CHRIS ZAPPONE, BusinessDay
November 6, 2009
Comments 20
The strong Australian dollar has done little to cool overseas demand for real estate as foreign cash seeks out a lucrative home in the nation's residential property market.
Real estate agents say overseas-based bidders are increasingly common at auctions around the country, with the resulting additional demand stoking already rising clearance rates and prices.
John Bongiorno, director of Marshall White & Co, in Melbourne said international buyers had typically made up 5 to 10 per cent of sales, a figures that had recently risen to about 15 per cent. And the dollar's rise had not yet dampened demand.
Mr Bongiorno said his overseas clientele was ‘‘predominately mainland Chinese'', some of which adopted a fly-in, fly-out approach to house hunting.
‘‘We have people who fly in on a Saturday morning for auctions and will fly out the same day,'' he said. ‘‘They'll just arrive in Melbourne specifically for the auction.''
Marshall White & Co has forged alliances with immigration services firms in China to promote local property.
Further north, the rising demand from Asia, especially China, is even more pronounced.
Tina Edwards, sales manager at Brisbane-based Yong Real Estate , which caters to local and international Asian buyers, said investment from China had ‘‘really soared recently''.
She said the surge may have peaked at as much of 90 per cent of the transactions handled by the firm, with the Aussie dollar's recent jump above 90 US cents (about 6.2 yuan) deterring some buyers.
But Ms Edwards also said temporary lull may also reflect the shortage of suitable properties to sell after a period of sustained demand.
Real estate agents credit the overseas demand as contributing to rising home prices, which have increased nationally 8.1 per cent in the first nine months of the year, according to the RP Data-Rismark Index released today.
Changed rules
Australia's run-up in house prices is far from unique, with markets as far-flung as London, Singapore and mainland China itself reporting rapid rises in recent months.
The local market, though, has also seen a jump because of a relaxation in the rules covering foreign investment in Australia's property market since April, agents say.
A spokesperson for Assistant Treasurer Nick Sherry said despite the rule changes the FIRB rules were designed to spur the creation of additional housing supply rather than add to affordability problems.
"Foreign non-residents are still prohibited from owning existing dwellings in Australia," he said. "They can only purchase a new dwelling or build one from scratch."
Temporary residents are only allowed to purchase one existing dwelling, he said "and only if they will live in it."
Nonetheless, the recent FIRB rule change redefined "new dwelling'' to mean unsold property rented out for 12 months or less.
The changes also allow foreign companies to buy established dwellings for use of Australian-based staff.
Chinese investments on the rise
Keeping tabs on the size of inbound property investment is difficult. But looking at the most recent data from the Foreign Investment Review Board in Canberra, covering the 2003-04 to 2007-08 period, China-sourced investment approvals rose to a share of 3.3 per cent of the total foreign investment, up from just 0.4 per cent at the start.
While analysts say the proportion has risen further, the increase over that period "is illustrative of the increased role of Chinese and other Asians in the Australian property market,'' said George Bougias senior economist strategic research at Charter Keck Cramer.
Under one of the rule changes, temporary residents became exempt from notifying the proposed acquisitions of established residential real estate for their own residence, or for new property or vacant residential land.
In practice, buyers' advocates and real estate agents report wealthy Chinese buyers purchasing homes and units near schools where their children are enrolled.
Brett Draffen chief of development for property developer Mirvac said the property developer saw "improving'' interest coming out of China in two areas of the Australian market.
Mr Draffen said the trends were so far not "massive'' nor "across the board'' but were dependent on the types of residences offered to foreign investors.
"In the $400,000 to $600,000 band we've seen a slight increase,'' he said. At the other end of the range, wealthy Chinese were looking at "de-risking'' their holdings of assets in their home country by moving money abroad, including into Australian property.
Scott McGeever, director of Brisbane-based buyers advocate Property Searchers, said some Chinese buyers have been attracted to Australian property as a way to ride both the gains in the surging dollar and the value of the property itself.
As long as the value of the dollar didn't fall dramatically - or the yuan suddenly strengthen - "if they bought and sold it for the same price ostensibly, well, they'd make money off of it because of the currency,'' he said, adding that his firm didn't serve those investors.
Asia and beyond
Rich Harvey managing director of Sydney-based Property Buyer said he had a couple clients pursuing such strategies, although investment in Australian properties was also of interest to investors from other parts of the world.
"It's about the timing of entry and exit for your currency play, which you can overlay with a property play and do very well out of it,'' said the buyer advocate, who serves Australian and international clients.
These types of investors typically held the property for three years, as opposed to the minimum of five years most investors prefer, Mr Harvey.
The rise in investor interest from China reflects Asia's emerging status as an engine of world growth. More wealth gives Asians more options for investment, which in turn translates into more interest in property, education and business relationships with Australia.
The number of settler arrivals from China, defined as the arrival of people entitled to permanent residence entering the country, rose 14.9 per cent - the third fastest growth of any source - to 14,035 people, in the 2007-08 year, the Department of Immigration and Citizenship.
New Zealand, United Kingdom, India all ranked ahead of China in the number of settler arrivals, the data shows.
Affordability worries
Nonetheless, the impact of the new investment has raised questions about housing affordability for would-be owner-occupiers.
One Melbourne real estate agent, who asked not to be identified, privately worried about what the Chinese demand would do for the chances of local buyers.
He said the topic was a constant subject within the real estate industry, although few agents wanted to question a trend that generated financial benefits for them.
In his view, "the rising Australia dollar has not impacted at all the demand from Chinese,'' he said, estimating that currently in Melbourne about 40 per cent of properties over $1 million in the inner suburbs were being sold to Chinese and Indian investors.
czappone@fairfax.com.au
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Wednesday, November 25, 2009
London Luxury-Home Price Drop Narrows on Scarcity
By Simon Packard, Bloomberg
Nov. 6 (Bloomberg) -- Luxury-home prices in London had their smallest annual decline in 15 months in October on a shortage of properties for sale, Knight Frank LLP said.
The average value of houses and apartments costing more than 1 million pounds ($1.7 million) fell 3.2 percent from a year earlier, the seventh consecutive month of narrowing losses, the London-based property broker said. Prices increased 2.1 percent from September, the most since July 2007. That left values 16 percent below their March 2008 peak.
