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Investing in property? Make sure you’re doing it properly

For many investors, the finite nature of land translates into making property a safe, steady investment that diversifies a portfolio.

As ever in life though, if only it were so simple as just buying the asset – whether that is a building, an aircraft or a bond.

It’s not just what you buy that matters, it also matters how you buy it. This is especially true of property.

While a long-term, stable play, real estate is an illiquid asset. That means that you have to invest into it in a way that doesn’t lead you exposed to this fundamental fact.

The debacle around Neil Woodford’s Equity Income fund has highlighted how open-ended funds are not best suited to hold such illiquid assets. Open-ended funds by their very nature imply a promise of liquidity through redemption mechanisms funded by cash reserves or asset sales.

Despite the fine print warning of the possibility of “gating” and delays on redemptions, this is not what investors want or expect. If a fund suspends, as has happened with Woodford’s, it’s bad news for end-investors who find their money locked in when they did not expect it.

Ultimately, that doesn’t help anyone. Now the Bank of England is considering banning investors pulling their money out of open-ended funds at short notice if the underlying asset is hard to sell (of course, this includes real estate).

But while I would argue an illiquid asset like property is fundamentally mismatched to open-ended funds in their current guise, this shouldn’t take away from the fact that – when invested in the correct manner – property is a great investment.

Closed-end funds and co-investing are two investment structures much better suited to real estate, because they are not as fundamentally exposed to its illiquid nature.

As global macro uncertainty inches up, real estate is a solid play which investors will want it as part of their portfolio.

One of the prime real estate investment opportunities can be found in the UK’s build-to-rent (BTR) sector, which is far past the stage where it should be labelled as a niche or alternative asset class. It is accelerating into the mainstream, with investment predicted to reach £75bn by 2025.

That surge of investment is being driven by crystal clear market fundamentals.

The UK’s housing supply-demand imbalance has lasted for years, and will likely persist for decades given the past shortfalls in providing new housing.

However, the success of build-to-rent isn’t just down to a lack of homes, it’s about quality as well.

Renting through non-professional landlords remains a mixed experience for many, with the hassles of bills or having basic maintenance arranged often leaving many frustrated.

The sector is not just a London phenomenon – it is a solution that is being applied nationwide.

For regional cities, towns, businesses, and workers alike, this is good news. Build-to-rent can accelerate the supply of homes in regions, encouraging workers to move around more and help businesses outside of the capital attract top class talent.

Our partnership with Moda Living is primed to capitalise on this, with 6,500 apartments in key cities across England and Scotland.

Of course, any discussions about investing into the UK at the moment will have to consider the long-running Brexit saga. The uncertainty caused may make it harder for other assets and services to secure investment.

But this uncertainty appears to have increased institutional interest in build-to-rent, given its stable, income driven investment characteristics, and the clear long-term demand for more homes.

Property is a fantastic investment. Twain was right – they aren’t making any more land. What he should have added though was that you need to invest in it in the right way.

By Mervyn Howard

Source: City AM

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Buy To Let Property Investors Want Fast Track Housing Tribunal

Buy to let property investors are calling for a fast track housing tribunal to help protect their property investments should the Section 21 ‘no-fault’ eviction process be abolished as planned.

Almost four out of ten landlords (39 per cent) would like the Government to introduce a fast track housing tribunal according to Paragon’s PRS Trends Report for Q2 2019 which surveys the views and experience of over 200 landlords.

The Paragon survey comes ahead of a Government consultation this summer, designed to gather views on how best to make the existing Section 8 process work more effectively.

Alongside a fast track tribunal, almost one quarter of landlords in Paragon’s survey (24 per cent) called for a shorter court process, one in seven (15 per cent) would like a guaranteed way to cover their costs and 7 per cent argued for the ability to submit evidence online.

The vast majority of landlords (84 per cent) said they felt the maximum time from serving notice to taking possession should be no longer than eight weeks. It is felt by that a fast track housing tribunal would help to speed the whole process up to enable landlords to regain their properties.

