Investment News

Brexit is definitely happening, but here’s why it won’t deter overseas buyers in London’s prime property market

by International Commercial Investment on March 31, 2017

Source: City A.M.

Foreign investors – and, in particular, those from the Middle and Far East – have played a prominent role in transactions at the high end of London’s property market for decades.

Having founded and managed a super-prime property development firm since 2009, we experienced first-hand the impressive amount of capital this buyer-type could deploy. From the Grosvenor House Hotel to The Shard, international purchasers have snapped up some of the city’s finest real estate assets.

For instance, CBRE estimated Hong Kong investors had accumulated £4.5bn to target Prime London assets by 2016’s close. Developments we have recently been involved with in Belgravia and Chelsea also continue to attract interest from overseas buyers post-referendum. So why this unshaken confidence?

The benefits of a weakened sterling

Put simply, nothing has really changed for foreign investors – except, crucially, the pound’s value, which slumped after the referendum.

Combined with a better than expected economic environment, this equates to a win-win for foreign investors who still enjoy the security of UK property law reinforced by EU legislation, but at a cut-price, owing to weaker pound versus dollar/euro ratios. As a result, these buyers have capitalised by purchasing now and the signs are that they will continue to, even after the Prime Minister chose to formally invoke Article 50 on Wednesday.

What’s next?

Whether foreign investor activity in London’s prime property market can continue at its current pace hinges on the looming Brexit negotiations and subsequent economic policy. Detailed predictions are fairly pointless at this stage but, in general, there are two outcomes which we think are reasonable possibilities.

The first is that the Government attempts to tax and regulate overseas buyer activity more heavily, as a politically easy way of recouping money lost elsewhere.

Taxes on vacant homes or on foreign nationals purchasing property (such as operates in Vancouver) would likely cool international demand in the short-term. However, long-term effects would be more muted, as the new levies are factored into financial planning.

The second outcome is one whereby foreign buyer activity is more actively encouraged, as the Government fears losing its status as a world-class investor capital. Stamp Duty at the top end of the market may be cut – and the same goes for Corporation Tax.

The eternal investor?

Regardless of what happens next in terms of Brexit, we don’t foresee overseas buyer activity in the capital entering terminal decline in favour of another European city.

Great cultural and commercial centres like Paris and Milan cannot offer foreign buyers the returns they have become accustomed to in prime London. Foreign buyers are here to stay – time to, as the PM remarked, “make a success of it”.

read more
International Commercial InvestmentBrexit is definitely happening, but here’s why it won’t deter overseas buyers in London’s prime property market

Qatar announces £5bn UK investment

by International Commercial Investment on March 27, 2017

Source: BBC News

One of the largest investors in the UK has committed £5bn of new money to invest in transport, property and digital technology.

The Middle Eastern state of Qatar said that it was optimistic about the future of the British economy.

It made it clear that the UK leaving the European Union had little bearing on its decision.

Qatar has already invested £40bn in the UK – it owns Harrods and a 95% stake in the Shard in London.

It also has a stake in Canary Wharf in the capital’s Docklands, as well as an interest in the Milford Haven liquefied natural gas terminal in South Wales.

It also bought the Olympic Village following the London 2012 Olympics.

“Currently the UK is our first investment destination and it is the largest investment destination for Qatari investors, both public and private,” Ali Shareef al Emadi, the country’s finance minister, told the BBC.

“We have more than £35bn to £40bn of investments already in the UK.

“We’re announcing an additional £5bn of investment in the next three to five years.

“Mainly this investment will focus on infrastructure sectors, technology, energy and real estate.”

Mr Al Emadi will join International Trade Secretary Liam Fox in Birmingham on Tuesday where UK firms will showcase projects, including in sport, cyber-security and healthcare.

The government relies on foreign investment to support infrastructure projects such as the new high speed rail link between London, Birmingham and Manchester – HS2.

Although no final decisions have been taken on the Qatari investments, Mr Al Emadi did not rule out putting money into HS2.

“We will look at those deals; we will look at electricity, roads, bridges, railways,” he said.

The announcement of the Qatari investment is likely to be welcomed by Number 10.

It comes two days before the triggering of Article 50, the official process for leaving the European Union.

Theresa May has made it clear she believes the British economy remains a positive place to invest and the Qatari announcement follows UK-focused investment decisions by Sir James Dyson, Google and Nissan.
‘Confident’

The decline in the value of sterling has made UK assets more attractive to overseas investors – though many economists argue that leaving the EU will damage trade with Britain’s largest market and therefore damage growth.

