House prices ‘to fall 30%’

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House prices could fall by as much as 30 per cent over the next four years, it is predicted today.

That could wipe out all the increases brought by the buying boom since April last year.

The thousands of buyers currently risking 100 per cent mortgages and borrowing up to five times their salary could be plunged deep into negative equity.

The warning has extra force because it comes from a respected expert in the field rather than yet another monthly report from a mortgage lender.

Roger Bootle, managing director of Capital Economics, was formerly chief economist at HSBC and one of the Bank of England’s ‘wise men’ who advised Chancellors under the last Tory government.

He said: ‘The message is clear. Houses are now so over-valued that a prolonged period of falling prices is on the cards.’

Analysts at Capital Economics say it would take a fall of 22 per cent to bring the cost of homes back into line with what buyers can afford. A more serious slump, with prices collapsing 30 per cent, cannot be ruled out if there is a 1980s-style ‘boom and bust’ cycle.

Some London ‘hot spots’ have already seen prices marked down in recent weeks, which has been attributed to lower City bonuses and Stock Market uncertainties.

But the analysts at Capital Economics suggest that the most serious and widespread effects will not begin to be felt until late next year. They are forecasting increases of 12 per cent in 2003 before falls of 5 per cent in 2004, 10 per cent in 2005 and 7 per cent in 2006.

That would see the average price rising from around £117,000 now to £128,000 by the end of next year, then falling to £102,000 by Christmas 2006.

Such a shift would push thousands of new and recent buyers into trouble – only last week lender Bristol & West unveiled a new mortgage allowing young people to borrow up to 110 per cent of a property’s value.

The wider economy would suffer as consumers tightened their belts, spreading the gloom into the High Street and beyond.

There would also be social effects, with young couples locked into small homes without the space to raise children.

Others would find it difficult to move in search of work.

Recent studies indicate that annual price rises are running at around 30 per cent, the highest since the boom of the late 1980s.

But CE argues that homes are now even further out of reach in relation to incomes.

Average house prices are 5.7 times average salaries, above even the 1989 peak of 5.6.

‘History tells us that such a high ratio cannot be sustained,’ says the firm’s property report. ‘We should therefore expect a period when house price inflation either slows, or turns negative.’

Capital Economics sets out five scenarios ranging from a benign slowing of the market, which would still be in the doldrums for up to ten years, to the one it expects – sudden collapse and slow recovery.

The forecast echoes the concerns of the Bank of England, which warned recently that the longer the current boom goes on the greater the risk of a ‘sharp correction’. Banks and building societies, however, say there is no obvious trigger for price falls.

They point to continuing low interest rates and property shortages as reason for prices to go on rising.

CE suggests a surge in unemployment could be the catalyst. But it argues that no ‘big bang’ would be needed to start a slide.

‘All it would take is for households to be unwilling to pay the price asked,’ it says.

‘In fact, there are already signs that the housing market boom is over in London … history suggests that it cannot be long before the rest of the UK follows.’

The latest figures from the property website Rightmove.co.uk show that the asking prices of properties coming on to the market are falling in London and static in many other regions.

The approach of Christmas is inevitably a factor. But the average price in Greater London has fallen back by 3.5 per cent in six weeks, to £241,358.

The fall has been led by expensive boroughs such as Kensington and Chelsea – where prices are down 14.4 per cent over the quarter, or an average of £62,000 – Westminster, Camden and Richmond.

The CE study suggests there are many parallels with the last boom and bust – although today’s interest rates of 4 per cent are very different from the 15 per cent of the late Eighties and early Nineties.

The firm puts current house prices at 28 per cent above a ‘fair value’ in relation to incomes. That compares with a figure of 24 per cent in 1989.

The last boom fell apart over a two and a half year period, beginning in 1990, when prices crashed 20 per cent nationally.

This time, CE is predicting a fall of 22 per cent or more over the three years 2004-2006.

There is outside support for the firm’s forecasts.

Independent housing commentator John Wriglesworth said last night: ‘The boom is indisputably over and we’re in the Christmas lull, particularly in London.

‘What remains difficult to call is whether prices will pick up in the New Year. However, I do not expect similar rises in 2003 to those in 2002.’

Economists at Goldman Sachs have said that their model indicates the property market is over- valued by around 20 per cent.