Luxury residences in neighborhoods like Chelsea, Kensington and Mayfair may return to peak prices in 2012, a year or two sooner than the rest of the U.K. housing market, Knight Frank and Savills Plc estimate. The pound’s 19 percent decline against a basket of currencies since the home market’s peak revived demand from foreign investors.
“The shortage of good property for sale is acute,” said Nathalie Hirst, the London head of Prime Purchase, which acts for wealthy buyers. “People have been able to hold onto their properties, so there haven’t been any forced sales.”
The Bank of England’s record-low benchmark interest rate of 0.5 percent eased pressure on homeowners to sell and reluctance among banks to repossess properties also limited the number of homes available.
Knight Frank estimates the number of luxury properties on sale for the first time fell almost 60 percent from October 2008, while the number of overseas buyers climbed 45 percent. The annual price decline was the smallest since July 2008.
Competing Bids
Two weeks ago, a buyer agreed to purchase an apartment near Hyde Park that’s been on Knight Frank’s books for 14 months. The initial asking price of 3.75 million pounds had been lowered to 3.45 million pounds before competition between buyers lifted the agreed price to 3.7 million pounds, said Rupert des Forges, head of the broker’s Knightsbridge office.
“The improved confidence and prices show the resilience of the prime London market,” he said. “Long-term investors have been waiting 10 years for this moment.”
The largest price gains were in Chelsea, Kensington and Notting Hill, Knight Frank said. It calculates that a 2 million- pound home in those neighborhoods appreciated by 1,340 pounds a day in the three months through October.
Second Homes
About 80 percent of potential buyers of high-end homes in central London this year haven’t been seeking a primary residence, according to Beauchamp Estates founder Gary Hersham; most are looking for a second home or a rental property. Half are from abroad, particularly from the euro region, seeking to take advantage of the pound’s decline, he said. The British currency has lost about 10 percent of its value against the euro in the last 12 months.
“The flow of buyers from such places as the Gulf, Kazakhstan and Ukraine is constant,” said Hersham, who set up his Mayfair-based firm 30 years ago.
“The undoubted driver of strong price growth in recent months has been the return of the U.K. buyer, particularly those employed” in the City of London financial district, said Liam Bailey, Knight Frank’s head of residential research.
The proportion of U.K.-based buyers of 5 million-pound homes rose to 67 percent in the three months through October from 43 percent in the preceding three months, Knight Frank said.
Bonus Watch
Lindsay Cuthill, head of Savills’s chain of brokers in southwest London, said six weeks ago that he had started to receive more buying inquiries from bankers at Goldman Sachs Group Inc., JP Morgan Chase & Co., Barclays Plc and Morgan Stanley, four of the investment banks that best weathered the financial crisis. None of those has yet turned into a purchase, he said at a presentation yesterday.
Savills estimates that about 1.2 billion pounds of bonus payments for 2009 earnings may be invested in real estate, with about half going into rental properties in London and southeast England. It’s unclear how much of the payouts will be deferred or handed out as share options following government pressure to restrict cash bonuses.
“The big question over this year’s bonuses is ‘How will they be paid?’” said Yolande Barnes, head of residential research for Savills. The broker estimates that luxury values probably will fall 1 percent in 2010 after a 6.1 percent gain this year.
National Recovery
The gains in London’s luxury properties mirror signs of price recovery at a national level.
U.K. home prices registered their first annual gain in 19 months in October, Nationwide Building Society said last week. The average cost of a home increased 0.4 percent to 162,038 pounds, the sixth consecutive monthly increase, the mortgage lender said.
London accounts for 57 percent of the 183,630 U.K. houses and apartments worth more than 1 million pounds, according to property search Web site Zoopla.co.uk. Britain’s largest concentration of those is in Kensington, where the average price is 1.46 million pounds.
Knight Frank compiles its luxury index from estimated values on properties in the Mayfair, St. John’s Wood, Regent’s Park, Kensington, Notting Hill, Chelsea, Knightsbridge, Belgravia and South Bank neighborhoods of London.
To contact the reporter on this story: Simon Packard in London at packard@bloomberg.net.
Last Updated: November 6, 2009 08:00 EST
Nov. 6 (Bloomberg) -- Luxury-home prices in London had their smallest annual decline in 15 months in October on a shortage of properties for sale, Knight Frank LLP said.
The average value of houses and apartments costing more than 1 million pounds ($1.7 million) fell 3.2 percent from a year earlier, the seventh consecutive month of narrowing losses, the London-based property broker said. Prices increased 2.1 percent from September, the most since July 2007. That left values 16 percent below their March 2008 peak.
Luxury residences in neighborhoods like Chelsea, Kensington and Mayfair may return to peak prices in 2012, a year or two sooner than the rest of the U.K. housing market, Knight Frank and Savills Plc estimate. The pound’s 19 percent decline against a basket of currencies since the home market’s peak revived demand from foreign investors.
“The shortage of good property for sale is acute,” said Nathalie Hirst, the London head of Prime Purchase, which acts for wealthy buyers. “People have been able to hold onto their properties, so there haven’t been any forced sales.”
The Bank of England’s record-low benchmark interest rate of 0.5 percent eased pressure on homeowners to sell and reluctance among banks to repossess properties also limited the number of homes available.
Knight Frank estimates the number of luxury properties on sale for the first time fell almost 60 percent from October 2008, while the number of overseas buyers climbed 45 percent. The annual price decline was the smallest since July 2008.
Competing Bids
Two weeks ago, a buyer agreed to purchase an apartment near Hyde Park that’s been on Knight Frank’s books for 14 months. The initial asking price of 3.75 million pounds had been lowered to 3.45 million pounds before competition between buyers lifted the agreed price to 3.7 million pounds, said Rupert des Forges, head of the broker’s Knightsbridge office.
“The improved confidence and prices show the resilience of the prime London market,” he said. “Long-term investors have been waiting 10 years for this moment.”
The largest price gains were in Chelsea, Kensington and Notting Hill, Knight Frank said. It calculates that a 2 million- pound home in those neighborhoods appreciated by 1,340 pounds a day in the three months through October.