“We always like the UK market, it has always been a good market,” Mr Al Emadi told me.

“The way we look at our investment in any market, and especially in the UK, it is a very long term investment, so we don’t look at any cycles up or down

“So if you are talking about Brexit, I can go back to the financial crisis and tell you the same stories.

“We will do what we think is good for us, it is commercially viable, it has a good vision and a good impact.”

I asked him whether the UK economy outside the EU was likely to be stronger or weaker.

“It is a lot to do with the policy the UK will take, but I think, knowing the UK market, I am very confident they will have a good future,” Mr Al Emadi answered, saying that it was important that Britain was welcoming to high skilled foreign workers and students from Qatar and elsewhere.

Qatar has faced controversy over a fundraising for Barclays Bank at the time of the financial crisis and – more recently – allegations that poor labour conditions have marred the preparations for the 2022 World Cup which is being held in the country.

Mr Al Emadi said that Qatar had supported job creation in the UK.

“If you look at what we have done here, it has always been a win-win situation, whatever investment we do in the UK,” he said.

“When you talk about labour in Qatar, I think a lot of these things have been taken out of proportion and [are] inaccurate news.”

read more
International Commercial InvestmentQatar announces £5bn UK investment

Stock market boom helps keep economy growing

by International Commercial Investment on March 20, 2017

Source: The Telegraph

Surging share prices are making households wealthier, boosting confidence and offsetting some of the squeeze from rising inflation and sluggish wage growth.

Britons’ net financial wealth has jumped by 12.5pc in the past year according to economists at the EY Item Club – rising four times more quickly than wages.

This “should provide some prop to spending this year” and so keep the economy growing, they hope.

However, this only benefits the relatively well off who own shares and other financial assets. As a result rising inflation will hit lower-paid households the hardest.

Low earners also spend more of their income than high earners, meaning they receive a second bigger blow from rising prices.

Prices are expected to increase by 2.8pc this year, almost eclipsing pay growth and leaving household incomes rising by just 0.1pc in real terms over 2017, the Item Club believes, down from 1.8pc in 2016.

That inflation is driven in large part by the fall in the pound which is pushing up the cost of imported goods.

“Higher inflation will be the key culprit in the sharp slowdown in consumer spending growth this year, cutting off what has been an all-too-brief revival in real pay growth and continuing the dismal picture for real earnings seen since the financial crisis,” said Martin Beck, senior economic advisor to the EY Item Club.

“There should be some improvement in 2018, as inflation begins to cool, but even then we anticipate real wage growth of just 0.7pc. It is likely to be 2019 before workers begin to enjoy more ‘normal’ rates of real wage growth again.”

Inflation rose even more quickly back in 2011 with price rises peaking at more than 5pc, as high oil prices and VAT hikes pushed up living costs.

Economists do not expect this period of inflation to be that severe, and say consumer spending is “not heading for bust this year, [but] certainly faces the ingredients for a sharp slowdown”.

Other parts of the economy are more upbeat.

Executives at the world’s biggest financial services firms believe “the UK economy is on course for a resilient 2017, and could outperform other developed nations” according to a survey by Lloyds Bank.

Three-quarters of those surveyed said the UK’s economic growth will match or exceed the average in the G7 this year.

“Financial services firms are an important barometer of the UK economy – and despite uncertainties such as the future of our relationship with the EU and new regulatory pressures, they are confident that the outlook for the UK over the coming year is better than had been expected,” said Edward Thurman from Lloyds’ commercial banking arm.

Despite their confidence over the economic outlook those financiers still have some worries over the UK’s future relationship with the EU, however.

Almost two-thirds said they are concerned about the potential loss of the system of passporting which allows finance firms to do business across EU borders, while 50pc are concerned about barriers to trade and 35pc about the future of regulatory equivalence between the UK and the EU.

read more
International Commercial InvestmentStock market boom helps keep economy growing

Chinese property investors shift their focus from Australia to the UK

by International Commercial Investment on March 1, 2017

Source: Your Investment Property Mag

A growing number of Chinese property investors are switching their focus from Australia to other markets, particularly the United Kingdom. Foreign interest in Aussie property is drying up because regulators have increased pressures on banks to curb foreign lending amid fears of a bubble.