The survey was commissioned after the Government announced its intention to abolish Section 21 in April this year. In its place, it proposes that landlords should follow the Section 8 process which requires them to demonstrate that tenants are in breach of their rental agreement when serving notice.

Director of Mortgages at Paragon, John Heron, said: ‘Some of the main concerns for landlords around a move to the Section 8 eviction process relate to the efficacy of the existing court process. What we see here is widespread support for a fast track housing tribunal that can deliver a fair and timely solution for both landlords and tenants.’

Source: Residential Landlord

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Property still considered the best investment

Some 73% of buy-to-let investors consider property as still the best , least volatile long-term investment when compared to all other asset classes, letting and estate agent, Benham and Reeves has found.

In the wake of a number of government changes to the sector, 66% believe that the government would fail to implement any initiatives aimed to boost overseas investment in order to drive consumer demand.

Marc von Grundherr, director of Benham and Reeves, said: “The government has really gone to war with buy-to-let investors of late and a consistent string of detrimental changes to the sector through stamp duty increases, tax relief changes and a ban on tenant fees has had the desired impact of denting industry sentiment and dampening appetite for future investment due to a reduction in profitability.

“However, for the institutional buy-to-let investor, this is but a mere blip on a much longer timeline and the overwhelming overtones are that while Brexit poses a challenging obstacle for the immediate future, the market remains the investment option of choice with many confident on a return further down the line.

“This is a testament to the durability of buy-to-let bricks and mortar in the UK as, despite a government-backed clamp down, it remains a lucrative business and one that continues to gain the backing of those that are on the frontline.”

With Brexit continuing to dominate the headlines with no end in sight, it’s no surprise that 72% of investors have had their outlook on the property market altered since the vote, with 68% now less confident in the market itself.

With more changes to property and investment laws on the horizon, 80% of those asked could be forgiven with being unfamiliar with the latest changes to the buy-to-let market.

Although it has only just been implemented, the recent changes to Section 21 notices have also had an impact, with 66% of investors now more cautious about investing.

However, opinion is divided over changes to buy-to-let tax relief and whether the sector still provided a good investment as a result, with 49% believing it is and 51% no longer sure.

The current financial landscape has provided some assurance, with 60% confident that rates will remain low over the next five years and while 66% aren’t as confident in an adequate return over this time period, 22% remain very confident, with just 10% not at all confident.

However, with buy-to-let always requiring a long-term investment outlook, this increased to 37% of investors feeling very confident that they will see an adequate return over the next 10 years, with a further 6% stating they were extremely confident and 51% not as confident.

By Michael Lloyd

Source: Mortgage Introducer

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Key UK Property Investment Sectors to Quadruple in Value

A new report estimates the purpose-built student accommodation, build-to-rent residential and retirement sectors will eventually reach a combined value of £880 billion, as private and institutional investors from around identify the huge opportunity in these assets.

Summary:

  • Three of the UK’s biggest purpose-built property sectors are forecast to rise in value by four times their current combined amount
  • Purpose-built student accommodation, build-to-rent residential and retirement property sectors are receiving increasing levels of global investment, particularly from institutional buyers
  • “The fundamental demographic and economic changes supporting these sectors are difficult for investors and developers to ignore”, as changing generational attitudes are helping to drive the development of Britain’s property market

There is a huge growth opportunity for investors in the UK’s large-scale, professionally owned real estate sectors.

That’s the message from Savills, who estimate that three of the country’s largest purpose-built property sectors are set to quadruple in value once they reach full maturity.

At present, the combined value of the purpose-built student accommodation (PBSA), build-to-rent residential and retirement property sectors stands at £223 billion. But, as momentum in these markets continue to build, this will be rise four times to £880 billion.

Although already established sectors, they are still in their infancy in terms of the growth opportunity for investors. As more students, young professionals and retirees demand higher-standard accommodation, in locations close to places and amenities important to their respective demographics, the advancement of these purpose-built property sectors will continue to drive investment levels.