 

SOURCE: DailyMail.co.uk

HOME FISHING? Property buyers cast net across continental Europe

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For Chinese looking to buy property overseas, Britain and the United States are the shopwindows they have always looked into first – but prospective buyers are now increasinglycasting their eyes in other directions.

Real estate agents say that China’s rich are snapping up a more diverse range of prime, high-end properties across Europe.

Cici Dong, head of the Asia-Pacific desk at London-listed real estate agent Savills, saidEuropean inquiries from Chinese buyers have grown, including French vineyards, houses inmedieval villages in Italy, and luxury beach houses in Spain, spurred by the desire to diversifytheir investment portfolios.

“The bulk of our buyers are still British and Russian, but there has been a real surge of interestby Chinese investors, and they have a lot of money at their disposal.

“But unlike the others, who are looking for holiday homes, Chinese buyers are more likely to bepursuing social status or doing it for pleasure.”

Over the past two years, Chinese investors have bought about 30 properties in the world’s topwine-producing area of Bordeaux, for instance, and this year China became the Frenchregion’s biggest export market in terms of volume, according to China Wine News, an industrynewspaper.

Herve Olivier, regional director of SAFER, a French government agency that oversees ruralland development, said another 10 Bordeaux chateaux are likely to be owned by Chinese bythe end of this year, if bureaucratic obstacles can be overcome.

Dong said there is also great interest in large private villas with country views, and of those withviews of lakes or the sea.

Luca Arancio, owner of the British real estate agency Word & Buyer Ltd, who was born in Italy,said at a recent luxury overseas property exhibition in Beijing that he had received manyinquiries for Italian medieval palazzos and lakeside villas.

Houses in ski resorts, apartments and historic estates in Milan, Rome and Florence are alsofavored spots, Arancio said.

He added that Chinese buyers are low-profile, and are “looking to immerse themselves in theItalian culture and adopt the local relaxed mindset”.

Customers are primarily private entrepreneurs with different business interests, including realestate, manufacturing and tourism, and their tastes in Italian luxury spread to perfumes,dresses, bags and cars, Arancio said.

“Italy was already a popular holiday destination for the new economic elite in China, so it’snatural they now want to own a home in Italy.”

Only recently into the Chinese market, Arancio is doing his business through a partnership withSouFun.com, China’s largest real estate online portal.

His service extends to arranging for customers to sit down and have lunch with designers orengineers with the Italian luxury car maker Lamborghini, and if they want a car to be picked upand delivered to them, he can arrange that.

The allure to Chinese property buyers of countries such as France and Italy, with theirsunshine, great food and scenic beauty, is obvious, but cold economic logic is also at play.

The price of European property is estimated to have dropped by around 5 percent over thepast couple of years, and that coupled with a weak euro makes them particularly attractive.

A 19th-century property in a panoramic position in the hills that rise above Lake Gardabetween Venice and Milan, in northern Italy, can cost from about 800,000 euros ($1 million) to3 million euros.

Laurent Deleaval, CEO of Terimmo, a real estate agent that specializes in Europeanproperties, said: “Prices for large villas with a private garden, a swimming pool and a tenniscourt certainly cost much more than small houses, but the prices have hardly stormed ahead;they have remained stable or risen gently.”

For Chinese investors who are involved in manufacturing, buying a house in Italy can also beabout more than having a second home, property agents said.

Again, cold economic realities come into play as owning property in Italy may make it easier forthem to legally use the highly valued moniker “Made in Italy”.

However, language barriers and fears of culture shock in Europe still scare many Chineseaway.

Barrier Javier Julian, regional manager for China of VAPF, a Spanish real estate agency, saidmany Chinese who have shown initial interest in buying beach houses in his country havepulled back citing language and cultural differences.

“Spain is not an English-speaking country and it’s not an immigrant country either. This islimiting the number of potential Chinese buyers.”

China’s foreign exchange curbs are also a problem.

Chinese people are legally restricted to transferring no more than $50,000 out of the country ayear, not even enough for a very modest deposit.

Nevertheless, rich Chinese are somehow still managing to get their hands on some of the most expensive properties in Europe.

 

SOURCE: ChinaDaily.com.cn

AGE NO CONCERN? Latest buy-to-let craze: buying rooms in care homes

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Care home investors are promised returns of 10pc or more, says Richard Dyson. It’s no wonder care is so costly.

It’s buy-to-let, but with a special twist.