Second Homes
About 80 percent of potential buyers of high-end homes in central London this year haven’t been seeking a primary residence, according to Beauchamp Estates founder Gary Hersham; most are looking for a second home or a rental property. Half are from abroad, particularly from the euro region, seeking to take advantage of the pound’s decline, he said. The British currency has lost about 10 percent of its value against the euro in the last 12 months.
“The flow of buyers from such places as the Gulf, Kazakhstan and Ukraine is constant,” said Hersham, who set up his Mayfair-based firm 30 years ago.
“The undoubted driver of strong price growth in recent months has been the return of the U.K. buyer, particularly those employed” in the City of London financial district, said Liam Bailey, Knight Frank’s head of residential research.
The proportion of U.K.-based buyers of 5 million-pound homes rose to 67 percent in the three months through October from 43 percent in the preceding three months, Knight Frank said.
Bonus Watch
Lindsay Cuthill, head of Savills’s chain of brokers in southwest London, said six weeks ago that he had started to receive more buying inquiries from bankers at Goldman Sachs Group Inc., JP Morgan Chase & Co., Barclays Plc and Morgan Stanley, four of the investment banks that best weathered the financial crisis. None of those has yet turned into a purchase, he said at a presentation yesterday.
Savills estimates that about 1.2 billion pounds of bonus payments for 2009 earnings may be invested in real estate, with about half going into rental properties in London and southeast England. It’s unclear how much of the payouts will be deferred or handed out as share options following government pressure to restrict cash bonuses.
“The big question over this year’s bonuses is ‘How will they be paid?’” said Yolande Barnes, head of residential research for Savills. The broker estimates that luxury values probably will fall 1 percent in 2010 after a 6.1 percent gain this year.
National Recovery
The gains in London’s luxury properties mirror signs of price recovery at a national level.
U.K. home prices registered their first annual gain in 19 months in October, Nationwide Building Society said last week. The average cost of a home increased 0.4 percent to 162,038 pounds, the sixth consecutive monthly increase, the mortgage lender said.
London accounts for 57 percent of the 183,630 U.K. houses and apartments worth more than 1 million pounds, according to property search Web site Zoopla.co.uk. Britain’s largest concentration of those is in Kensington, where the average price is 1.46 million pounds.
Knight Frank compiles its luxury index from estimated values on properties in the Mayfair, St. John’s Wood, Regent’s Park, Kensington, Notting Hill, Chelsea, Knightsbridge, Belgravia and South Bank neighborhoods of London.
To contact the reporter on this story: Simon Packard in London at packard@bloomberg.net.
Last Updated: November 6, 2009 08:00 EST
UK property prices expected to fall in 2010 (excpet prime Central London) but strong growth from 2011 predicted by analysts
Friday, 06 November 2009 09:42 Ray Clancy UK - UK Property News
UK property prices will fall next year but outlook is positive
UK property prices will fall next year but the medium term outlook is positive with price increases of almost 30% by 2015, according to analysts.
The first forecasts for the next few years indicate that cash rich buyers that have been driving the price increases in 2009 will disappear in 2010. A general election and rising unemployment are among the factors that will put a damper on the residential market, the experts predict.
Savills today released its forecasts for both the prime and mainstream UK housing markets for the period 2010 to 2015.
‘The price growth of 2009 took most market commentators by surprise and few, if any, expected demand from equity rich buyers to return so strongly and so quickly, particularly in the mainstream. It is the imbalance between low supply and high cash-driven demand that has driven prices upwards. In mainstream markets, therefore, conditions are currently far from normal,’ explained Yolande Barnes, head of residential research at Savills.
As a result prices are expected to soften in 2010 as pent up demand from cash rich buyers will begin to be satisfied and stock shortages will ease. This could result in a brief period of headline grabbing price falls of up to 6.6% around the middle of the year point, with modest growth of around 2.7% in 2011, Barnes added.
The longer term prognosis though is for a return to price growth in mainstream markets, with the average UK house price values expected to rise by 27% from 2012 to 2015. This would leave the average UK house price just under £200,000, over 7.5% higher than at the peak of the market towards the end of 2007.
The prime market is expected to do better with price falls of around 1% in 2010 and an earlier return to sustained growth. Prime central London price growth is expected to total around 18% and 35% over the next 3 years and 5 years respectively, with equivalent figures of 14% and 30% in the prime regional and country house markets.
The latest forecast from Cluttons points to price increases of around 2% in 2010 in a best case scenario but falls of up to 5% if the economy performs badly. Central London prices are expected to fare better, with a slow growth of up to 3% next year.
‘We expect stock to increase in 2010, but with vendors’ pricing expectations still high, this may leave optimistic buyers frustrated, especially where mortgages are a significant part of financing purchases and restrictions remain tight on mortgage loan-to-values,’ said Andrew Stanford, head of Cluttons’ residential professional division.
Prices are expected to rise more from 2011, with the three following years seeing prices up by 3% to 4% per annum. ‘As interest rates remain low, the mortgage market will gradually recover. Values will be attractive for foreign currency buyers in London and good for UK buyers with equity to invest,’ he added.
Go to www.ipsinvest.com
UK property prices will fall next year but outlook is positive
UK property prices will fall next year but the medium term outlook is positive with price increases of almost 30% by 2015, according to analysts.
The first forecasts for the next few years indicate that cash rich buyers that have been driving the price increases in 2009 will disappear in 2010. A general election and rising unemployment are among the factors that will put a damper on the residential market, the experts predict.
Savills today released its forecasts for both the prime and mainstream UK housing markets for the period 2010 to 2015.
‘The price growth of 2009 took most market commentators by surprise and few, if any, expected demand from equity rich buyers to return so strongly and so quickly, particularly in the mainstream. It is the imbalance between low supply and high cash-driven demand that has driven prices upwards. In mainstream markets, therefore, conditions are currently far from normal,’ explained Yolande Barnes, head of residential research at Savills.
As a result prices are expected to soften in 2010 as pent up demand from cash rich buyers will begin to be satisfied and stock shortages will ease. This could result in a brief period of headline grabbing price falls of up to 6.6% around the middle of the year point, with modest growth of around 2.7% in 2011, Barnes added.
