (Prime Central London) prices reach new heights in the same period.

As regular readers will know, we firmly believe that international investors’ understandable focus on high-end new developments continues to highlight the relative value in London’s existing housing stock.  W3b25843rhile foreign investors push prices up in off-plan and newly-built property, potential owner-occupiers could do worse than to start their search in alternative markets. This view is further supported by industry figures showing apartment sales in a number of PCL boroughs up 32% for the year-to-date, with house sales falling 21% at the same time.

From a supply perspective, as long as new developments continue to trickle through at the present rate, demand will fail to be met across the majority of London and particularly in the sub-£2m bracket. Complex, cumbersome planning regulations remain a significant barrier in their current state, and ultimately inhibit an increase in supply at the level and rate required.

Elsewhere, the growth in our Managed Sale service reflects not just the strength of our reputation, but also the simple but powerful truth that managing a sale remotely is not just stressful, but also difficult and time-consuming. We continue to offer exceptional expertise across all major property services, boasting a broad and detailed knowledge-base that consistently informs the advice we give our clients.

Off Plan Properties: a Seducing and Flexible Investment

Buying off plan not only offers a convenient way to maximize investments whilst properties are still being built, but it is also possibly the best way to get the location and specifications you want. And as the processes of property design and construction increasingly make use of cutting edge imaging technology, those buying off plan can now see and plan their properties in three dimensions even before the foundations are laid. If buying off screen doesn’t get you excited, the possible returns might clinch the deal.

Off_PlanA leading financial centre and tourist destination, boasting the world’s largest city airport system, the largest concentration of higher education in Europe, and the first city to host the Summer Olympics three times, London has a well-deserved international reputation. But the tag “Major World Capital” rarely comes without its price. In general terms, if you live in the UK, the closer you live to London, the higher the cost of living. While Britain may be in the early stages of recovering from the global economic crisis, house prices are on the rise once again, nowhere more so than in London. Whilst buying a property in the capital is still out of reach for many, for those looking to invest, it continues to be an attractive prospect; with a market in growth, off plan properties can offer outstanding returns. In addition, many investors enjoy the chance to take part in the often-rewarding creative process of designing their dream house, whether buying for themselves, re-sale or to let, investing in off plan property can meet a variety of demands.

Like all investment, buying “off plan” comes with its risk and pitfalls, some specifically linked to the incomplete nature of the property when sale is agreed. There are many advantages though, not least when it comes to financing a deposit. Typically, you can buy off plan with as little as a 10% deposit due before completion, and so on longer-term construction schedules, this can offer you up to four years to raise the capital. It is also common for developers to offer financial incentives to early adopters in the form of a discount, in some cases up to 10% off the asked price. Additionally, investors can benefit from property price growth during construction, after the price has been agreed and before the final sum, or any mortgage payments are due. In a rapidly rising housing market, property investors may achieve substantial capital gain. The figures are persuasive: 10% property price growth on a property reserved for 10% of its price returns 100% on invested capital. To maximize returns, off plan properties should be sourced in the highest growth area you can afford, preferably on construction projects at least one year until completion.

The reasons why people choose to investing in off plan property vary, with many buying as a medium to long-term investment, owing to the fact that completion may take a few years. Off plan properties can also be re-sold before completion of construction, if this becomes necessary or advantageous. One advantage to selling early is the avoidance of up to 4% stamp duty, which is due only for fully constructed properties. For those investors who decide to keep the property, however, the balance may be paid with a mortgage or their own funds and, quite often, is then rented out.

From a quality and aesthetic perspective, those looking for a home benefit also from having their say at every stage of construction. Indeed, investors are able to choose how they wish their finished property to look and feel: from the best views to their preferred fixtures and finish. Post-completion, those who have bought off plan usually benefit from a structural guarantee issued by the National House-Building Council or another similar organisation. New build homes are also easier to maintain, manage, rent out or sell. No wonder then, that latest research shows that as many as two in five of London ́s new-build homes are now bought off plan.

