Investment Market – Year End 2013

Posted on Jan 20, 2014

INVESTORS TAKE LONG TERM VIEW

The investment yield on a one bed apartment in the resale market had fallen to 4.5% at the end of 2013, from 5.4% at the end of 2012. The fall is a direct consequence of the strong growth in prices combined with no change in rents.

The question of a bubble is never far from the newspaper headlines. We stand by our view that this market, despite the strength of price growth, is founded on secure demand from well-resourced domestic and overseas buyers. They are investing for long term growth.

An early indication of fragility in a market is the incidence of down-valuations, where the lenders’ valuation does not support the purchase price. We have not seen any evidence of these as all valuers recognise the strength of demand in the market and realise that there will be another keen buyer waiting if a sale falls through.

Even as we build, we are not replenishing sales stock because the majority of new build apartments are channelled directly into the investment market as rental property.

01DALSTON E8 – 101 UNIT SCHEME, JOINT VENTURE AGREED 2013

01HENAGE ST E1 – DEVELOPMENT LET TO SERVICED APARTMENT OPERATOR DECEMBER 2013


OVERSEAS INVESTORS

One of the more colourful stories about London residential property to have filled newspapers in 2013, is that of the naive overseas investor duped into buying from a development in a suburban location in the belief that it is in ‘Central London’. There may indeed be examples of agents and developers embellishing or exaggerating the quality of a location but, in our experience, buyers in the Far East are far more knowledgeable about London post codes than the press would have you believe.

The typical Far Eastern purchaser in our experience:

• Is a regular attendee at property exhibitions in their home country, perhaps every weekend and will ask searching questions
of the agents and developers presenting developments.

• Has often visited the UK as a tourist and spent time familiarising themselves with areas of London so that they know what they
are buying. These are property tourists – they come to learn, and do their research.

• Wanders into agents’ offices and talk, often armed with a collection of business cards amassed at exhibitions.

• Compensates for geographical detachment from London by using Google Earth.

• Asks deeper and more probing questions than an average UK buyer.

• May not have not been inside the flat intended for purchase, but neither would a UK buyer if a development is being sold off-plan.

• Puts great store on price per sq ft and will expect to be given comparables on that basis.

• Is aware of the significance of zones; lease terms; service charges; the contractor; guarantees; proximity of affordable housing
and economic conditions.

• Seeks to buy:

• A new development, located in zones 1 or 2, close to an underground or DLR station.

• A service charge equating to £4.50 – £4.90 per sq ft unless there are exceptional communal facilities.

• A lease term of at least 250 years and preferably 999 years.

• The freedom to sell on the contract before completion at least once and probably more than once.

• A watertight construction guarantee and reputable contractor.

Most Far Eastern investors are already familiar with London and have an understanding of the UK’s legal structure, they are confident of its economic and social stability and freedom from corruption. Many investors of middle or older age, have been educated in the UK, either at a public school or, more often, university.

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David Salvi

Director - Agency & Marketing
020 7250 1012

David oversees the Company residential agency departments and specialises in bespoke marketing and PR campaigns for new developments and individual properties. He is an authority on the London Property Market, regularly quoted by the national press. He heads the research side of the agency which provides detailed analysis of current market trends, sub market activity and the planning pipeline as well as trend markets.

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