The longer term prognosis though is for a return to price growth in mainstream markets, with the average UK house price values expected to rise by 27% from 2012 to 2015. This would leave the average UK house price just under £200,000, over 7.5% higher than at the peak of the market towards the end of 2007.
The prime market is expected to do better with price falls of around 1% in 2010 and an earlier return to sustained growth. Prime central London price growth is expected to total around 18% and 35% over the next 3 years and 5 years respectively, with equivalent figures of 14% and 30% in the prime regional and country house markets.
The latest forecast from Cluttons points to price increases of around 2% in 2010 in a best case scenario but falls of up to 5% if the economy performs badly. Central London prices are expected to fare better, with a slow growth of up to 3% next year.
‘We expect stock to increase in 2010, but with vendors’ pricing expectations still high, this may leave optimistic buyers frustrated, especially where mortgages are a significant part of financing purchases and restrictions remain tight on mortgage loan-to-values,’ said Andrew Stanford, head of Cluttons’ residential professional division.
Prices are expected to rise more from 2011, with the three following years seeing prices up by 3% to 4% per annum. ‘As interest rates remain low, the mortgage market will gradually recover. Values will be attractive for foreign currency buyers in London and good for UK buyers with equity to invest,’ he added.
Go to www.ipsinvest.com
Melbourne tops for home prices
NOT only was Melbourne the strongest housing market in the country in the September quarter, it was also the strongest market in the country over the past 12 months. According to Australian Property Monitors' Quarterly House Price Report, released last month, Melbourne's median house price rose by 11.4 per cent in the 12 months to September, from $438,000 to $487,000.
The most expensive suburbs and regions performed best in the past six months, but they were essentially recovering from some large price falls in the first half of last year.
The outer regions were largely insulated from these falls, because of low mortgage rates and government incentives for first home buyers.
If we look at Melbourne by region, we can see it has been the outer regions, particularly the north and outer east, that have had the biggest increases in median prices.
In the north, which starts at Brunswick and extends up through Coburg North and past Gladstone Park, the median sale price for houses rose nearly 20 per cent in the past 12 months, from $329,000 to $392,000.
The outer east region, which is the most expensive region outside the inner city, also performed particularly well, with the median price rising more than 15 per cent to $461,000.
But don't expect these rates of growth to continue for long.
As the chart above shows, these one-year growth rates are well above their 10-year averages.
Source: The Age
The most expensive suburbs and regions performed best in the past six months, but they were essentially recovering from some large price falls in the first half of last year.
The outer regions were largely insulated from these falls, because of low mortgage rates and government incentives for first home buyers.
If we look at Melbourne by region, we can see it has been the outer regions, particularly the north and outer east, that have had the biggest increases in median prices.
In the north, which starts at Brunswick and extends up through Coburg North and past Gladstone Park, the median sale price for houses rose nearly 20 per cent in the past 12 months, from $329,000 to $392,000.
The outer east region, which is the most expensive region outside the inner city, also performed particularly well, with the median price rising more than 15 per cent to $461,000.
But don't expect these rates of growth to continue for long.
As the chart above shows, these one-year growth rates are well above their 10-year averages.
Source: The Age
Exploring The Merits Of UK Residential Property Funds
Wendy SpiresDeputy Editor
With investors still smarting from losses incurred during last year’s financial crisis many remain wary of complex financial instruments, preferring instead to invest in assets such as residential property where it is plain to see what the investment “does.”
In turbulent times investors understandably want their investments to be tangible and transparent, meaning that bricks and mortar have significant psychological appeal.
However, the time and stress involved in making a direct investment and managing a property are enough to put investors off – not to mention the fact that investing hundreds of thousands of pounds in a single property represents a risk that many would be unwilling to take.
This is where property funds come in - offering investors exposure to the asset class but without many of the drawbacks associated with direct investment.
An attractive alternative
One of the primary attractions of residential property funds is that they enable investors to gain exposure to the market at a lower level of investment. The minimum investment in residential property funds is typically around £10,000, making them an option which, according to Naomi Heaton, chief executive of property asset management firm London Central Portfolio (LCP), “can be vastly more attractive than settling a large sum of hard earned cash on a single asset.”
Investors are also attracted to the reduced risks of investing in a portfolio of properties rather than a single one, as no matter how well researched property investments can all too easily turn sour, leaving one burdened with a highly illiquid – and costly - asset.
But what is also extremely attractive about residential property funds is that they enable investors to avoid the inconvenient and undeniably stressful side of the buy to let story, such as arranging a mortgage, the hassle of the purchase process and the time-consuming subsequent management of the property.
While rental yields are undoubtedly attractive, being a landlord is certainly not for everyone.
Picking a prime location
As the plethora of television shows on the subject will testify, investing in residential property on a buy to let basis has been a popular practice for many years, but for every story of success there are many more instances of failure. As the credit crisis showed, markets can turn very quickly and the bottom can rapidly fall out of both property prices and rental rate. And here is where property fund managers can demonstrate the advantages of their expertise in terms of selecting properties which can withstand the vagaries of an uncertain economic climate.
A familiar mantra in property investment is that of “location, location, location” and it is clear from the number of fund launches in recent months that many view residential property in central London as having huge growth potential over and above the broader UK residential property market.
Like the rest of the UK, the central London property market took a drubbing amid last year’s financial turmoil, and while prices are recovering they still have some way to go before returning to pre-crisis levels. The latest figures from the UK Land Registry show that average property prices in central London rose by nearly 7 per cent over the third quarter, but they still lag some 6 per cent on Q3 2008 levels. Currently depressed prices and a consensus that a significant uptick is just around the corner mean that investors will have to move fast to capitalise on a recovery which many predict will see prices rebound dramatically in the near future.
London calling
Industry experts predict that central London will lead the way in the recovery of property prices. According to Martin Sherwood, director – head of tax efficient solutions at Smith & Williamson Investment Management, “all the stats point to prime central London recovering earlier than the rest of UK.” It is also worth noting that although central London property prices fell 15 per cent from peak to trough in 2008, at the same time UK commercial property prices fell some 32 per cent and the FTSE 100 plummeted by 43 per cent – figures which are a convincing testament to the relative resilience of central London property prices in the face of unprecedented economic trauma.