Better be Safe than Sorry: As you would expect, everything may not go plan or run to schedule, so when buying off plan it is advisable to get a specialised conveyancer to review the contract, investigate the potential impact of a value fall after exchange or what would happen if the developer goes bust. Keep routine visits to the site and make sure you have to hand a tearing survey before moving in.

A Second Scramble for Africa

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This article first appeared on Hubbis.com
African ultra high net worth (UNHW) rose by an impressive 6.9% from 2012 to 2013. The main reason for this rise in high net worth is the continent-wide resources boom, where resources like copper, cobalt and, most notably crude oil, are being exported at exponential rates. It is no coincidence that out of the seven African countries with most billionaires, six – Egypt, Nigeria, South Africa, Kenya, Tunisia and Angola – have benefitted from the resource boom. The Wealth-X and UBS Billionaire Census 2013 tells us that there are 14% of African billionaires who have made their fortunes in the oil and engineering industries. Moreover, out of South Africa’s billionaires, who account for 30% of the regions wealth, 22% are in the metals and mining industries.

Traditionally government officials and entrepreneurs have capitalised on these vast resources, based on a quick-buck strategy, importing infrastructure and scientific know-how from the rapidly expanding economies like China and India, as well as established ones like the US.  In Equatorial Guinea for an example: of the 10,000 people employed by the Equatoguinean oil industry, the majority are US citizens. This lack of local infrastructure has led to Nigeria despite being Africa’s biggest oil producer, exporting 40% of its oil to the US, Nigeria itself presently imports a staggering 85% of the oil it consumes because it lacks  basic infrastructure like oil refineries. Therefore, to continue growth, UNHW individuals in African countries should focus on long-term projects, like improving home-grown scientific and engineering knowledge in order to prolong this period of growth.

Africa’s rise is by no means a bad thing; the continent has become a major player, which is a necessity in what is now an interconnected, global market. However, if Africa’s new UHNW individuals wish to continue sustainable growth they will have to pursue strategies that benefit of the continent as a whole. Previously many African-born UHNW individuals have migrated elsewhere, to havens where they are confident that their wealth will be protected and grow in a sustainable manner. However, if opportunities are seized upon now and suitable investment made there is no reason why Africa can not sustain this boom for many years to come.

Battersea Power Station

Battersea Power Plant London’s Battersea Power Station developer plans to sell luxury apartments for as much as 30 million pounds each, anticipating buyers will pay a premium to own prominent pieces of the historic building.

Battersea Project Holding Co. bought the Battersea site for 400 million pounds last year after its previous owner was put into administration, a U.K. form of bankruptcy protection. They will begin by selling 250 apartments at 2,500 pounds a square foot in April. The estimated price of a penthouse, to be built in the second phase of construction, is 25 to 30 million pounds.

The Battersea plant is Europe’s largest brick building and built in the 1930s consists of four 350-foot-high smokestacks, it is an investment that comes with the opportunity to own a genuine piece of British history in a unique location. The development is part of the Vauxhall Nine Elms Battersea Opportunity Area south of the River Thames and across from the Kensington & Chelsea and Westminster boroughs. It’s the U.K. capital’s largest redevelopment area and includes a new U.S. embassy and an extension of the London Underground.

The developer’s Malaysian roots may help it reach Asian buyers who have been snapping up London new homes following property curbs in their home country. Two-thirds of new London homes sold before completion are being purchased by Southeast Asian buyers. Measures taken by Singapore and Hong Kong to cool their housing markets have prompted buyers to seek investments abroad.Luxury-home developers are planning to build more than 20,000 properties in London over the next decade. The Battersea development has about 6,000 registered customers and there’s no risk of oversupply of luxury apartments in the area. The project’s first phase was sold in excess of 1,000 pounds a square foot and the third phase is expected to come to market in September next year at 1,800 pounds a square foot.

Off plan property is once again becoming a darling child of the property investor’s arsenal (read a previous blog post here explaining how it works) and we are in a position to provide advice and opportunities in Greater London with percentage discounts into double figure. Contact me for further information.