Last month, the Reserve Bank of Australia (RBA) warned that residential building activity had been 50% higher than long-term averages for two years, highlighting fears that newly completed apartments could fail to settle. Analysts further warned that a sharp correction in the property market could tip the country into its first recession in a quarter of a century.

“We believe the [property market] correction will start with settlement problems for low quality apartments,” said investment firm CLSA in a recent report. “Our worst-case scenario would result in dwelling prices falling in all areas, eventually leading to a recession.”

The boom in foreign property investment has helped drive economic growth in Australia despite sharp declines in mining investment. In 2014-2015, the Foreign Investment Review Board (FIRB) granted Chinese investors approval to spend $24.3bn on property.

The influx of foreign capital has helped drive price growth in Sydney and Melbourne’s property markets, and foreign buyers now account for one in every five apartment sales.

However, over the past two years, the proportion of new property sales by foreign buyers has fallen from 16.8% to 10.9%. This drop is particularly felt in the apartment market.

“Chinese buyers are increasingly nervous about Australia because of recent instability in regulation, tax and bank lending rules,” Esther Yong, co-founder of ACproperty, told the Financial Times. “A lot of Chinese who bought apartments off-plan three years ago are now finding it difficult to find finance as Australian banks have blocked lending to foreign buyers.”

The Big Four have all stopped issuing loans to non-resident borrowers with no domestic income. In contrast, Chinese investment in the United States and Europe is at record highs.

According to Esther, the UK has become popular after Brexit due to the fall in the value of the British Pound, making property investment for Chinese nationals cheaper.

But Beijing’s tighter capital exit clamps are making it harder to move large amounts of cash out of China. As a result, foreign property investments by Chinese companies fell 84% last month, according to the Chinese Ministry for Commerce.

“For some Chinese buyers who have family connections in Australia, they will continue to buy there. But for others without these specific reasons, they will look at other opportunities,” said Esther.

read more
International Commercial InvestmentChinese property investors shift their focus from Australia to the UK

Almost half of British people think house prices will rise by up to 10% in next year

by International Commercial Investment on February 24, 2017

A new survey has found that four in 10 British people think properties in their area are overpriced and 48% predict that house prices will rise by up to 10% over the next 12 months.

The OnePoll survey, conducted by investment company Freehold Sale, surveyed people across the UK who are planning to buy a home in the next five years to find out their levels of confidence in the current property market.

read more
International Commercial InvestmentAlmost half of British people think house prices will rise by up to 10% in next year

‘Some say buy-to-let is dead – but my £33m portfolio is just the start’

by International Commercial Investment on January 29, 2017

Source: Telegraph.co.uk

While many buy-to-let landlords are in despair over a new tax due to be introduced in less than
three months, large landlords see it as an opportunity – and some are even expanding to take
advantage.

Experts predict that as the tax changes come into force, the buy-to-let market may involve fewer
small “accidental landlords”, who are more likely to be put off by the changes, and more
professional landlords who will be able to capitalise by buying properties sold off by individuals.

Professional landlords are in a better position than their smaller counterparts because many of
them own their properties via limited companies, or can afford to set up a company quickly.
They are also eligible for some tax reliefs that amateur landlords cannot use. However, they are
currently very much in the minority.

A survey last year by Shelter, the housing charity, found that 92pc of landlords let fewer than five
properties and just 4pc described it as their full-time job. Only 12pc were registered as a
business.

This is changing, though. According to Mortgages for Business, a broker, 69pc of new buy-to-let
purchases made in the final quarter of last year were made by landlords with limited companies.

Income from properties held by limited companies is not affected by the tax changes being
introduced on April 6 and is also taxed at just 20pc – a rate that will fall to 17pc by April 2020.
Meanwhile, landlords who own properties in their own names and pay the higher rate of tax
(40pc) will lose the ability to deduct their mortgage costs from their rental income before
calculating their tax bill.

However, moving properties into a limited company can be expensive. Owners must pay stamp
duty – via the company – when the property is transferred.

There is also a capital-gains tax charge if the property has gained in value, although this can be
mitigated by professional landlords if they can prove that the portfolio amounts to a “business”
as opposed to an “investment”.

They must also tell their mortgage lender that the ownership of the property is changing and
switch their mortgage to a commercial one – another potentially costly move.

But these costs are not putting off large landlords, who have the cash to set up a company and
the time – and sometimes the staff – to organise it.

