ERE Property

Recent changes made to the way in which Chinese investors can outwardly invest is likely to benefit countries such as Australia, the US and the UK in particular. Restraints surrounding the policies that Chinese investors must abide by have, in the past, made it difficult for them to invest in certain markets. “Under the previous regulations, any overseas investment project worth more than US$100 million required approval from the [Ministry of Commerce].” ¹ New rules and regulations, put into place on 6th October, now allow much more freedom with money which is outwardly invested. They allow domestic companies to invest overseas without prior approval, although they must first register their investment with the authorities. ²

Head of International Capital Group, Asia Pacific, JLL – Alistair Meadows – commented; “Prior to this policy change, in certain markets such as New York and London, it’s been difficult for Chinese institutional investors to compete in ‘on market’ processes, as the time frame required for internal and external approvals has often exceeded the time line for these sales processes. So, with this policy change Chinese investors will be more readily able to compete in bidding processes in those markets.” ³

These changes are expected to have an extremely positive impact on many markets – China’s of course, for a start, and also the larger markets in the US, UK and Australia. It may also encourage further global investment, should the regulations be relaxed even further. As it stands at the moment, this simplification of regulations “will put mainland investors in a more competitive position in the global market and speed up the pace of investment in different industries, including real estate.” ⁴

Figures from last year show that China invested in US$14billion in commercial real estate overseas compared with US$6billion in 2012. So far this year, the approximate outbound investment into commercial real estate is US$7.5billion which is well on its way to matching 2013’s total, and is expected to increase in 2015.⁵ UK cities have already begun to see interest from Chinese investors, with two major buildings in Birmingham bought by Hong Kong based company, Headland Developments. Continuing on from our Manchester China Forum blog, it is clear that China is building bridges in order to branch out in terms of investment, and that the UK and its cities are very keen to welcome Chinese investors to their market.

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“In 2011, the government set aside £100 million for an Urban Broadband Fund (UBF) that will create up to ten ‘super-connected’ cities across the UK. This was followed in 2012 by a further fund of £50 million for a ‘second wave’ covering a further 12 cities to benefit from this programme.” ¹

One of these 22 Super-connected Cities is Leeds, partaking in a scheme that is set to benefit businesses located within city centres, providing those who sign up to the voucher scheme with much faster and better broadband. Digital technology plays such a huge role in the whole of the business sector nowadays, and the need to be well connected is vital. The internet has most definitely taken the world by storm over the past ten years, making it essential for businesses to create their own online presence in order to better reach their audience. On top of that, social media has become a very valuable platform for businesses to showcase themselves upon. A well connected city can provide local businesses with all of the above. “Whether you call them Smart Cities, Super-connected cities, or Intelligent Cities, the aim is the same: to optimise the use of digital technology, infrastructure, data, innovation, healthcare, wealth creation and communication advances to improve life and sustainability in urban environments.” ²

One of the aims of becoming a well-connected city is to create new jobs and investment, making Leeds, and the other cities involved, more attractive places to visit and do business. Small or Medium Enterprises (SMEs) can apply for the Super-connected cities service through a connection vouchers system, funded by Broadband Delivery UK. So far, since its launch in February, over 300 applications have been sent through, including some major businesses in the city region – Bradford Bulls, Headingley Cricket Club, Screen Yorkshire and Moor Allerton Golf Club. Business Development Officer for the Super-connected cities programme, John Duncan, commented; “Five months in and we’ve committed over £700,000 worth of funding out of the total £9 million for Leeds and Bradford – the largest allocation outside of London – and there’s still a long way to go.” ³

Many other UK cities are involved in the scheme, such as Manchester, Birmingham, Liverpool, Nottingham and Salford, amongst many others. It will increase total turnover by £32 million and create over 600 much needed jobs for the region. ⁴

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April 2013 saw the launch of the Manchester China Forum - a scheme that aims to support the links between Greater Manchester and China by boosting investment, growth in exports, the amount of tourism and many other objectives. Primarily, it is a “business-led initiative aimed at increasing Greater Manchester’s commercial connectivity with China.” ¹ Chancellor of the Exchequer, George Osborne, launched the Forum on the 26th of April, and since its launch has received acclaim as a highly innovative and successful initiative.

“In recent years there has been significant investment into Manchester from China, and there are now 39 Chinese-owned companies operating across Manchester.” ² These companies include the Bank of China, Beijing Construction Engineering Group (BCEG), Chint, Huawei Technologies, and many others. Manchester is a very appealing place for businesses to call their home, with the cost of running a business 40% less than setting up in the capital city of London. Greater Manchester is home to the UK’s largest regional, international airport, which serves more cities than Heathrow and is currently undergoing an £800 million expansion. It was announced last year that BCEG are to be part of this investment scheme in a joint venture with Manchester Airports Group (MAG). Being incredibly well connected is a vital part of the scheme, with one of its objectives being to secure direct air routes between Manchester and China. Manchester is already very well connected within the UK, so this expansion of the main airport will be a valuable asset to the Manchester China Forum.