Central London is also noted for its low correlation to the wider national market, which, according to LCP’s Ms Heaton, “will continue to be dogged by economic problems for years to come.”
Several factors mark out central London as a special location for investment in residential property – one which is a specialist micro-market divorced from national trends. Despite the crisis London remains a world-leading financial centre and demand for housing from City workers remains correspondingly high.
As a truly international city London is also a popular location for second homes, attracting buyers and tenants from all over the world, and added to this the current weakness of sterling is also driving foreign investment. Coupled with this high demand is the fact that central London property is in short supply and this underpins both rental and capital values. These factors, according to Robert Guest, specialist funds and financial services lawyer at Beachcroft, mean that central London property should be regarded as a “unique asset class.”
A robust rental market
While several firms may be looking to capitalise on currently depressed property prices in central London, their approaches are markedly different. While Smith & Williamson and prominent property entrepreneurs Nick and Christian Candy have teamed up to launch a £100 million property fund focusing on luxury central London properties, LCP is taking a different tack, opting instead to concentrate on the professional rentals market.
LCP’s Residential Recovery Fund is, like the Candy Brothers fund, concentrating on London’s most prestigious postcodes, but rather than targeting the luxury sector will instead buy and renovate small flats designed for the corporate rental sector.
This market, according to Hugh Best, investment manager at LCP, has repeatedly proven to be the most robust, providing both strong capital appreciation and crucially consistent rental yields which service the gearing. Voids – or empty properties – are a notoriously costly hazard of property investment and in the view of Mr Best they represent a significant risk to funds investing in luxury properties.
“Our experience has shown that purchasing luxury property is not such a commercially viable strategy, generating lower yields, suffering from costly voids and in tougher economic times a scarcity of sufficiently affluent tenants,” he said. In contrast, occupancy in LCP’s managed property portfolio remained at 94 per cent throughout the credit crisis.
Maximising profitability
Richard Cotton, former senior partner responsible for residential sales and letting services at property investment and management firm Cluttons, is similarly sceptical of the London luxury property market. In his view, the top end luxury market is “a small one and should probably be left”, as should investment in the student and social housing markets.
The “single affluent” sector is the market with the greatest potential, according to Mr Cotton, as not only are these tenants reliable, but the costs of property refurbishment are more manageable as a commercial rather than luxurious finish is required. However, Mr Sherwood of Smith & Williamson remains convinced of the merits of luxury property investment in London, citing property research sources which predict a 40 per cent uplift in luxury property prices over the next five years.
He also highlights the fact that the Candy and Candy fund is targeting capital appreciation over rental yield and that there are many ways to foster this.., including structural enhancement to properties and adding value through high-end exclusive design. Along with currently depressed prices in the luxury property market the weakness of sterling is a further enticement to foreign investment, Mr Sherwood added, saying that now is “perhaps a unique opportunity to get into the prime central London market.”
Regardless of the target market, and whether capital appreciation or stable rental yields are prioritised, a large part of the job of property fund managers is to seek out the best-priced properties for their portfolio. According to Mr Sherwood, one of the keys to the successful management of residential property funds is cost control – and this of course starts with being able to hunt out properties at the best price in relation to their underlying value. Mr Sherwood also notes that the fact that there is a wealth of market information available on property prices does not necessarily limit the potential for bargains to be found, rather it depends on quality of the manager and their ability to “do the deals.”
Ms Heaton of LCP also emphasises the importance of specialist property expertise as another factor which can make property funds a better option than direct investment. “Bargains are not achieved by access to market data, but on the ground knowledge of the market. An eye for added value potential, a clear understanding of the tenant market, achievable rents, market yields and the costs of refurbishment will determine whether a property is a good buy, and indeed worth buying at all. Bargains are achieved by having all the right contacts and hearing about good property first,” she said.
Securing both good capital appreciation and consistent rental yields from a property portfolio is then no small order and so investors need to ensure that their chosen firm has the necessary expertise. As George Hankinson LCP’s managing director puts it, “Residential funds open up a huge new opportunity for investors wishing to access London central. However, investors need to be sure that their fund manager has a proven track record and is not simply jumping on the bandwagon of opportunism.”
That said, investors looking to capitalise on the potential of central London residential property will have to move fast before a price recovery really takes hold. LCP itself predicts that central London residential property prices are set to exceed pre-crisis levels in 2010 and in view of this fact the firm is due to close its Residential Recovery Fund at the end of December. “We think prices have bottomed out and are now really starting to boot upwards; liquidity is easing, and buyers will start to come back from here on in, but our fund will be there before them. Our investors are on board and we will have bought a prime portfolio before the spring market even picks up,” said Ms Heaton.
www.wealthbriefing.com
Financing, Tax and Returns
The London Recovery Fund is a tax efficient capital growth Fund enabling UK investors to hold it through their SIPPs and offshore investors to benefit from CGT and Inheritance Tax exemptions. It is geared at a phenomenal borrowing rate of just 1% over UK Base Rate*, a rate that most private investors could not possibly access. It is targeted to return 15% growth p.a. doubling an investor’s equity in just 5 years.
South African Solution
International Property Solutions (IPS) has strategically partnered with London Central Portfolio (LCP) to provide an effective solution to take advantage of the current conditions in the UK, specifically the best suburbs of London. With a very low entry point (£10 000), we buy discounted properties, renovate them and then let them out to Blue Chip corporate tenants in areas like Kensington, Chelsea, Belgravia, Notting Hill, etc
IPS provides solutions for people to invest internationally and are constantly looking for “Best of Breed” partners to strategically partner with so that investors can take advantage of great opportunities in prime markets.
Scott Picken, IPS CEO made his first money in London buying property, renovating and renting out the properties. He says, “I was so excited when we partnered with LCP as it provides the perfect solution for investing in London and best of all they have 20 years experience in some of the best real estate globally!”
IPS have been appointed the Head of South African Relations for the London Recovery Fund and will be monitoring the progress of acquisitions, refurbishment, rentals, etc, right through to the sale of the Fund in a few years’ time.
Download the Fund Quick Facts, contact scott@ipsinvest.com or visit www.ipsinvest.com or telephone Scott Picken on +27 (0) 11 463 0588 or +44 (0) 203 1399 018
With investors still smarting from losses incurred during last year’s financial crisis many remain wary of complex financial instruments, preferring instead to invest in assets such as residential property where it is plain to see what the investment “does.”