“Common to all these sectors is the recognition that investing in where people live has great potential for investors, particularly those seeking long term income streams,’ said Lawrence Bowles, Savills research analyst.

“The fundamental demographic and economic changes supporting these sectors are difficult for investors and developers to ignore. Institutional interest will continue to grow as these asset classes mature and can increasingly demonstrate their track record.”

Of these sectors, PBSA is currently the most mature, with Savills estimating its value at £51.2 billion. Last year, global investors poured £3.1 billion into the sector, and a further 35,000 PBSA are expected to be bought in 2019. However, while total PBSA unit numbers stands at 640,000, the UK’s student population has increased 9.7% over the last five years, underlining the undersupply the sector currently faces.

Like PBSA, the build-to-rent sector has helped to raise standards in the UK’s residential rental market, with high-quality apartments in key city centre locations, operated by professional management companies.

But build-to-rent is only just at the beginning of its development, presenting investors with huge growth potential. Savills currently values the sector at £9.6 billion, but projects it will be worth close to £550 billion at full maturity and provide over 1.7 million UK households.

Yet, despite their similarities, only a relatively small number of institutional investors operate in both the PBSA and build-to-rent markets. Savills, however, believes this will soon change.

“Given the similar challenges in development and management, we would expect to see more investors expanding their capabilities to cover the full spectrum of operational residential assets,” commented Peter Allen, Head of Savills Operational Capital Markets.

“Student housing investors have the potential to extend their brands into build to rent and use a strong track record in a very established sector to secure favourable finance terms to maximise opportunities in a newer, less mature sector.”

Source: Select Property

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Why student housing is a first-class honours investment

High yields, low risk, and fast returns are just a few of the reasons reasons luxury student housing has become the new essential in any high-net-worth individuals’ investment portfolio.

While many of the UK’s older generation will reminisce of sub-standard housing, and an unlikely chance of functioning heating or hot water in their university halls, increased private sector involvement in the last decade has now dramatically changed this once Dickensian landscape.

Pools and cinemas are being introduced as standard to the already not uncommon features, such as gyms and concierges.

How university is funded appears to be a driving factor in this growth. The rise in tuition fees has created a dominant consumer culture that is affecting how other parts of the student experience are run.

It might have assumed that the increase in tuition fees would mean a tightening up of budgets in other areas, but it’s producing the opposite effect.

Instead, the fee rise has led to a rapid increase in student spending.

Research by Knight Frank suggests that this could be a result of housing becoming a smaller share of overall living costs, meaning students are more willing to increase their expenditure on higher quality dwellings.

Others are raising concerns that students are becoming more comfortable with debt and simply compiling it with their original loans to worry about later.

Either way, the demand and money for quality student housing is there, and investors are competing to provide it.

According to Knight Frank research, as many as a fifth of students were prepared to pay upwards of £160 per week for housing.

Additionally, 19 per cent of the UK’s students arrive from abroad each year, and these overseas students represent a key target of this investment, as they search for a home away from home.

Demand for UK university degrees hasn’t slowed down either, with half a million applications last year, more than have ever been in university education before.

The purpose-built student housing market is believed to be worth around £46bn, with roughly £5bn of new developments being completed each year.

For 2017, figures from JLL predicted that in every £10 invested in the UK commercial property market, the student housing sector would account for an astonishing £1 of it.

Savills now forecasts a 17 per cent increase in investment in student housing for 2018 alone.

The market operates with something of an immunity to economic downturn due to the inelastic nature of the demand and the reliability of student finance.

Its countercyclical nature means that it’s the larger scale developments offering more units that are attracting the most interest, and proving to be the more reliable investment.

With live projects across areas like Birmingham, Bath, Leicester and Glasgow, the UK University towns are increasingly attractive locations for investors to consider.

Unite Students, in partnership with the Government of Singapore’s sovereign wealth fund, bought all 3,000 of Aston University’s on-campus bedrooms for £227m, in the biggest one-off purchase of student housing so far.