Lord Wei, an influential advisor to the UK government and the highest ranking Parliamentarian of Asian origin in Europe, played a huge role in putting the Wei report together in 2012 – a document which outlines the best way to boost links and profitability between Manchester and China. The report contains information about what businesses are looking for in both regions, and also how both aim to work alongside one and other to build a successful partnership. He said that “work done in this report shows Manchester is serious about harnessing great brands, strong Chinese community and diaspora links, and partnerships with business, the voluntary sector, and government, to take the measures necessary to grow East.” ³

A collaboration between the UK city region and China could potentially mean great things for both parties – already, a third of the North of England’s Chinese population live in Manchester, and a high number of Chinese students choose to attend university there too. There has been a 45% increase in the number of Chinese students studying in Manchester over the last five years.⁴ (The Manchester Investment Portfolio) Pair these statistics with the amount of interest that some of Manchester’s biggest success stories attract – including Manchester United Football Club, Media City in Salford, the home of the BBC and ITV since 2012, and Airport City, currently undergoing £800 million of redevelopment – and you can see exactly why a partnership between Greater Manchester and China makes perfect sense.

Sir Howard Bernstein, chief executive of Manchester City Council commented: “China creates an economy the size of Greece every 11 and a half weeks – that’s a game we need to be playing in.” ⁵

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It has been said that for property investors to get the best return they should be looking to the North to invest in. A recent article from the Telegraph claimed that “nine of the top 10 postcodes for buy-to-let yields are in the North and Scotland.” ¹ Both the returns gained from investments and gross yields across the North are currently outperforming cities in the South, according to research carried out by comparison website Totallymoney.com.

The North East is currently experiencing its own economic recovery, showing promising growth across the region and rebuilding its once dynamic atmosphere, especially within Newcastle itself. “Rewind 12 months and Newcastle’s quayside wasn’t such a vibrant place. […] It lacked vitality.” ² There is a definite sense of optimism in mind for the city though, with a number of businesses and firms choosing to relocate their back office functions to the North East, thus drawing more attention in. The Newcastle-Gateshead region has a collective catchment market of 1.6 million people within a 45 minute drive of the area, attracting both investors and businesses alike to its skilled workforce and wide choice of development sites. According to Property Week, “the average annual wage is £10,000 lower than in Greater London, but with lower housing and transport costs, the average worker actually has a higher disposable income.” This, paired with the fact that Newcastle has an incredibly loyal workforce, makes the city an attractive place to relocate to. “According to Tim Evans, partner and head of Knight Frank’s Newcastle office, people in the North East traditionally worked for a single employer for their entire careers, with many firms employing several generations of the same family.” ³

A range of different sectors are involved in the development of and investment into the North East region, from retail, business and education, to residential property. The Eldon Square shopping centre in Newcastle city centre is currently undergoing redevelopment within its hospitality area, aiming to provide members of the public with a wider shopping experience. Kate Grant, Regional Director of Intu, calculated that Intu has spent more than £200 million on Eldon Square in the past five years. ⁴

As well as improvements to its retail hub, plans are in place to construct Newcastle’s Science Central – part of Newcastle’s wider Science City initiative. “The first building on the 24-acre plot has been dubbed ‘the Core’ and is due to open later this year. Funded by the city council, the building will provide 29,600 sq ft of serviced office space over seven floors for technology and science-related business.” ⁵ The partnership between Newcastle City Council and Newcastle University will not be overly restrictive about the types of firms it wants to attract to the building once it is complete, leaving opportunities for business relocation open.    

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Following the Knight Frank Global House Price Index for Q2 of 2014, details of which were included in an article on the OPP Connect website just over a week ago, new research shows that property values have risen in 40 out of the 54 countries included in the report, compared to just 31 countries two years ago. The data published is very encouraging for the UK, showing our housing market ranked 5th out of 54. Figures from the latest monthly House Price Index indicate an annual rise of 8.4%, bringing the average house price in England and Wales to £177,824. (Land Registry, HPI) As expected, the London region has seen the highest annual change, with an increase of 21.6% over the past year.

This increase in house prices could mean great things for buy-to-let investors and landlords, as a large majority of UK tenants rent due to the fact that they cannot afford to buy a property of their own. Building up from past research regarding ‘generation rent’, many people have the desire to get on to the property ladder, but increases in prices are making it very difficult to do so. Consequently this has boosted the demand for rental properties across the UK, meaning that landlords are able to make the most out of the great number of people who wish to rent. The potential fear of being unable to rent out a property is dispelled by the knowledge of the current high demand, and with information including the fact that two thirds of under 35s are currently renting instead of owning their own property, landlords and prospective investors are safe in the knowledge that the buy-to-let market is generating a lot of interest.

Rises in rents are easing off in the UK market, but are still reaching an all-time high and have hit their autumn peak. Again, this is positive news for landlords and investors, showing that a steady income is more than achievable. Breaking down the data from letting agents networks Your Move and Reeds Rains shows that rental property in seven out of ten regions in England and Wales are higher than a year ago. “Looking ahead, if rental property prices continue to rise at the same pace as over the last three months, the average buy-to-let investor in England and Wales could expect to make a total annual return of 17.2% over the next year, equivalent to £30,997 per property.” (Property Wire)

A report recently published by property website Zoopla in July, has stated that property prices in the Greater Manchester area of Salford has risen higher than in any other town in Britain since the start of 2014. According to the same source the average property price increased by 12% since January in Salford, surpassing even London’s 8.2% growth1.