In turbulent times investors understandably want their investments to be tangible and transparent, meaning that bricks and mortar have significant psychological appeal.
However, the time and stress involved in making a direct investment and managing a property are enough to put investors off – not to mention the fact that investing hundreds of thousands of pounds in a single property represents a risk that many would be unwilling to take.
This is where property funds come in - offering investors exposure to the asset class but without many of the drawbacks associated with direct investment.
An attractive alternative
One of the primary attractions of residential property funds is that they enable investors to gain exposure to the market at a lower level of investment. The minimum investment in residential property funds is typically around £10,000, making them an option which, according to Naomi Heaton, chief executive of property asset management firm London Central Portfolio (LCP), “can be vastly more attractive than settling a large sum of hard earned cash on a single asset.”
Investors are also attracted to the reduced risks of investing in a portfolio of properties rather than a single one, as no matter how well researched property investments can all too easily turn sour, leaving one burdened with a highly illiquid – and costly - asset.
But what is also extremely attractive about residential property funds is that they enable investors to avoid the inconvenient and undeniably stressful side of the buy to let story, such as arranging a mortgage, the hassle of the purchase process and the time-consuming subsequent management of the property.
While rental yields are undoubtedly attractive, being a landlord is certainly not for everyone.
Picking a prime location
As the plethora of television shows on the subject will testify, investing in residential property on a buy to let basis has been a popular practice for many years, but for every story of success there are many more instances of failure. As the credit crisis showed, markets can turn very quickly and the bottom can rapidly fall out of both property prices and rental rate. And here is where property fund managers can demonstrate the advantages of their expertise in terms of selecting properties which can withstand the vagaries of an uncertain economic climate.
A familiar mantra in property investment is that of “location, location, location” and it is clear from the number of fund launches in recent months that many view residential property in central London as having huge growth potential over and above the broader UK residential property market.
Like the rest of the UK, the central London property market took a drubbing amid last year’s financial turmoil, and while prices are recovering they still have some way to go before returning to pre-crisis levels. The latest figures from the UK Land Registry show that average property prices in central London rose by nearly 7 per cent over the third quarter, but they still lag some 6 per cent on Q3 2008 levels. Currently depressed prices and a consensus that a significant uptick is just around the corner mean that investors will have to move fast to capitalise on a recovery which many predict will see prices rebound dramatically in the near future.
London calling
Industry experts predict that central London will lead the way in the recovery of property prices. According to Martin Sherwood, director – head of tax efficient solutions at Smith & Williamson Investment Management, “all the stats point to prime central London recovering earlier than the rest of UK.” It is also worth noting that although central London property prices fell 15 per cent from peak to trough in 2008, at the same time UK commercial property prices fell some 32 per cent and the FTSE 100 plummeted by 43 per cent – figures which are a convincing testament to the relative resilience of central London property prices in the face of unprecedented economic trauma.
Central London is also noted for its low correlation to the wider national market, which, according to LCP’s Ms Heaton, “will continue to be dogged by economic problems for years to come.”
Several factors mark out central London as a special location for investment in residential property – one which is a specialist micro-market divorced from national trends. Despite the crisis London remains a world-leading financial centre and demand for housing from City workers remains correspondingly high.
As a truly international city London is also a popular location for second homes, attracting buyers and tenants from all over the world, and added to this the current weakness of sterling is also driving foreign investment. Coupled with this high demand is the fact that central London property is in short supply and this underpins both rental and capital values. These factors, according to Robert Guest, specialist funds and financial services lawyer at Beachcroft, mean that central London property should be regarded as a “unique asset class.”
A robust rental market
While several firms may be looking to capitalise on currently depressed property prices in central London, their approaches are markedly different. While Smith & Williamson and prominent property entrepreneurs Nick and Christian Candy have teamed up to launch a £100 million property fund focusing on luxury central London properties, LCP is taking a different tack, opting instead to concentrate on the professional rentals market.
LCP’s Residential Recovery Fund is, like the Candy Brothers fund, concentrating on London’s most prestigious postcodes, but rather than targeting the luxury sector will instead buy and renovate small flats designed for the corporate rental sector.
This market, according to Hugh Best, investment manager at LCP, has repeatedly proven to be the most robust, providing both strong capital appreciation and crucially consistent rental yields which service the gearing. Voids – or empty properties – are a notoriously costly hazard of property investment and in the view of Mr Best they represent a significant risk to funds investing in luxury properties.
“Our experience has shown that purchasing luxury property is not such a commercially viable strategy, generating lower yields, suffering from costly voids and in tougher economic times a scarcity of sufficiently affluent tenants,” he said. In contrast, occupancy in LCP’s managed property portfolio remained at 94 per cent throughout the credit crisis.
Maximising profitability
Richard Cotton, former senior partner responsible for residential sales and letting services at property investment and management firm Cluttons, is similarly sceptical of the London luxury property market. In his view, the top end luxury market is “a small one and should probably be left”, as should investment in the student and social housing markets.
The “single affluent” sector is the market with the greatest potential, according to Mr Cotton, as not only are these tenants reliable, but the costs of property refurbishment are more manageable as a commercial rather than luxurious finish is required. However, Mr Sherwood of Smith & Williamson remains convinced of the merits of luxury property investment in London, citing property research sources which predict a 40 per cent uplift in luxury property prices over the next five years.
He also highlights the fact that the Candy and Candy fund is targeting capital appreciation over rental yield and that there are many ways to foster this.., including structural enhancement to properties and adding value through high-end exclusive design. Along with currently depressed prices in the luxury property market the weakness of sterling is a further enticement to foreign investment, Mr Sherwood added, saying that now is “perhaps a unique opportunity to get into the prime central London market.”
Regardless of the target market, and whether capital appreciation or stable rental yields are prioritised, a large part of the job of property fund managers is to seek out the best-priced properties for their portfolio. According to Mr Sherwood, one of the keys to the successful management of residential property funds is cost control – and this of course starts with being able to hunt out properties at the best price in relation to their underlying value. Mr Sherwood also notes that the fact that there is a wealth of market information available on property prices does not necessarily limit the potential for bargains to be found, rather it depends on quality of the manager and their ability to “do the deals.”