You buy a room in a care home and let it to an elderly person in the later or final stages of their life.

This might strike some as distasteful. All forms of property investment seem today to be controversial. But care home investments can be highly profitable, offering annual returns of 10pc or more – and the opportunity for capital growth.

There is a sudden profusion of care home investment schemes chasing savers’ cash. They are being marketed by developers who claim private investors can buy rooms in newly-built homes for as small an initial outlay as £35,000.

In the past month I’ve seen brochures inviting investment in three care home developments: one in Blackpool, one in Manchester and one near Calderdale, Yorkshire. “Make money with this hands free care home investment that guarantees you a 10pc return for ten years,” goes an invitation.

The Calderdale care home will have 70 “nursing and dementia beds” and 31 “assisted living apartments”, and investors have apparently bought more than half of the units already.

Putting down £70,000 would buy you a unit outright, and entitle you to the promised annual £7,000 return right away. Or you could invest £35,000 and waive returns in the early years as part of what the developer calls its “deferred payment plan”.

There is a promise by the developer to buy back the rooms from investors after 10 years at 125pc of the purchase price, so that’s £87,500.

Too good to be true? Quite possibly. These sorts of unitised property investments, such as rooms or suites in blocks of student accommodation, or single rooms within a hotel, have a patchy record. Some have flopped badly. Investors discover they cannot sell, because there is no secondary market for piecemeal rooms in a block; or that they are lumbered with onerous management contracts which wipe out some or all the returns. The properties might never even get off the ground.

The sort of promotion being used with these schemes – the “hands free” opportunity and so on – might in itself sound a warning bell.

But with all of those caveats, it’s an area attracting huge interest. As I’ve written here before, buy-to-let is becoming more specialised as the yields on the more everyday types of property investment – the two-bed urban flats let to professionals, for instance – dry up. So you have landlords converting family homes into bedsits and letting them more cheaply to multiple tenants, and landlords targeting student accommodation – where again the yields are higher.

And as in most forms of investment, if private individuals are waking up to opportunities, you can bet the bigger, professional investment institutions have got there first.

There is a surge of institutional investment in British care homes. Earlier this year a US hedge fund bought 27 care homes. Pension funds and insurers including Aviva and Legal & General are also buying, as are Asian and Middle Eastern investors. Institutions are also funding new developments.

Knight Frank, the property group, puts the yield offered by care homes, at almost 10pc, at the top of the list of returns from property in the health sector. GP’s surgeries – which have long been attractive for their safe and steady NHS-backed rental flows – are near the bottom, at about 5pc.

But unless private investors are prepared to risk their capital with the sorts of schemes I referred to at the start of this piece, it’s difficult to access care home investment. Most of the funds snapping up homes up are for institutional, large-scale investors only.

This is a shame, not least because so many families have sobering experiences ofjust how costly care homes can be when their parents or other elderly relatives live there. Over the past year we’ve written many pieces questioning the level of care home fees, and their relentless increases.

 

SOURCE: Telegraph.co.uk

 

House prices: Will first-time buyers benefit from Brexit?

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Even the Leave campaign admits that houses might decline in value.

It is becoming a matter of consensus that house prices will decrease significantly in the event of a Leave vote at the EU referendum in June – but there is considerable debate over whether or not that is bad thing.

Following in the footsteps of the International Monetary Fund, the Chancellor George Osborne, Bank of England governor Mark Carney and the ratings agency Fitch, two more reports out today state that a Brexit would wipe value off UK housing.

One study, commissioned by the National Association of Estate Agents and carried out by the Centre for Economics and Business Research, estimates the total value of UK housing could fall by as much as £26.5bn by 2018. “Homeowners in London could lose as much as £7,500, while homes elsewhere in the UK could lose £2,300,” notes the BBC.

The research points to falling demand from overseas buyers – and also speculates that reduced demand for rental properties could prompt private landlords to sell up.

Elsewhere, the ratings agency Moody’s published a note that similarly predicted that house prices would fall in the event of a victory for the Leave campaign. Its rival Fitch had previously said that valuations could decline by as much as 25 per cent.

Here is where the narrative is open to interpretation, however.

Mostly, such forecasts are presented as a cautionary tale for homeowners, but Moody’s is clear that the trend would be good news for first-time buyers. Gaby Trinkaus, a vice president and senior analyst at the agency, said prospective owners would “benefit from lower competition for housing, as house price and rental inflation would slow down if immigration is curbed”.