Many of them are also diversifying into commercial and mixed-use property.
Paul Rothwell, 34, has built up a £33m property fortune after starting with just £15,000 13 years
ago. His company, Empire Property Concepts, based in Doncaster, now employs 12 staff.

The business started when his father gave him money to buy a property in Nottingham, when he
was a 21-year-old student reading economics and financial services. He converted the basement
into a bedroom and let the other rooms out to fellow students.

His timing was good: between 2004 and 2007 property prices rose by 26pc over the UK as a
whole and by 16pc in the East Midlands.

As a result, three years later, when he came to graduate, he realised that the house had leapt in
value from £88,000 to £140,000.

He was able to remortgage and extract £35,000, which he used to buy a two-bedroom semi-
detached house in the South Yorkshire village of Thurnscoe.

From there he built up the business in the same way as thousands of other landlords – by
remortgaging a current property, extracting the cash and using it as a deposit on a new one.
He also owns “houses in multiple occupation” or HMOs, as well as larger buildings that he has
converted into small studio flats and let separately.

A total of 1,000 people live in his 750 properties throughout the north of England and the
Midlands, a number that is growing rapidly; last year he gained 300 new tenants.

On Mr Rothwell’s first property, the rent covered the mortgage twice over. This would be more
difficult to achieve now. But his yields are still high. The lowest he receives is 6pc, on an
individual family home. HMOs yield much more, up to 15pc in some cases.

The most lucrative properties are houses within a mile of a northern town centre, such as Leeds
or Doncaster.

He has stayed away from expensive markets such as London in favour of areas where house
prices are low relative to rents.

Many of his properties are owned in his own name, so he will be hit by the tax changes, but he
said this was “not a catastrophe – it’s something to be managed”.

The company is still expanding. Mr Rothwell has bought office buildings and is buying large
disused buildings and converting them into apartments.

One recent acquisition is a 45,000 sq ft office block in Barnsley, which he plans to let to
businesses or, if that doesn’t work, convert into flats.

He has issued a “mini-bond” to allow others to invest in his business and eventually wants to
build and develop property himself.

He said new landlords should still be able to follow his lead, as long as they set up a company
and have the will to succeed.

“There are always obstacles, but if someone really wants to make something happen they’ll find
a way,” he said.

“There are obvious ways you can make it easier, like setting up as a limited company from the
start.”

But Mr Rothwell did concede that new landlords might be put off. Apart from the tax change,
buy-to-let mortgage regulation has tightened and landlords will face tougher scrutiny of their
rental income and whether they would be able to afford a significant rise in interest rates.

And his method of remortgaging to expand, used by thousands of landlords throughout the
2000s, has been all but killed off by higher stamp duty costs and tougher affordability
requirements.

Despite the dip caused by the financial crisis, prices in many areas have recovered and are far
higher than they were in 2007, meaning landlords need more money to get started.

In some areas, such as London, property prices have grown dramatically and lost touch with
rents, meaning yields are very low.

read more
International Commercial Investment‘Some say buy-to-let is dead – but my £33m portfolio is just the start’

New investor demand in UK commercial property market rebounds post Brexit

by International Commercial Investment on January 28, 2017

Source: Property Wire

Despite some concern surrounding potential relocation of companies based in the UK due to Brexit, demand from overseas buyers in the commercial property sector was up notably across all areas of the market in the fourth quarter of 2016.

Demand increased for a second straight quarter with the growth in enquiries gaining momentum but expectations for rental and capital growth moved back into negative territory in central London, according to the latest report from the Royal Institution of Chartered Surveyors (RICS).

Some 21% more respondents saw a rise in demand in the final quarter of the year, up from 9% more in the previous quarter and foreign investment also saw a rebound, with the weaker exchange rate likely to have been an important factor.

The survey also shows that 20% more respondents saw a rise in demand in foreign investment enquiries up from 7% more quarter on quarter and a significant difference from the -27% recorded in the second quarter of 2016.

At the same time, the supply of property for investment purposes fell in both the office and industrial sectors, but was broadly unchanged in the retail segment.

Overall, investment trends in the capital remain mixed. Industrial assets attracted a solid rise in investor interest during but overall enquiries were flat in the office sector and declined modestly in the retail segment.

However, foreign investment demand did in fact grow strongly across each sector of the capital, with the sharp decline in sterling since June’s referendum vote particularly prominent in enticing overseas demand.

