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Thread: Investors see London homes as safe haven

  1. #1
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    Default Investors see London homes as safe haven

    http://www.businesstimes.com.sg/spec...haven-20121018

    Published October 18, 2012

    Investors see London homes as safe haven

    Attraction for homebuyers is the city's pure investment potential

    By yolande barnes


    LONDON has one of the world's most established residential real estate markets and has long attracted international owner-occupiers and investment buyers.

    World volatility has recently boosted the appeal of the city as a stable and mature "safe haven", but buyers are increasingly attracted by the city's pure investment potential.

    London is a very international city and its market truly global. Around 35 per cent of buyers across the city's prime market were born overseas, and the more central the location, and the greater the proportion of new build, the more international the market.

    International buyers now account for 65 per cent of new-build sales across prime London, rising to 70 per cent in prime central locations and 78 per cent for new build properties over 5 million (S$9.8 million).

    The international nature of the city and its commerce has also created strong rental demand. Some 25 per cent of all London's housing stock is now market rented, rising to over 50 per cent in the prime central London boroughs.

    This means that there is a large, established and deep private rental market for international investors to participate in, and it is a market where the fundamentals of supply and demand look extremely strong.

    Savills Research anticipates a severe undersupply of new-build housing in the UK capital, with delivery falling well below both household formation levels and the London Mayor's widely publicised housing target.

    Estimates are that the current development pipeline will result in a total supply shortfall of 50,000 new homes by 2016.

    This fundamental shortage of homes is not only underpinning capital values across London's domestic markets, but is contributing to an acute shortage of rental property, and in turn leading to a strong rental growth.

    Indeed, across London as a whole, rental growth has exceeded capital growth.

    For overseas investors interested in preserving wealth, London's capital value performance makes it a safe haven, while the fundamentals of its rental market continue to enhance its appeal to those interested in income.

    The chart shows the extent to which prime central London has outperformed the UK mainstream market, with growth since the bottom of the market in March 2009 totalling 50 per cent and a further 22.7 per cent is forecast over the next five years.

    We have long been advocates of residential property investment in the private rented sector.

    Until recently, this has primarily been predicated on the expectation of increased capital value, but there is now a strong case on the basis of income.

    Our forecast for rental growth is strong, expected to total 27.6 per cent over the next five years so a strong investment case can also be made for London on the basis of rental growth.

    Rapidly rising demand for private rented accommodation is a situation that is unlikely to change for as long as the accessibility of owner occupation remains limited.

    This is currently constrained by scarce mortgage finance for aspiring home owners and first-time buyer deposits remain unaffordable.

    Although rents have risen sharply this year, the inbuilt supply shortage means that we see nothing overheated about this market.

    Our analysis comparing the markets of the top 10 "world class" cities, published earlier this month in the Savills World Cities Review shows that London's yields are relatively high by international standards.

    Grossing at 5.0 per cent, London is second only to New York and Moscow, and well ahead of Singapore at 4.1 per cent.

    Our recent Focus Investment Special examined the London market in detail and concluded that the time could now be right to commit to residential investment.

    The depth and breadth of demand within the London market means that it offers different types of opportunities to investors, based on budget, time horizons and income requirements.

    Our analysis suggests that prospective total 10-year investment returns could range from 7.5-8.0 per cent per annum for London boroughs such as Hammersmith & Fulham and Camden, 8.0-8.5 per cent in Kensington & Chelsea and Westminster, to 9.0 per cent in the outer London mainstream markets of locations such as Greenwich and Newham - home of the Olympics Village.

    In short, the city offers different property types, different geographies and good reasons for investment across the range of market segments, with a strong outlook in terms of blended return.

    On a practical note, the key to sound investment will be to ensure the ongoing management of stock to keep gross-to-net yields low.

    And, in terms of stock and geography selection, there is no substitute for solid research and expert advice.

    The writer is director, at Savills Global Research

  2. #2
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    I like London. Good yield. Low rates. Great properties and strong demand.

    A few good launches on the horizon...

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    Where got good nett yield after council tax, interest rates etc at today's prices? Why would a sgporean buy another safe haven that's less safe than Sgp?

