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Posted in Markets by Carl on December 15th, 2008
What a couple of weeks I’ve had! With all the talk about UK residential property prices crashing I thought we should do some investigating on behalf of our clients, firstly to see if it is true and secondly to see if there is value to be had.
Before we trampled the streets, Ash and I spent two weeks conducting some desk research where we thought the value might be. Initially we thought the secondary market with distressed sales at auction might be a good place to start. We quickly found it is a very time consuming task and potentially expensive with no gain (you have to do all your research and employ a solicitor to conduct all the searches in advance of the auction – i.e. you have to be ready to exchange if you win in the bid and you might not!). Also if we are looking on behalf of our clients apart from the time involved, we are not doing anything they couldn’t do themselves. It’s also a very slow process so we’d only be able to satisfy one or two clients a week! Additionally there is new government protection in place to postpone the repossession process for another 6 months. I think this part of the market has not hit the bottom yet!
After a chance meeting with a friend in the industry my attention was quickly drawn to the New Build market within the M25 principally. The reason? Well as you’ll be aware there was an explosion of new build over the last two years which, as much of it nears completion, has coincided with the credit crunch and the global recession. With a lack of liquidity to support the purchase of the massively overly inflated prices that were being asked by developers there is a lot of unallocated stock available. Developers have seen their land bank values reduce dramatically, they have breached many of their banking covenants and their share prices have subsequently tumbled. In short they need cash more than profit at the moment! If a development is near completion they need to recoup costs; if it is a long way from completion it will be mothballed and won’t be started again until the market picks up in 2010! So we have a moment in time when completed new build will be sold very cheaply; but as we have found out it is only available to those people that can buy in bulk and move very quickly. The individual investor does not really have much of a chance.
With this in mind we have been on the streets of London visiting tube stations I didn’t even know existed! We have seen in excess of 40 developments from some of the biggest names and some small independent developers. One thing is for sure that unless you visit the development in person you have no idea whether it is a good investment opportunity or not. Only one Developer has a brand that means something – i.e. a consistent quality that is carried from one development to another. Others have both excellent and very poor developments in their portfolio.
Having completed the task (for the moment!) of visiting sites, we have whittled down our choice to a small number of developments that we are currently negotiating on for our clients. If we can’t get the deal we want we will keep searching until we do. What we now know is that whilst price and location are very important drivers of rental yield and future capital growth, (as sure as eggs are eggs prices will rise it’s just we don’t know when because there is a fundamental issue that demand exceeds supply!), quality is also a very important factor. My goodness there has been some terrible developments built over the last couple of years!
I’ll keep you posted on how we get on……
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Posted in Financing by Ash on December 12th, 2008
Over the last couple of months we have seen the Bank of England cut UK base rates from 5% to 2%. So this is a cut of some 60% in borrowing costs. There is talk that we will see further cuts in the next couple of months as the central bank tries to stimulate a clearly suffering economy.
Obviously those on existing tracker rates (whether residential or BTL) are benefiting but what is the position for new borrowers? A couple of months ago a major UK lender was offering prospective customers with a 25% deposit a mortgage rate of 4.79% as a two year base rate tracker and 5.04% for a two year fixed rate. Now the same lender has withdrawn all of its tracker products and its two year fixed rate is now at 4.54%. So the tracker which would provide the most benefit both now and in the future (if rates are cut further) has disappeared altogether and the fixed rate has come down by 10% or so against the backdrop of a 60% fall in base rates!
The banks are clearly using the current interest rate climate to rebuild capital reserves which have been decimated by recent events. As I have stated previously investors looking to refinance property portfolios or selectively acquire property should look at current financing as “bridge finance” until markets return to normal.