At a national level, near term capital value expectations remained mildly positive across all sectors with 14% more respondents projecting values to rise rather than fall over the coming quarter.

Over the next 12 months respondents anticipate capital values will increase across the majority of sectors, led by the prime industrial market. In terms of the headline picture, 28% more respondents expect to see a rise rather than fall in capital value over the next 12 months.

Occupier demand is less buoyant than that from investors, with demand increasing only modestly at the all-sector level. However, the report points out that this was driven entirely by industrial property with demand flat in both office and retail sectors.

The lack of demand prompted landlords to increase the value of incentive packages on offer to prospective tenants in both these sectors. In the office sector, inducements have now risen in each of the last two quarters at the headline level, the first time this has happened since 2013, with 14% more respondents seeing a rise in the fourth quarter of 2016.

read more
International Commercial InvestmentNew investor demand in UK commercial property market rebounds post Brexit

UK shrugs off Brexit fears to be fastest growing G7 economy in 2016

by International Commercial Investment on January 26, 2017

Source: Financial Times

The UK was the fastest growing economy in the G7 last year and is not yet showing any signs of the slowdown that many economists predicted would follow the vote to leave the EU in June.

The economy grew by 0.6 per cent in the fourth quarter of 2016, according to a first estimate from the Office for National Statistics. Growth for the year as a whole was 2 per cent, slightly slower than the 2.2 per cent figure for 2015.

The preliminary estimate for the fourth quarter was above the consensus forecast of 0.5 per cent growth and there were no revisions to the second and third quarter figures.

“Strong consumer spending supported the expansion of the dominant services sector and although manufacturing bounced back from a weaker third quarter, both it and construction remained broadly unchanged over the year,” said Darren Morgan, head of GDP at the ONS.

Welcoming the figures, Philip Hammond, the chancellor, said he believed there were signs that the positive effect from sterling’s depreciation on demand for British exports is outweighing the negative effects expected to come from rising inflation.

“What we have already seen is a slower pass through rate of currency-driven inflation pressure than many people predicted,” said Mr Hammond. He said the “highly competitive” nature of the UK’s retail market left “question marks” about how much retailers would pass rising costs on to consumers: “I think the evidence so far is that there has been quite‎ a damping effect.”

But Simon Kirby, of the National Institute of Economic and Social Research, said it was “too early” to judge the effects of the weaker pound.

The new GDP figures show growth at the end of last year was driven by the services sector, which grew by 0.8 per cent. Services make up 79 per cent of the UK economy.

Consumer-focused industries such as retail sales and travel agency services performed particularly well. The output of travel agencies expanded by 7.3 per cent in the fourth quarter.

The manufacturing sector also grew strongly, expanding by 0.7 per cent and reversing much of the contraction of the third quarter. This was mainly because of changes in production of pharmaceuticals, which can be volatile.

But overall industrial production was dragged down by a sharp contraction — of 6.9 per cent — in mining and quarrying output, partly because of the temporary shutdown of the Buzzard oilfield in the North Sea.

Total industrial production was unchanged from the previous quarter, construction output grew by just 0.1 per cent and agricultural production increased by 0.4 per cent. All three sectors had contracted earlier in the year.

But economists continue to predict that the vote for Brexit will have long-term economic costs.

“The economy’s brisk growth at the end of 2016 has all the hallmarks of being driven by an unsustainable consumer spending spree,” said Samuel Tombs of Pantheon Macroeconomics.

“Consumers appear to have turned to debt to spend more.”

According to figures published by the British Bankers’ Association on Thursday, consumer borrowing continued to rise in December, but Rebecca Harding, BBA chief economist, said: “There are early indications that 2017 could see softer demand for credit from business and households, as they anticipate future interest rate rises and wait for further clarity on Brexit.”

Andrew Sentance, a former Bank of England Monetary Policy Committee member who now works for PwC, expects growth to slow to 1.5 per cent this year, saying: “2017 will be a more testing year for the UK economy as consumer spending will be squeezed by rising inflation”.

The ONS produces its first estimate of GDP more quickly than most other statistical agencies. But it does so with only 40 per cent of the required data and the preliminary figure is subject to revision.

Updated estimates of GDP growth, along with a breakdown by categories of expenditure and income, will be published over the next two months.

read more
International Commercial InvestmentUK shrugs off Brexit fears to be fastest growing G7 economy in 2016