Ms Heaton of LCP also emphasises the importance of specialist property expertise as another factor which can make property funds a better option than direct investment. “Bargains are not achieved by access to market data, but on the ground knowledge of the market. An eye for added value potential, a clear understanding of the tenant market, achievable rents, market yields and the costs of refurbishment will determine whether a property is a good buy, and indeed worth buying at all. Bargains are achieved by having all the right contacts and hearing about good property first,” she said.
Securing both good capital appreciation and consistent rental yields from a property portfolio is then no small order and so investors need to ensure that their chosen firm has the necessary expertise. As George Hankinson LCP’s managing director puts it, “Residential funds open up a huge new opportunity for investors wishing to access London central. However, investors need to be sure that their fund manager has a proven track record and is not simply jumping on the bandwagon of opportunism.”
That said, investors looking to capitalise on the potential of central London residential property will have to move fast before a price recovery really takes hold. LCP itself predicts that central London residential property prices are set to exceed pre-crisis levels in 2010 and in view of this fact the firm is due to close its Residential Recovery Fund at the end of December. “We think prices have bottomed out and are now really starting to boot upwards; liquidity is easing, and buyers will start to come back from here on in, but our fund will be there before them. Our investors are on board and we will have bought a prime portfolio before the spring market even picks up,” said Ms Heaton.
www.wealthbriefing.com
Financing, Tax and Returns
The London Recovery Fund is a tax efficient capital growth Fund enabling UK investors to hold it through their SIPPs and offshore investors to benefit from CGT and Inheritance Tax exemptions. It is geared at a phenomenal borrowing rate of just 1% over UK Base Rate*, a rate that most private investors could not possibly access. It is targeted to return 15% growth p.a. doubling an investor’s equity in just 5 years.
South African Solution
International Property Solutions (IPS) has strategically partnered with London Central Portfolio (LCP) to provide an effective solution to take advantage of the current conditions in the UK, specifically the best suburbs of London. With a very low entry point (£10 000), we buy discounted properties, renovate them and then let them out to Blue Chip corporate tenants in areas like Kensington, Chelsea, Belgravia, Notting Hill, etc
IPS provides solutions for people to invest internationally and are constantly looking for “Best of Breed” partners to strategically partner with so that investors can take advantage of great opportunities in prime markets.
Scott Picken, IPS CEO made his first money in London buying property, renovating and renting out the properties. He says, “I was so excited when we partnered with LCP as it provides the perfect solution for investing in London and best of all they have 20 years experience in some of the best real estate globally!”
IPS have been appointed the Head of South African Relations for the London Recovery Fund and will be monitoring the progress of acquisitions, refurbishment, rentals, etc, right through to the sale of the Fund in a few years’ time.
Download the Fund Quick Facts, contact scott@ipsinvest.com or visit www.ipsinvest.com or telephone Scott Picken on +27 (0) 11 463 0588 or +44 (0) 203 1399 018
Tuesday, November 24, 2009
South Africa exits recession, Q3 GDP up 0.9 pct q/q
PRETORIA (Reuters) - South Africa's economy exited its first recession in almost two decades, growing by 0.9 percent in the third quarter on a seasonally adjusted and annualised basis, Statistics South Africa said on Tuesday.
Analysts said the better-than-expected GDP figure for the third quarter meant the country's monetary loosening cycle was over.
The third quarter growth came after three consecutive quarters of decline and from a revised decline of 2.8 percent in the second quarter, better than the 3.0 percent first estimate.
On an unadjusted basis, the economy fell by 2.1 percent year-on-year.
The unadjusted real GDP for the first 9 months of 2009 was down 1.8 pct on the same period last year, pointing to a contraction for the year roughly in line with the Treasury's forecast of a 1.9 percent fall.
A Reuters poll of 17 economists last week showed the GDP number was expected to come in at a rise of 0.2 percent on a seasonally adjusted quarterly basis and fall by 2.7 percent on an unadjusted year-on-year basis.
Statistics South Africa also revised annual economic growth for 2008 upwards to 3.7 percent and 5.5 percent for 2007. The agency said the economy grew by 5.6 percent in 2006.
"The short-term indicators seem to tell us that the economy is picking up but long-term indicators tell us the economy is still (weak)," said Joe De Beer, head of economic analysis and research at Stats SA.
Stats SA rebased and benchmarked GDP to 2005 and included illegal activities such as drugs trade and prostitution for the first time. It said these activities only added about 3.5 billion rand to the economy, 0.2 percent of GDP.
"South Africa's better-than-expected GDP outcome closes the door on any further interest rate cuts, and potentially brings the timing of the first rate hike closer," said Annabel Bishop, economist at Investec.
The central bank has since December cut interest rates by 5 percentage points to help stimulate the economy and left rates unchanged at its three previous meetings.
She added however that "a sharp, V-shaped recovery is still unlikely" due to the country's heavy dependence on global demand and the high job losses and company failures locally.
The rand firmed slightly after the data, trading at 7.4875 against the dollar at 1010 GMT, compared to 7.51 before the figures were released. The yield on the 2015 government bond fell to 8.45 percent from 8.46 percent.’
Analysts said the better-than-expected GDP figure for the third quarter meant the country's monetary loosening cycle was over.
The third quarter growth came after three consecutive quarters of decline and from a revised decline of 2.8 percent in the second quarter, better than the 3.0 percent first estimate.
On an unadjusted basis, the economy fell by 2.1 percent year-on-year.
The unadjusted real GDP for the first 9 months of 2009 was down 1.8 pct on the same period last year, pointing to a contraction for the year roughly in line with the Treasury's forecast of a 1.9 percent fall.
A Reuters poll of 17 economists last week showed the GDP number was expected to come in at a rise of 0.2 percent on a seasonally adjusted quarterly basis and fall by 2.7 percent on an unadjusted year-on-year basis.
Statistics South Africa also revised annual economic growth for 2008 upwards to 3.7 percent and 5.5 percent for 2007. The agency said the economy grew by 5.6 percent in 2006.