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Posted in Developments by Carl on November 25th, 2008
Angelos Angelopoulos has re-done the animation for the Q Business Park in Larnaca, Cyprus. This follows the successful launch of the project in October. I think you will agree it really is going to be a spectacular building which I am sure will attract visitors, art lovers and photographers from around the world. It will also be the tallest building in Cyprus!……
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Posted in Financing by Ash on November 21st, 2008
There is a common view that the Buy to Let market in the UK has died and that the principle reason for this is a lack of appetite amongst banks to provide mortgage finance. Whilst it is correct that a number of banks have withdrawn from the market, Mortgage Express, who were one of the largest providers have withdrawn from this market completely, there are still several lenders that are active in the market.
Rates may be slightly higher and Loan to Values (LTV) may be slightly lower but for deals that are well priced financing is still available. If you assume finance of 65-70% and an interest rate of 6.5%-7% you will not be disappointed.
Whilst the figures above may not at first seem appealing, as Dipen has noted in his blog yesterday this my be a once in a generation opportunity to acquire capital assets at sensible prices thereby allowing any acquisition to be cash positive even at current interest rates. The finance available at present should be seen as “bridging finance” until finance markets return to more normal levels and when looked at in this way the investment decisions that you make now will start to look very astute.
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Posted in Markets by Dipen on November 20th, 2008
Opportunity in the UK?
The cyclical nature of investing has never been better highlighted than the conditions that are prevalent in the world today. At our launch in February, we highlighted the overheating in the UK market in our document ‘Property Investment – The Facts and The QIS Approach’ and stressed that caution was the keyword for the UK. We predicted that a major fall resulting in negative growth was likely, although the speed and size of the fall has surprised us all. However, the key point from our document was that professional and long term investors should focus on:
1) Pursue an Investment Strategy and do not be deterred by sentiment. Rely on Fact.
2) Investing is for the long term.
3) All markets are Cyclical so focus on the bigger picture and not just the short term snapshot.
4) Never ignore Change.
So what are the facts for the UK? Well as we all know, liquidity in mortgage markets and particularly the Buy to Let market has dried up, deterring buyers and forcing sellers to delay their moves or substantially reduce their asking prices. The immediate effect of this has seen a dramatic fall in the average house price in the UK with falls of around 16 to 20% being the norm. However, this sense of gloom and panic has created potential opportunities in the new build and secondary market as the double whammy of the virtual shutdown of the mortgage market and housebuilders being perilously close to breaching their banking covenants has forced prices close to a ‘generational’ low in my opinion.
So how do I arrive at this conclusion? Well the macro outlook for property, particularly in the South East, has not materially changed. In fact if anything, it has worsened. There will be a huge undersupply of homes in the future as housebuilders cancel projects in the current climate, resulting in the delay of homes coming online once demand returns from buyers. In fact with the number of new homes coming online in the South East expected to drop by two thirds over the next two years, any perceived overcapacity will quickly disappear and will be followed by a sharp rise in prices as property once again becomes more valuable. The current demand constraints seem to create an oversupply of property and this has lead to us being offered substantial discounts on both new build and secondary market properties within Greater London. These discounts are driven by hosebuilders and owners needing cash rather than profit and are truly creating generational opportunities.
So what next? Well as I said in our newsletter we are focussing on discounts of around 40% on market value and we are seeking projects that create instant equity BUT also are cash positive. By this I mean that we intend for the yields to comfortably cover any financing costs, even at today’s inflated levels. By the way, we have access to BTL financing options and even though the rates are higher than before, these should almost be viewed as medium term bridging facilities, as rates will normalise in the future – remember even this is cyclical! Ash will be talking about this in more detail soon.
As in so many cases, the best time to buy is when all around you are fearful of doing so. It is impossible to call the bottom of the market, but I feel that in terms of the value from bulk deals, we are very near the bottom. There are many people hoovering up property at these current levels and we intend to do the same.
If you would like a copy of our Property Investment report that I refer to above then please email us at information@qis.uk.com.