Fitch had similarly indicated that a correction in prices might not be so bad, as the fall in prices would merely bring average property values back down to a “sustainable” level.

A spokesman for Vote Leave admitted that house prices could drop but echoed the potential benefits for many, particularly younger, households. “The biggest pressure on housing supply is immigration which has made buying your first home and even renting unaffordable for many,” said Matthew Elliott, the campaign group’s chief executive.

Not everyone is convinced. Osborne said that while house prices would fall, thereby hurting homeowners, benefits for new buyers would be offset by a sharp rise in interest rates in the years after the vote to combat an expected surge in inflation.

Separately, the National Association of Estate Agents warned of a skills shortage in construction if EU workers depart en masse, which would threaten future housebuilding. “We simply wouldn’t have the resource to put the bricks and mortar together,” said managing director Mark Hayward. “It [a Leave vote} has the potential to have a very damaging effect on the future housing market.”

House prices: What will your home be worth by 2030?

18 May

The already squeezed affordability in the housing market could get even worse in the coming 15 years if current trends persist, according to the estate agency Emoov.

The company has calculated that across Britain the average house price rose by 84 per cent over the 15 years between 2000 and 2015. It has extrapolated the effect on valuations in each region and major city if the same rise were to be seen equally across the country over the same period to 2030.

In short this would be “extremely worrying” for new buyer prospects, says Emoov chief executive Russell Quirk. It would result in the average London home rising above £1m, the average in many areas of England hitting £500,000, and even the typical buyer in Wales and Scotland having to part with around £300,000.

Such forecasts are highly questionable, not least because rises have not been equal in all regions in the past decade and a half. There is also considerable doubt that a housing market that Quirk describes as even now in the grip of “artificial inflation” could sustain such persistent increases.

Nonetheless, Emoov’s forecasts do provide a stark reminder of just how rapidly prices are rising and an extreme example of what could happen if no action is taken to moderate growth. So what might house prices be in your area in 15 years’ time?

London would continue to lead the way with the average price in the capital as a whole – and in 14 of its 32 boroughs – breaking through £1m. The most expensive houses would continue to be found in Chelsea and Kensington, where the current £.19m average would surge to £3.4m. A home in the most affordable borough of Barking and Dagenham would set you back just over £453,000.

This latter is one of only four areas in which the average house would come in below £600,000, the current limit for the first-time buyer-focused Help to Buy scheme. The other three would be Bexley, Croydon and Newham.

England would remain the most expensive of the constituent nations, with house prices rising above £457,000 on average and hitting £500,000 in no fewer than 12 counties. This includes all the home counties bordering London, as well as Oxfordshire, Cambridgeshire, Hampshire, East and West Sussex, Dorset and Rutland.

In Wales the average price would be more than £307,000 – “expensive, but still £150,00 cheaper than England”. The most costly area, the border county of Monmouthshire, would see an average price of £442,141. The cheapest in the country would be the cheapest in Britain overall: Merthyr Tydfil in Wales would have an average price of ‘just’ £178,745.

Scotland would remain the most affordable region, with an average property value of around £297,000. The stand-out housing market in Edinburgh would by 2030 boast an average price of £432,468, while the most affordable homes in North Lanarkshire would be worth £200,600.

House prices could ‘crash’ by 25% after Brexit

17 May

Fitch, the credit ratings agency, is the latest to warn of the potentially dramatic effects of a vote to leave the European Union on UK house prices. It reckons a Brexit could wipe as much as 25 per cent off the average property value.

In the wake of similar warnings from both the Chancellor George Osborne and the International Monetary Fund chief Christine Lagarde, the agency says that an Out vote followed by “fractious” trade negotiations with the bloc would precipitate a worst case scenario. This would include a slump in the pound, an eventual rise in interest rates and a major correction in the housing market.

Echoing the Bank of England’s predictions, Fitch says the pound could potentially slump 30 per cent, pushing up consumer prices. In turn this would mean that after initially cutting interest rates to stimulate demand, the BoE could be forced to raise borrowing costs to three per cent by 2019 in order to combat runaway inflation.

“Lower growth and higher interest rates could trigger a sharp fall in house prices,” it concludes, according to the Daily Telegraph.