In fact, since 2016, sovereign-wealth funds have invested over 15 per cent of their worldwide spending in student accommodation – a number that is continuing to rise.

The supply-demand defect and the changing attitudes of students has resulted in the emergence of investment hotspots in the UK, with institutional and private investors stepping into meet demand.

The trick is having skilled financiers on board to find the right projects, while heading them with reliable developers.

A joint venture approach to development will promise investors quick turnaround builds that are pain-free, and will see some serious returns on investment.

By James King

Source: City AM

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Top Cities For Buy To Let Investments To Catch Millennials

The best cities for property investment to attract millennials have been uncovered in new research by credit experts TotallyMoney.

Millennials have been shown to be more likely to rent in the private sector, as the UK home ownership rate drops, an obvious target for by to let investors.

The research looked at 16 elements that are widely considered to be important to millennials and used them to rank 63 cities across the UK to reveal the best cities for millennials to live in.

The elements considered included property factors, such as the cost of a one-bedroom property to rent as well as to buy; cost-of-living factors, such as the cost of a cappuccino, gym membership, and meal for two; lifestyle factors, such as number of things to do, the population aged 0–17 and 18–29, and the percentage of Brexit remain voters; and most importantly, work factors, such as overtime hours, paid overtime, average weekly earnings, number of business start-ups, graduate hires, employment rates, and the number of young people on benefits.

Despite high living and property costs, London still makes second place in the list, due to high potential earning and the highest number of graduate hires.

However, first and third place go to Scottish cities Glasgow and Aberdeen respectively, where decent wages can be combined with lower than average property prices.

Bottom place went to Basildon in Essex, where just two per cent of graduates find work and the level of extra-curricular activities lagging way behind.

Spokesperson for credit experts TotallyMoney, James McCaffrey, said: ‘There are some things millennials have had to adjust to that haven’t been experienced by past generations, and with this comes an entirely different set of priorities. Rising house prices, stagnant wages, and Brexit are just some of the hurdles this generation have to get over.’

Rank City Average Weekly Earnings Business Start-Ups Per 10k Population Graduate Hires Employment Rate Average One-Bed Asking Prices Average One-Bed Asking Rents
1 Glasgow £526 48 5% 70% £90,466 £584
2 London £727 112 39% 74% £451,582 £1,633
3 Aberdeen £597 50 5% 74% £84,584 £478
4 Liverpool £512 51 6% 67% £102,029 £483
5 Bristol £547 60 6% 78% £184,736 £686
6 Gloucester £526 44 6% 80% £101,739 £443
7 Southampton £579 70 9% 76% £139,110 £584
8 Cambridge £609 55 2% 73% £225,239 £689
9 Cardiff £505 49 1% 69% £129,368 £493
10 Middlesbrough £477 41 2% 69% £62,183 £353

Source: Residential Landlord

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London property market predictions over the next 12 months

It’s no secret that the London property market has been subdued recently, but the fact that, in spite of everything, it has refrained from crashing does highlight the fact that the market is underpinned by solid foundations. That said, the London property market in 2019 is likely to be characterised by overall caution and stability rather than growth. The team at property investment firm Hopwood House look ahead to what the next 12 months might have in store for the London property market with three specific predictions.

Sales volumes will slow as buyers wait to see what Brexit will bring

Even though Brexit itself need not turn out to be a complete catastrophe, the uncertainty around the form it will eventually take can, understandably, make buyers very nervous. In principle, this issue should be resolved, one way or the other, by the end of March. If that is the case, then growth may start to return to the market towards the latter end of 2019, once buyers have had a chance to adjust to the new reality. In practice, however, there is also a feasible possibility that the negotiating period will be extended beyond the given deadline, which could lead to a longer period of uncertainty and hence subdued activity in the London property market. On the plus side, this could ultimately be of long-term benefit to everyone if it results in a better deal for the UK.