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Posted in Accessible overseas property by Carl on November 3rd, 2008
The fully accessible complex we are building in Larnaca continues at a pace. It’s good to know that our partners in Cyprus, the Quality Group, really are committed to developing not only a superb product but also to making sure that they really do understand the needs of the disabled community. I think it’s great that they have decided to put a large proportion of their staff through a Disability Equality training programme which will be run by Agnes Fletcher (part of our Q Well-being team and a leading proponent of disabled rights around Europe) in early December. For my part is great to see that our partners really believe in what we are trying to achieve. I think it is important that they really understand that a requirement a disabled person has from a building needs to be combined with the correct terminology as well. Well done Quality Group!
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Posted in General information by Ash on October 28th, 2008
Today I attended the Abu Dhabi Investment Forum that was held at the Dorchester Hotel in London. Despite all of the current uncertainty in the financial markets the event was attended by over 300 delegates and the room was bursting at the seams!
There were a number of key note speakers and panel debating sessions which reinforced our view that Abu Dhabi has all the ingredients to be a top rate investment opportunity. Some of the key messages to emerge from the day were.
- There is a vision for what Abu Dhabi will become, and short term market sentiment will not detract from this vision. Indeed it is seen as an opportunity to acquire both capital assets and expert human resource which were previously either not easily available or expensive.
- Oil and Gas wealth underpins all future development, but diversification of the economy has already begun. There will be three main drivers, existing oil and gas, new industries and commerce such as aerospace and finally tourism where Abu Dhabi seeks to project itself as the cultural capital of the region
- The property market is a by product of all of the above, it is not a driver of the economy but something that must necessarily follow growth in other areas. The housing shortage is real and accute and is likely to stay this way for the medium term.
We continue to make great strides in with due diligence process on Abu Dhabi and as noted above the event today reinforced our view that Abu Dhabi property should form part of an investors international property portfolio.
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Posted in Markets by Carl on October 27th, 2008
I read with interest in the Sunday Times 26.10.08 that there are “spots where property is still hot”.
In times of crisis investors have typically sought refuge in property. However even though the UK property is plunging, as The Times says “the picture is not the same the World over.” Property in some regions is booming and the Times quotes amongst others Bulgaria, Slovakia, Russia and the Czech Republic. What I find difficult with recommendations such as these is they are based upon historic performance. I don’t know about you but I like to invest in places that are going to grow not that have grown already. If you read any commentator on Bulgaria they are saying that the boom is over and prices are already in decline.
The reason for this is that like many markets, the tourist has been targeted as the primary driver of demand. In times of hardship tourism becomes a discretionary spend. Therefore for property to be a solid long term bet it has to have the fundamentals of commerce and tourism (or leisure pursuits) in place. Within the EU (and the protection that this offers the property investor) there are not many places that have these drivers but Larnaca in Cyprus does. If you want to invest directly in property, have solid capital growth and good demand from commerce (Cyprus has the lowest rate of Corporation Tax in the EU so many companies will relocate ther in the next few years) then I urge you to look closely at Larnaca.
Interestingly the article also suggests that Funds are a better bet than investing directly in property. All I would say is that they are suggesting you rely on a Fund Manager then to look after your interest - look at all those poor individuals who have relied on a Fund Managers to manage their pensions for them over the last couple of years! Take control yourself and own a physical asset.
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Posted in Accessible overseas property by Carl on October 15th, 2008
As many of you will have read already I’m developing a concept of holiday investment homes that are truly accessible for families that are touched somewhere by disability. The concept is that you can go on holiday with the whole family and there will be something for everyone to enjoy on and off site. To look at though one would never be aware that it is an accesible complex.
The project has now been christened Q Well-Being.
The family can use it themselves for some of the year and rent it out when they are not using it. On site will be a top class restaurant, a spa in which to pamper yourself and enjoy hydrotherapy, a totally accessible pool, on site help and lavish grounds to enjoy the year round sun.