The scale of the worst case “crash” in prices is in part the result of how overheated UK property prices already are, however. Fitch says that “house prices are currently up to 25 per cent above ‘sustainable’ levels in relation to disposable income” and that a post-Brexit slump could simply “result in house prices falling towards their sustainable level”.

Writing separately in The Telegraph, Jeremy Warner comments: “There are few things likely to turn me into a Brexiteer, but the prospect of falling house prices might just do it… Unless you are a buy-to-let landlord – a tiny minority of the population – or about to sell up and leave the country, the price of houses doesn’t matter.

“Indeed, if prices were a bit cheaper, and therefore more affordable, I would wager that most people would be a good deal happier.”

There is evidence to suggest that the EU vote is already acting as a brake on the hitherto stellar house price growth in the UK. The Financial Times reports that estate agents such as Foxtons, Countrywide and Savills have “warned that property transactions are likely to fall in the second quarter as potential buyers await the outcome”.

The property firm Lonres told The Guardian that 39 per cent of agents working in London’s most expensive neighbourhoods had seen a “fall in European buyers in the last three months”. This has contributed to a drop in prices in the capital’s luxury postcodes of as much as 12 per cent compared to last year. Overall prices across London have risen by more than eight per cent.

House prices for first-time buyers soar after buy-to-let ‘feast’

16 May

Asking prices for homes targeted at first-time buyers soared at a far faster rate than the wider market in April after a “feast” for buy-to-let investors in recent months, according to the property website Rightmove.

Average prices for properties coming on to the market in England and Wales with two bedrooms or less rose by more than six per cent from March to April. The figure compares to an increase of just 0.4 per cent across the market as a whole, according to The Guardian. First-timers need to pay £194,224 to meet the asking price of the average smaller home.

Claims that these numbers are being propelled by an out of control housing market in central London are not true in this case, as the capital’s inner regions are not included in the calculations.

Prices may still be inflated, Rightmove admits. “It remains to be seen if these prices can be achieved and there may be some over pricing in the market,” its director Miles Shipside said. He added that there was a general sense of higher-quality properties coming on to market, which would also help to drive prices higher.

Shipside’s central claim is that the huge leap in the listing price of smaller homes in April is due to the rush of landlords buying in the preceding few months, as investors sought to beat a new three per cent stamp duty surcharge that came into effect on 1 April.

“Buy-to-let investors have had a bricks and mortar feast between the chancellor’s announcement in November and the tax deadline at the end of March, and the result is a famine of suitable property and higher prices,” he explained, according to the International Business Times.

Things may not improve quickly for new buyers, either. Johnny Morris, research director at estate agents Countrywide and Paul Milson of the Leaders estate agency in Epsom, Surrey both told The Guardian that landlords were not being put off by the new stamp duty. Instead they were looking to buy smaller homes for which rental demand remains high.

Not all areas are seeing first-time buyer asking prices rise. Llandudno in north Wales has seen prices fall by 7.5 per cent over the past year.

 

SOURCE: TheWeek.co.uk

DOUBLE BUBBLE! Buying a second home abroad – the pros and cons

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There is money to be made buying a second home abroad but watch out for unscrupulous developers, warns Harvey Jones.

Investing in property is now an international game, as Britons look to spread their wings overseas.

Buying a buy to let in Barcelona or a holiday home in Florida is certainly more enticing than investing in a drab semi in Swansea or Swindon. Overseas property can also look dazzlingly affordable compared to the saturated UK housing market, and the prospects also sound brighter as developers lure investors with reports of double-digit annual gains.

Most Britons buy second homes for their holiday or retirement but growing numbers are treating it as a pure investment, tempted by developments promising guaranteed annual yields of 6% or 7%.

There is likely to be a fresh surge in Britons buying abroad as the over-55s take advantage of their new-found pension freedom.

Be warned, sharks swim free in foreign waters and many have already sunk their teeth into the wealth of unwary Britons.

Don’t be an innocent abroad, you need to plan your foreign property adventure very carefully.

After years in the doldrums, old favourites, such as Spain and Florida, are bursting back to life.

MartinDell, director of Spanish property portal Kyero.com, reports growing interest from local and foreign residents wanting buy-to-let portfolios while prices remain low. Many are drawn by rising yields, up from 4.7% a year ago to 5.3% today. Popular tourist areas, such as Las Palmas de Gran Canaria, can yield up to 6%.