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    Quote Originally Posted by newbie11
    Where got good nett yield after council tax, interest rates etc at today's prices? Why would a sgporean buy another safe haven that's less safe than Sgp?
    Council tax is borne by tenant.
    Interest rate is all time low and expected to remain low. Base rate is 0.5%.
    Singapore is of course a safe haven.. But lots of restrictions now such as SSD, ABSD, Low LTV, etc... So if you already have Singapore property then always good to consider other options.

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    UK industry is hollowing out. Now the only industry I can think of that is doing well is the universities. Then again, the UK universities are also facing tremendous funding issues and are slowly coming out to Asia. As Asia becomes more wealthy, education, innovations, industries and commerce will grow rapidly. I'm of the view that Asia properties have more value over the long term (>10 years) as compare to UK.

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    Quote Originally Posted by hyenergix
    UK industry is hollowing out. Now the only industry I can think of that is doing well is the universities. Then again, the UK universities are also facing tremendous funding issues and are slowly coming out to Asia. As Asia becomes more wealthy, education, innovations, industries and commerce will grow rapidly. I'm of the view that Asia properties have more value over the long term (>10 years) as compare to UK.
    Yes. Also agree. But if talking about properties only (ignoring stocks, bonds, reits, currencies, etc) where else can you buy in Asia? (assuming you already vested in Singapore properties)... The rest of the region have severe restrictions on foreign property ownership (Indonesia, Hong Kong) or have political instability (Malaysia, Thailand) or currency depreciation (Vietnam) or natural disasters (Philippines, Thailand) etc... where else can you buy?

    Even for Singapore, we must always be conscious of the tenants pool drying up when expats go back due to downturn etc...

    In London, the tenants pool is not so volatile. No such reliance on Expat community. Just my .

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    Please remember that even for non-resident individuals, UK inheritance tax applies if you pass away. This is at a hefty rate of 40% if over the threshold which is currently GBP325,000.

    http://www.hmrc.gov.uk/rates/iht-thresholds.htm

    Maintenance fees can be very expensive and goes up at a rate higher than inflation.

    Agents fees can be expensive and repairs can be expensive (tradesmen in UK charge a lot more than those in Singapore).

    Chasing tenants for rent can be a big headache when you are not even in the same country. There is already a thread about tenants who don't pay rent on time in Singapore. The problem can be far worse in the UK and it is also much more difficult to trace the tenant if they suddenly disappear. The agents there may not be so obliging as to help you out with this and even if they do, they may charge you additional fees.

    The rental yield can be attractive - yes agreed. But the costs can eat into the yield quite significantly. It is also quite easy to get tenants in London as there is a constant flux of people who are coming and going for work and study. So there are pros and cons you have to consider carefully. Remember this country is half way around the world so it is not easy to sort out problems when they arise.

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    Quote Originally Posted by chiaberry
    Please remember that even for non-resident individuals, UK inheritance tax applies if you pass away. This is at a hefty rate of 40% if over the threshold which is currently GBP325,000.
    Yup! Very true! that's why must sell it at least 7 years before you die! Then, no tax, no capital gains tax for non-residents. Don't ask me why 7 years....

    Quote Originally Posted by chiaberry
    Maintenance fees can be very expensive and goes up at a rate higher than inflation. Agents fees can be expensive and repairs can be expensive (tradesmen in UK charge a lot more than those in Singapore).
    Agents fees range from 7% (for finding tenants only), to 20% (to include management of property - ie, if anything goes wrong, tenants will call agent, agent will sort out, but then agent will change you anything that is incurred for trandemen etc... so, definitely something to factor in!

    Quote Originally Posted by chiaberry
    Chasing tenants for rent can be a big headache when you are not even in the same country. There is already a thread about tenants who don't pay rent on time in Singapore. The problem can be far worse in the UK and it is also much more difficult to trace the tenant if they suddenly disappear.
    Buy insurance.

    Quote Originally Posted by chiaberry
    The rental yield can be attractive - yes agreed. But the costs can eat into the yield quite significantly. It is also quite easy to get tenants in London as there is a constant flux of people who are coming and going for work and study. So there are pros and cons you have to consider carefully. Remember this country is half way around the world so it is not easy to sort out problems when they arise.
    AGREE!