Savvas Kakos, CEO of the Quality Group and whose mother has Parkinson’s disease, is to be the developer. He has purchased an excellent plot of land close to all the leisure, health and shopping amenities that Larnaca has to offer. George Antoniou is QG’s excellent head architect and after two days intensive training on the needs of the accessible user (including spending a day using a wheelchair) understands well what his task is in designing the project . So that’s step one completed!
Needless to say the project has attracted a lot of attention for it’s truly unique as a concept. We have now got some really committed individuals on the team. As well as the top accessible kitchen designer in the UK (Adam Thomas) we have also secured the services of David Bonnett as consultant Architect to the project. David is the UK’s leading accessible architect and is responsible for accessiblity in the 2012 Olympic Village in Stratford. Additionally we have Agnes Fletcher on the team to support marketing, PR and communications. Agnes is Europe’s leading light in terms of Disability Equality Training. The core team now needs to be complemented by the addition of a major name to put their seal of approval on the project and we are on to this one as well! A very famous individual is carrying out their due diligence on the project as we speak so I’ll keep you posted on this.
What was a germ of an idea has now blossomed into a full project that’s well underway! We have a project planning meeting in Cyprus this week and another in the UK in early November.
So watch this space…..
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Posted in Markets by Carl on October 15th, 2008
We’ve just come back from a week in Dubai and Abu Dhabi coinciding with Cityscape Dubai; a huge property event showcasing UAE property investment opportunities. We wanted to understand the market (especially Abu Dhabi) and investigate property investment opportunities for you, our clients. And what a week it proved to be! It was strange to be 6 hours away in Dubai with so many people walking around with their mobile stuck to their ear saying “What’s the price of RBS? What’s happening with the FTSE and the Dow?” We truly live in a global economy where information spreads rapidly, but watching these tumultuous events unfold from afar also allowed us the benefit of a different perspective.
We were unsure what the sentiment would be back in the UK but in the UAE there was definitely concern but also a feeling that this is a time of huge opportunity. You should rely on fact not sentiment. For the savvy investor who is prepared to make a long term play (12 months +) there is plenty of value in what ever asset class you choose.
We obviously talk to many people about investment and long term financial goals. Naturally people like to have a balanced approach to assets, geography and risk. How ironic then that much of the value that has been wiped from people’s portfolios has been lost from the more traditionally safe investments of holding cash and pensions. Never was the term Due Diligence been more relevant; we even have to check out the strength of a bank before we can deposit less than £50,000 safely!
We believe that it will take many years before equity markets recover sufficiently to get back to their levels of 18 months ago let alone power forward to enable us to have a decent pension in our retirements. If you keep your head this is a fantastic time to rectify the situation, but what is clear is that personal action is key rather than sitting back passively and relying on fund managers (who have repeatedly failed us) to make your situation better. One thing is for sure they will look after themselves first!
You all know that QIS believes property should be a significant proportion of one’s investment portfolio. In times of turmoil investors have historically turned to property as a safe investment. We expect the same to happen again this time. However one thing is for sure you can’t just invest in any property anywhere. Even ill-informed investors can make money in a Bull market but in a Bear market the ill-informed are more likely to lose money. Due diligence is the key, backed with a basic understanding of the demand drivers that sit behind good investment opportunities. Put simply, where supply exceeds demand value exists. This has been relevant to us as we have presented our opportunities in Larnaca, Cyprus over the last few months to many of you This is a great example of an investment opportunity that is backed by solid fundamentals and where there has been and continues to be a regular positive news flow.
The economy is global and so too are property investment opportunities. They are also dynamic and will alter over time. Most of you will be familiar with our 4 stage QIS StEP due diligence model. The first step of this (the country dynamics) is more important than ever (witness the recent events in Iceland). This is what led us to Abu Dhabi many weeks before the events of last week.
We saw enough during our trip to excite us sufficiently to spend the next few weeks deeply examining the market using our QIS StEP approach. If it still excites us at the end of this process we’ll bring the opportunities to you.
Remember we are in truly exciting times!
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