Dell says: “You can rent out a modern, one-bedroom apartment with sea view for €700 (£512) a month, while a spacious three-bedroom townhouse with sweeping views of the bay costs as little as €145,000 (£106,000).”

Mark Bodega, director at currency specialist HIFX, says Florida is attracting British buyers again, tempted by the 50% drop in prices since the financial crisis. “The pound has slipped against the dollar but low costs, high rental demand and low property taxation makes investing in the States a popular choice.”

Old favourites such as France, Italy and Portugal are popular but developers are also pioneering new territories.

Property agency Universal21 is hoping to entice British investors to Istanbul. It offers five-year rent guarantees with full property management and no extra fees.

Agency director Monica Anca says you can buy one-bedroom apartments in south-west Istanbul from £50,000 and enjoy rental yields of 6% to 7% a year.

“With recent capital growth of 20% a year and zero capital gains tax after five years, this is a popular investment area.”

Albania now has its first ‘affordably luxurious’ development aimed at investors, the Lalzit Bay Resort & Spa.The off-plan scheme offers incentives such as a 6% rental guarantee for the first three years or discounts of up to 30% for cash buyers.

These are just two among scores of off-plan and buy-to-let property investment schemes investing in locations as diverse as Tuscany, Montenegro, Mauritius, Barbados, Dubai, Brazil and Panama.

When it goes wrong

But the foreign property dream can quickly turn into a nightmare. Britons who invested in luxury off-plan Caribbean developments through the Essex-based Harlequin Property Scheme may have lost tens or hundreds of thousands of pounds each after the scheme collapsed amid an investigation by the Serious Fraud Office.

Other Britons may have lost their lifetime savings after investing in the failed EcoHouse social housing scheme in Brazil.

Foreign property is an unregulated investment; there is no Financial Conduct Authority to battle for compensation on your behalf if something goes wrong, and local protection ranges from weak to non-existent.

Angelos Koutsoudes, head of the Overseas Guides Company, says: “Overseas property remains infested with dodgy operators and crooks and UK investors have lost hundreds of millions of pounds.”

Buying off-plan can give you an instant profit if the sale value is worth more than the building cost but the risks are legion, he says. “The place may never get built, or be finished to substandard quality. Or maybe the building is finished but the access road neveris. Your developer may go bust or run off with the money.”

Foreign estate agents joke that foreign buyers forget to pack their brains but Koutsoudes says. “More truthfully, they are out of their comfort zone, eager to please and overexcited,” he says.

As with any investment, you should beware of anybody promising excessive returns, he says. “If the deal is that good, why hasn’t George Soros bought it?”

Clare Nessling, director at overseas mortgage specialist Conti, says any yield guarantee is only as strong as the company offering it.”Ask for evidence to substantiate the stated returns and references from previous buyers. What is the developer’s track record and how long has it been trading? What are the yields based on and have they been achieved in the past?”

A common trick is to hike the purchase price of the property, so buyers are effectively funding the rental guarantee from their own pockets. Nessling says: “The truth is that a quality property in an attractive location doesn’t need a guarantee as it will attract renters anyway.”

Stephen Hill, head of the professional negligence team at solicitors Bolt Burdon Kemp, is even more sceptical about rent guarantees. “A very generous guarantee means the developer is making a lot of money, almost certainly out of you. It suggests the price you are paying is too high, and the rental yield may fall sharply once the guarantee runs out.”

Hill also scorns overseas off-plan projects, which make up the bulk of the property cases he handles. “It is much safer to buy a property that has already been built.”

If you do decide to buy off-plan, research the developer online, checking the company and director’s accounts and history, Hill says.”Your deposit should be secured with an insurance bond in case the developer can’t complete or goes bust.”

Only proceed if you are free to instruct your own independent English-speaking solicitor, who has absolutely no links to your seller, estate agent or developer.

Hill says there are opportunities from reputable companies but you should avoid anything that looks too good to be true.

Most investors want capital gains as well as rental income but there are no guarantees you will get this, either.

Turkey may have delivered capital gains of 20% a year but a slowing economy and political turmoil means this is unlikely to be repeated. Prices in Dubai are falling. The US Federal Reserve is keen to hike interest rates, which could force up borrowing costs around the world.The danger is that you are buying into a global property market inflated by six years of cheap money.