House-price growth will remain subdued

Brexit is the most obvious reason why it is unlikely that there will be major house-price growth in London for the immediate future, however there are others. For example, the London authorities have made it a priority to address the chronic shortage of housing, particularly affordable housing, through a programme of home-building, which has had the (presumably intended) effect of helping to put a brake on house-price growth. It’s also worth noting that the last 10 years have seen certain parts of London benefit greatly from the regeneration brought about by the 2012 London Olympics and other, separate, infrastructure improvements, such as Crossrail, with the result that there was unusually high house-price growth in these areas. At the current time, no such major developments appear to be in the pipeline, hence it is only to be expected that house-price growth will proceed at a slower pace, although, as always, it is to be anticipated that some parts of London will perform better than others, for example, the Notting Hill market continues to be very robust.

The rental market will be highly competitive for tenants

On the one hand, you have people who need a place to live in London, but who do not wish to buy right now. On the other hand, you have a vastly reduced number of rental listings as compared to 2018. This obviously creates a challenging situation for tenants even before factoring in the likelihood that the opening of new tech hubs will draw even more people to the capital. It will be interesting to see if this imbalance in the rental sector will lead to the government looking to encourage buy-to-let investors to focus on the capital and, if so, what form this encouragement will take.

Source: London Loves Business

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UK property: Why history proves this could be the best time for you to buy

  • New research proves how UK property investors who bought immediately following the global financial recession have made the most money on their investment in recent years
  • These “brave” investors made £93,378 in profit when selling their property in 2018, more than buyers in any other year over the last 14 years
  • Amid the wider economic uncertainty of Brexit, will those investors that buy now in 2019 make some of the highest returns over the next decade?

Does this prove that buying UK property now could help you to achieve the highest long-term returns?

Brexit, and the immediate uncertainty of the UK’s withdrawal from the European Union, means that some investors may be waiting until a conclusion is reached before entering the property market. However, the subsequent fall in the pound has also led many other investors to take advantage of this currency opportunity by buying property now.

And new data suggests that it’s the latter group of investors that could be about to achieve the biggest levels of profit over the next few years.

Published by Savills, new research shows that, between 2004 and 2018, it was investors that bought UK property in 2009, amid the fallout of the global financial recession, that achieved the biggest returns when selling their property in 2018.

On average, those buying UK real estate in 2009 made £93,378 when selling their asset last year. It underlines the importance of purchasing with the right market conditions – and taking advantage of wider economic uncertainty.

“Over the last 15 years it really has made a difference as to when and where you bought in terms of the profits you’ve made. It reinforces that it’s not a one-size-fits-all market,” said Lucian Cook, Residential Research Director at Savills.

“The mortgage markets (in 2009) were locked up, but I also suspect some of this is about whether people were brave enough to do it and whether some people in 2009 had enough accumulated equity at that point to be able to make the move.”

The UK is currently suffering a housing shortage. Housebuilding is significantly below the 300,000 new homes the government outlines is required each year. Regardless of wider economic concerns, this does not alter this supply and demand imbalance in the UK’s property market.

At the time of publication, the pound is 11% cheaper against the US dollar than it was on June 22nd 2016 (the day before the EU referendum), and many investors are taking advantage to ensure they can secure an asset with the best value and long-term growth prospects.

Source: Select Property

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UK Investment Property Rental Growth Slowing

Investment property rental growth in the UK is slowing according to the latest Landbay Rental Index.

Annual rental growth in the UK without London is at its lowest point in nearly six years at 1.16 per cent, the lowest since the 1.13 per cent seen in February 2013.

Rental growth in London has seen relative stagnation over the last couple of years since the Brexit vote, but across the other English regions total rental growth has been seven times that of London (3.69 per cent to London’s 0.52 per cent).

However, the latest indications show that the rest of the UK is also seeing a slowdown in rental growth. Wales is currently at the lowest it’s been since April 2014 (1.39 per cent) and in Northern Ireland growth of 0.54 per cent is the slowest since the Rental Index began collecting data in January 2012.