"The short-term indicators seem to tell us that the economy is picking up but long-term indicators tell us the economy is still (weak)," said Joe De Beer, head of economic analysis and research at Stats SA.
Stats SA rebased and benchmarked GDP to 2005 and included illegal activities such as drugs trade and prostitution for the first time. It said these activities only added about 3.5 billion rand to the economy, 0.2 percent of GDP.
"South Africa's better-than-expected GDP outcome closes the door on any further interest rate cuts, and potentially brings the timing of the first rate hike closer," said Annabel Bishop, economist at Investec.
The central bank has since December cut interest rates by 5 percentage points to help stimulate the economy and left rates unchanged at its three previous meetings.
She added however that "a sharp, V-shaped recovery is still unlikely" due to the country's heavy dependence on global demand and the high job losses and company failures locally.
The rand firmed slightly after the data, trading at 7.4875 against the dollar at 1010 GMT, compared to 7.51 before the figures were released. The yield on the 2015 government bond fell to 8.45 percent from 8.46 percent.’
Monday, November 9, 2009
House price inflation resumes
ABSA Housing Index – 4th November 2009
After almost a year of nominal year-on-year house price deflation in the South African housing market, some price inflation was recorded in the past two months, according to Absa’s calculations. Based on recent price trends, it was expected that annual nominal price growth would resume shortly. On the back of these developments as well as declining consumer price inflation in recent months, real price deflation slowed down further in September.
House prices in the middle-segment (see explanatory notes) were up by a nominal 2,6% year-on-year (y/y) to R991 200 in October 2009, after rising by a revised 1,3% y/y in September. Month-on-month price inflation came to 1,1% in October. In real terms, house prices in the middle segment of the market were down by 4,6% y/y in September (-6% y/y in August).
The average nominal price of small houses (80m²-140m²) were down by a nominal 3,1% y/y in October, compared with a decline of 3,6% y/y recorded in September after revision. This brought the average nominal price of small houses to about R657 200 in October. In real terms, the average price of houses in this segment was 9,2% y/y lower in September, after declining by a revised 9,8% y/y in August.
In the category of medium-sized houses (141m²-220m²), the average nominal price declined by 4,4% y/y in October (-4,5% y/y in September after revision), which brought prices in this segment to around R908 300. Taking account of inflation, this resulted in a real price decline of 10,1% y/y in September, unchanged from August.
Nominal price growth in respect of large houses (221m²-400m²) accelerated to 3,2% y/y in October this year, after increasing by a revised 2,6% y/y in the preceding month. This caused the average nominal price to rise to R1 417 400 in October.
The average price of large houses was down by a real 3,3% y/y in September, compared with a drop of 4,2% y/y in August. The latest trends with regard to house prices are encouraging, which are based on a further rise in transaction volumes in October, compared with September. This came after transaction volumes appear to have bottomed in August this year.
Despite massive job losses recorded in the third quarter of 2009, there are indications from various economic indicators, such as the South African Reserve Bank’s leading and coincident business cycle indicators, that the economy is on its way to recovery. Although the household sector is still very much under pressure on the back of declining employment, while real disposable income growth is negative territory, housing market conditions are expected to improve further towards the end of the year and into 2010. Better economic conditions, as well as banks’ less tight lending criteria and the lagged effect of lower interest rates, will provide much needed support to the property market during the course of the next twelve months.
Taking account of house price trends in the first ten months of 2009, nominal price deflation of less than 1,5% seems possible for the full year compared with 2008. Average nominal house price growth of up to 3% in 2010 is attainable if the latest trends prove to be sustainable. Real price deflation of around 8% is forecast for 2009, while prices may decline further in real terms next year on the back of nominal house price and inflation projections.
After almost a year of nominal year-on-year house price deflation in the South African housing market, some price inflation was recorded in the past two months, according to Absa’s calculations. Based on recent price trends, it was expected that annual nominal price growth would resume shortly. On the back of these developments as well as declining consumer price inflation in recent months, real price deflation slowed down further in September.
House prices in the middle-segment (see explanatory notes) were up by a nominal 2,6% year-on-year (y/y) to R991 200 in October 2009, after rising by a revised 1,3% y/y in September. Month-on-month price inflation came to 1,1% in October. In real terms, house prices in the middle segment of the market were down by 4,6% y/y in September (-6% y/y in August).
The average nominal price of small houses (80m²-140m²) were down by a nominal 3,1% y/y in October, compared with a decline of 3,6% y/y recorded in September after revision. This brought the average nominal price of small houses to about R657 200 in October. In real terms, the average price of houses in this segment was 9,2% y/y lower in September, after declining by a revised 9,8% y/y in August.
In the category of medium-sized houses (141m²-220m²), the average nominal price declined by 4,4% y/y in October (-4,5% y/y in September after revision), which brought prices in this segment to around R908 300. Taking account of inflation, this resulted in a real price decline of 10,1% y/y in September, unchanged from August.
Nominal price growth in respect of large houses (221m²-400m²) accelerated to 3,2% y/y in October this year, after increasing by a revised 2,6% y/y in the preceding month. This caused the average nominal price to rise to R1 417 400 in October.
The average price of large houses was down by a real 3,3% y/y in September, compared with a drop of 4,2% y/y in August. The latest trends with regard to house prices are encouraging, which are based on a further rise in transaction volumes in October, compared with September. This came after transaction volumes appear to have bottomed in August this year.
Despite massive job losses recorded in the third quarter of 2009, there are indications from various economic indicators, such as the South African Reserve Bank’s leading and coincident business cycle indicators, that the economy is on its way to recovery. Although the household sector is still very much under pressure on the back of declining employment, while real disposable income growth is negative territory, housing market conditions are expected to improve further towards the end of the year and into 2010. Better economic conditions, as well as banks’ less tight lending criteria and the lagged effect of lower interest rates, will provide much needed support to the property market during the course of the next twelve months.
Taking account of house price trends in the first ten months of 2009, nominal price deflation of less than 1,5% seems possible for the full year compared with 2008. Average nominal house price growth of up to 3% in 2010 is attainable if the latest trends prove to be sustainable. Real price deflation of around 8% is forecast for 2009, while prices may decline further in real terms next year on the back of nominal house price and inflation projections.
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