Exit strategy

Peter Esders, commercial director at international legal services company Judicare Group, says before entering into any property agreement you need to work out your exit strategy. “Check whether there is a vibrant resale market for when you want to sell.Who is likely to want to buy the property? How easy is it to get your money out of the country?”

You also need to think about tax.”If the property is an investment, rather than for personal use, you can make significant savings by putting the property in the name of a company.This requires specialist advice.”

You should also work out what taxes you will have to pay on any income or growth, both locally and in the UK, Esders says. “In most cases, you will have to declare rental income to the local authorities and also where you are tax resident. Many countries have double taxation treaties to avoid you paying tax twice.”

Esders says you also need to offset your mortgage and running costs against the income, and remember that your income will fall during the off-season, if you can rent out your property at all.

Also think carefully before buying somewhere that relies on budget airlines to take people to that destination.”If that airline pulls its route, you could struggle to rent out your property,” Esders says.

Finally, be honest with yourself. “Too many investors are really buying for their personal use. If you use the property during peak holiday times, you are missing out on the best income periods.”

Douglas Salt, director of Frank Salt Real Estate Malta, recommends says: “Think about potential selling points for your property, such access to amenities, public transport,shopping centres,office regions and so on. Not only will this attract a greater pool of prospective tenants but it will be an added asset should you decide to sell later.”

Ray Withers, chief executive at investment specialist Property Frontiers, says if you’re looking to purchase more than one property you should spread your risk. “Buying in a range of countries, or even continents, will limit the impact of any regional events or market recession.”

So if your first property is in a holiday resort, balance this with something in a thriving urban centre, Withers says.

Finally, don’t ignore the impact of currency swings, which can wreck all your sums. Around 15,000 Britons came unstuck after buying off-plan properties in Cyprus using Swiss franc mortgages. When the safe haven currency soared in the wake of the financial crisis, their mortgage repayments went through the roof.

Jordan Tilley, head of UK and Europe at UKForex, says currency risk cuts both ways. “The pound’s recovery against the euro is attracting Britons to the continent but it is a dampener for existing investors who will now get less when they convert any gains back into sterling.”

Buying overseas property opens up an exciting world of opportunity but it is also a world of risk.

 

SOURCE: MoneyWise.co.uk

Average rents in the UK are rising: will landlords benefit from profitable returns?

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It’s good news for landlords. Rents are rising – something that will go some way to help property investors who have been hit by a tax crackdown.

In the latest statistics released this week, rents rose at their fastest rate for six months in April, reaching an average of £793 in England and Wales. The findings by letting agents Your Move and Reeds Rains means rents are 2.4 per cent higher than a year earlier.

It equates to a typical tenant paying an additional £19 extra a month, with rents reaching records in the East of England, the West Midlands and the East Midlands.

Adrian Gill, director of Your Move and Reeds Rains, said: “Anyone looking for a home to rent may now find the better deals of the winter months are over. Landlords are seeing renewed interest and competition between potential tenants as the spring rental market accelerates.”

He suggested that the reasons for the rent rises include tenants being in a stronger financial position.

He said those looking for a rental property are more likely to be in work, getting pay rises and feeling able to pay their other bills.

“These wider economic fundamentals are shifting on the side of healthier household finances.”

Landlords look to pass on costs

It comes as landlords seek to pass on the cost of the stamp duty surcharge of 3 per cent on buy-to-let properties as well as the forthcoming reduction in tax relief that landlords can claim.

Separate research by SpareRoom supports an increase in rents, with the average price of room rents also higher than a year ago.

However, the biggest percentage increases are happening – perhaps surprisingly – outside of London, even though the capital is where rents tend to be more in cash terms.

Big rises in the South

The regions seeing the biggest percentage rises in average room rental prices in the past year are the South East and the South West. In the South East, average monthly room rents have climbed to £485 a month, up 6.59 per cent on a year earlier.

In the South West, average monthly room rents have increased to £431, up 6.62 per cent during the same period.

By contrast, rents in the capital cost £747 a month, up only 1.63 per cent, SpareRoom said.

This one major stat shows how investors think Britain’s property prices are going to crash

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Figures from the Investment Association (IA) this week gave the biggest indication yet that a property crash could happen very soon.

Property funds saw a net retail outflow of £119 million ($171 million) in February.

According to the IA’s report, that’s the largest outflow since November 2008.