Scotland, however, has seen annual rents grow at 1.66 per cent, having steadily grown over the last six months. The average rent in Scotland is now £746, higher than Northern Ireland (£573), Wales (£656), and creeping up to the English average excluding London (£776).

This Scottish growth is led by high annual growth in Edinburgh City (5.88 per cent), Inverclyde (3.56 per cent), and Glasgow City (2.49 per cent). Only Aberdeen City (-6.62 per cent) and Aberdeenshire (-5.42 per cent) are dampening the Scottish rental growth rate.

CEO and founder of Landbay, John Goodall, said: ‘Falling rents in London have masked relatively strong growth in the rest of the UK since the Brexit vote, but we are now firmly in the midst of a nationwide rental growth slowdown. This may be some relief to renters, but the cost of renting a property remains high. House prices continue to outpace wage growth, dampening the ability of aspiring homeowners to save for a property of their own, meaning demand for rented accommodation remains robust.’

He continued: ‘Rental growth may be slowing, but the pace of change varies wildly between regions. Landlords and brokers alike need to be tuned into these variations in order to maximise their profits, using variations in rental growth and yields over the past year to pick out some of the most promising regions for buy to let. Consistent rental demand will obviously drive returns in the long-term, but by selecting the right location yields will be even greater.’

Source: Residential Landlord

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What can we expect from the UK housing market in 2019?

Brexit and its impact is on every person’s mind, and rightfully so. The local’s aren’t sure which way the market is going to go – will the prices of the UK housing market rise or will they see a sharp fall? National investors, as well as foreign investors, are waiting with bated breath to know what their next move should be. Should they invest in property, sell their current properties or just let things be as they are. Well, below is what the experts are predicting and expecting from the UK housing marketing in 2019.

The number of houses for sale is expected to fall

According to RICS (Royal Institution of Chartered Surveyors), there will be a 5% drop in the sale of houses which is probably around a £1.5 million drop in sales in comparison to 2018. Since many people who have invested in property in the UK will not be forced to sell, they will not have to list their houses on the market. However, to maintain some sort of equilibrium there will be properties up for sale. As per RICS findings in 2018, the number of houses for sale i.e. the stock in the real estate market has been at its all-time low. That is because people are not willing to put their properties up for sale.

The monthly rent is expected to increase

Most people will be unsure about whether or not they should buy a house in 2019, or maybe because of a lack of options, so they will prefer to stay on rent. Owing to this fact, the prices of the rent for most houses will increase. You should expect to see a 2% increase in the cost of rent all throughout London and even certain parts of the UK. Some experts are predicting a 4% drop in the prices of London homes while some are expecting a 2% drop. None the less, even though the prices may be dropping, the number of houses for sale will also drop hence more people will prefer to take a place on rent. Keeping that trend in mind, most homeowners will spike up the rents.

The demand for houses in the outskirts will rise

Keeping in mind that the pound is falling and that a visit to the countryside is as good as a vacation, investors will start buying homes in the outskirts and near the countryside. These houses will be bought with the purpose of enlisting on Airbnb for the locals to book and stay. As per estate agents in Surrey, there has been a 0% change in the average property prices in Surrey from 2017 to 2018, and this is expected to remain stagnant in 2019.

The UK real estate market will see a rush of foreign investments

With the pound falling, more and more foreign investors will start to invest in properties in the UK. While the locals might sit with their hands tied waiting to figure out what is going to happen, the ultra-rich British nationals, as well as foreign nationals, will swoop in and buy the properties because of their discounted prices. For many wealthy investors, Brexit was basically an investment opportunity to invest in prime properties.

All in all, despite the changing prices and trends in 2109, experts are predicting that the UK real estate market will stabilise and return to normal within the coming 5 years. So, if you are planning on buying a house in 2019 then you should expect to see a return on investment in the next 4 to 5 years, so plan long-term investments as of now.

Source: News Anyway