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    Thats why i ask Where got good nett yield

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    Quote Originally Posted by Sleepyhead
    Yes. Also agree. But if talking about properties only (ignoring stocks, bonds, reits, currencies, etc) where else can you buy in Asia? (assuming you already vested in Singapore properties)... The rest of the region have severe restrictions on foreign property ownership (Indonesia, Hong Kong) or have political instability (Malaysia, Thailand) or currency depreciation (Vietnam) or natural disasters (Philippines, Thailand) etc... where else can you buy?

    Even for Singapore, we must always be conscious of the tenants pool drying up when expats go back due to downturn etc...

    In London, the tenants pool is not so volatile. No such reliance on Expat community. Just my .
    I have been seeing more working class westerners in HDB estates and taking public transport. Global economy seems to be slowing down further next year. For rental, it is safer to stick to MMs and mass market condos near MRT/business hubs (HDB is out for most investors).

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    Quote Originally Posted by newbie11
    Thats why i ask Where got good nett yield
    Why not? Inheritance tax doesn't eat into your net yield.. That kicks in when you kick the bucket... So with proper estate planning, you shouldn't be affected.

    Agent fee.. In Singapore also you have to pay agent fee...

    The only difference is when things go wrong, then you have to pay to get those fixed.. And typically more than what you would have to paying SG.. But the higher yield takes care of that..

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    Quote Originally Posted by hyenergix
    I have been seeing more working class westerners in HDB estates and taking public transport. Global economy seems to be slowing down further next year. For rental, it is safer to stick to MMs and mass market condos near MRT/business hubs (HDB is out for most investors).
    Yes... Not many rich expats left.

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    How to dispose of the property 7 years before you die? You don't know when you are going to die. Even 30 and 40 year olds these days can suddenly die, have terminal cancer etc etc etc

    I am not sure that the yield of UK properties is that great after taking into account the charges as mentioned. Don't be so dazzled by the % yield that you don't calculate properly.

    I am not sure that the capital appreciation of UK property will be so fast as their economy is rather sluggish. There is also currency risk.

    I am not against investing in London as I do have 2 small apartments there but I bought one of them a long time ago, mortgage fully paid and using it to pay for the second. They are just below the inheritance tax threshold.

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    Quote Originally Posted by Sleepyhead
    Why not? Inheritance tax doesn't eat into your net yield.. That kicks in when you kick the bucket... So with proper estate planning, you shouldn't be affected.

    Agent fee.. In Singapore also you have to pay agent fee...

    The only difference is when things go wrong, then you have to pay to get those fixed.. And typically more than what you would have to paying SG.. But the higher yield takes care of that..
    With interest rate at at least 3% if you take sgd, what yield is there

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    Quote Originally Posted by chiaberry
    How to dispose of the property 7 years before you die? You don't know when you are going to die. Even 30 and 40 year olds these days can suddenly die, have terminal cancer etc etc etc

    I am not sure that the yield of UK properties is that great after taking into account the charges as mentioned. Don't be so dazzled by the % yield that you don't calculate properly.

    I am not sure that the capital appreciation of UK property will be so fast as their economy is rather sluggish. There is also currency risk.

    I am not against investing in London as I do have 2 small apartments there but I bought one of them a long time ago, mortgage fully paid and using it to pay for the second. They are just below the inheritance tax threshold.
    good to have uk property..

    i love their old building..
    I took the road less traveled by, and that has made all the difference. - Robert Frost quotes (American poet, 1874-1963)

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    Quote Originally Posted by newbie11
    With interest rate at at least 3% if you take sgd, what yield is there
    The only place to focus is central London. All other parts are pretty sluggish... Especially in terms of capital appreciation.

    In central London, gross yields are 5-6% so you can do your own maths.

    Some developments are offering guaranteed 6% rental income for 3 years or something like that. Looks ok to me, but location is everything.. So really need to do homework.

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    Quote Originally Posted by newbie11
    Where got good nett yield after council tax, interest rates etc at today's prices? Why would a sgporean buy another safe haven that's less safe than Sgp?
    Hi Newbie, why do u say that the nett yield is bad? U experienced it before? If yes, do share so that we can learn from u. :-)

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