The figure is also much bigger than January, when outflows were only £28 million. Both January and February are far worse than December, when £151 million poured into funds.

This represents a major downturn for property funds as an asset class.

Property funds buy commercial and residential properties all over the UK and across the world. They are mainly used by long-term investors who want to diversify their portfolio, and can give a good idea of investor confidence in the property market.

Just over a year ago property funds were among the best-selling assets on the markets, with sales of almost £4 billion. But now they’re amongst the five-worst selling — along with fixed income and equities.

This chart shows how much property fund investment has fallen in 2016 compared to previous years:

property_funds arrowInvestment Association

Danny Cox, chartered financial planner at Hargreaves Lansdown, brushed off the figures,telling the Financial Times that structurally open-ended property funds — funds that can issue an unlimited number of shares — don’t work.

“Managers are forced to buy and sell properties according to cash flow, not on market conditions,” he said. “The rush of money into property funds leading up to 2007 saw managers overpaying for properties they didn’t want, simply because they had to invest the wall of money hitting the sector.”

Despite this, the signs are still worrying for the property market. Business Insider reported on Thursday that the luxury property market was likely to stall in 2016 as house prices for London’s wealthiest areas had dropped 6.7% in just over a year.

Analysts cited rising stamp duty, fears over the impact of Britain leaving the EU and general economic uncertainty as factors. Whatever the reasons, they certainly seem to have had an effect on property fund investment too.

 

SOURCE:  – Business Insider

Student accommodation shortage attracts A$1.2bn investment in Aus, NZ

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A shortage of student accommodation in Australia is attracting large scale tranches of foreign capital, with two major property investments worth a collective A$1.2bn announced in the last month.

Brisbane-based Blue Sky Alternative Investments has partnered with Goldman Sachs in a $1bn deal to fund between 5,000 and 10,000 purpose-build student beds across Australia and New Zealand over the next three years.

The partnership marks US investment heavyweight Goldman Sachs’s entry into the Australian market, after entering a £2bn joint venture in the UK earlier this year.

The investment will partly target international students coming to study in Australia, who are currently underserved as a group in the accommodation market, according to Blue Sky’s head of real estate investing, Adam Vaggelas.

“Education is Australia’s largest non-resource export industry, worth in excess of $18bn per annum and growing (and) the ability to scale further into this domestic thematic, in part due to the region’s proximity to a rapidly expanding Asian middle class, is a key focus for the partnership,” he said.

He added that the accommodation will be furnished and let at a flat fee including utilities, making it an attractive option for international students.

Construction on the first phase of the project, a 280-bed development in Woollongabba, Brisbane and Blue Sky’s first wholly-owned student accommodation building, is set to be completed this year.

It will be followed by a 720-bed development in Melbourne’s South Bank in 2017, and a 780-bed project, also in Melbourne, and a 420-bed development in Adelaide’s West End in 2018.

“We are looking for future sites to buy and develop right now around the country and New Zealand as well,” commented Vaggelas.

Meanwhile, UK-based major student accommodation player GSA has agreed to buy Campus Estates, a relatively new developer based in Melbourne, for A$21m.

The deal includes a 350-bed student residence in Carlton, Melbourne, along with a number of pipeline projects.

This is the group’s first acquisition since its re-entry into the Australian market, after the sell-off of its Urbanest subsidiary in 2014.

The acquisition will “fast-track our re-emergence into the student market”, commented Simon Loveridge, managing director, GSA Group Asia Pacific.

The deal has brought Campus Estates founder Jon Whittle into GSA as head of real estate for Australia, where he will focus on shaping the company’s strategic direction and leading pipeline acquisitions.

A shortage of university accommodation in Australia means that international students in Australia are far more dependent on the private rental sector than in other countries, making it an attractive target for investment.

The two new deals are the latest in a string of international investments, following on the heels of Singapore-based Wee Hur Holdings, which announced plans to build a two-stage development on a $55m site in Brisbane in May 2015, and London-based Scape, which began two developments worth $560m in Melbourne and Brisbane, in June.

The entry of major new players to the market was predicted by two discussion papers commissioned by IEAA last year, in response to concerns about the quality and affordability of student accommodation for international students.

The two reports concluded that the comparatively low number of student rooms provided by universities means that further development of new, high quality accommodation in Australia is a “necessity”.

 

SOURCE: The Pie News