For example; the typical price for a property in London was calculated at around £520,866 at the beginning of 2013, increasing by £46,526 with the estimated 8.2% growth rate. The same amount of investment of £520,866 in Salford however would see the average property price increase totalling by £62,503. This amounts to a massive £15,977 difference in price growth in just seven months between the two regions.

The increase in property purchases within the area has been thought to be following the introduction of MediaCityUK, Salford City Stadium and other regeneration projects in the district. The relocation of many of the BBC services to Salford Quay have kept Salford going when the housing market was in difficulty.

The recent transformation of Manchester has turned it into one of Europe’s most dynamic and exciting cities in which to live and work, boasting an increasingly diverse economy. The city received the accolade of ‘The Best UK City for New Headquarters’ from the global estate agents Cushman & Wakefield, and has led Manchester to gain the status of the largest office market in the UK outside of London2.  

Manchester is a city renowned for its financial, commercial and retail industries. The city does not only offer its inhabitants a vibrant place to work, but also has an abundance night-time activities. These include the Manchester Arena, Aquatic centre, two world famous football clubs, Arndale Shopping Centre, endless amount of restaurants and bars, as well as its bustling night-life. The five universities within the Greater Manchester area provides a surplus of tenants looking to find residence in and around the Manchester on top of the amount of the city’s urban professionals. 

In naming Salford as the ‘Second Best Buy-to-Let Hotspot in the UK’, HSBC signifies the current investor attraction to the area. As the regions rental market grows from strength to strength, now could be the perfect time to invest in Manchester’s, Salford Quay.

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1Zoopla Property Price Report, July 2014

Birmingham’s financial sector is set to see a huge boost, thanks to the Deutsche Bank. The international banking giants are due to set up a new 270-seat trading floor at Five Brindleyplace and move hundreds of workers over to its new home. In recent years, the German bank has really boosted its workforce in Birmingham, “growing its team from fewer than 30 to more than 2,000 through largely back office functions.” ¹ Erik Simonsen, head of the Deutsche Bank’s corporate banking and securities unit, commented; “When people think Birmingham, they think maybe it is a remote floor with 20 sales people in one room. We’re moving into this new trading floor soon with 270 seats on the floor.” ²

The Birmingham branch is now handling 500 clients who were previously taken care of at the London branch – covering debt, listed derivatives and cash equities.³ “Revenues from those clients have increased by around 150%” according to Simonsen.⁴ It’s not unusual to move administrative roles out of the capital and into regional areas, however the Deutsche Bank have attracted attention to themselves by shifting other roles to Birmingham as well. Daniel Davies, a banks analyst at Exane BNP Paribas, said that he knew several investment banks were watching, “and if it yields results may opt to set up operations here.” ⁵ It’s encouraging to note that large businesses see the potential of setting up in regional areas of the country, as opposed to all sticking with London.

The Deutsche Bank is set to officially open its new office this month, and hopes to finish the year off with around 170 front-office staff within its investment banking unit. This number is expected to increase by 100 in the near future, making the bank’s presence a very welcome one to the city of Birmingham. Coined as their new “centre for excellence”, the aim is to deliver one of the biggest employment boosts in the city’s financial sector.

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Top 10 Reasons for Investing in Residential Rented Property with ERE

1. Immediate return on investment.

Investing in rental property can prove to be very beneficial if you are looking for an immediate source of income. Desire for rental property is on the rise, as many cannot afford to buy their own property, consequently leading them to look towards renting instead. Providing that a unit is well tenanted, income can be generated immediately. This will provide you with a supplement alongside your wage, if you are a part-time landlord, or simply some extra cash for savings or whatever else you wish to use it for.

ERE Property ensure that all units sold are tenanted before completion.

2. Hands-off investment.

When investing in residential property, it’s completely up to you if you decide to take on the management yourself or leave this for a management company to take care of. The advantage of choosing to leave the management to an external company is that you have a constant source of income without having any involvement. Another advantage is the ease of finding a good tenant for your chosen apartment – it is generally much easier for a management company to do this as they have the right marketing tools with which to do so.

3. Potential pension pot.

Property investment can be an ideal way to fund your retirement. Whether you choose to buy early on and eventually sell for a cash lump sum, or whether you wait until you are ready to take out your pension and invest it then, either way can be a good way to manage your money in later years.

The immediate return on investment can provide a healthy, sustainable source of income, perfect for using to fund your retirement and ensure that you are still able to live life to the full.

For more information about funding your retirement through property investment, click the link to read our blog “Property Investment & Pensions”.

4. Capital growth.

Some investors are not interested in making a quick return on investments, and instead are looking for good returns in the long term. Capital growth is simply the amount that your unit is worth over a long period of time compared to its original price. Therefore it may be beneficial to investors if they allow capital growth to appreciate on their property, in order to maximise their investments returns.

ERE Property have dealt with a number of Off Plan developments in recent months. The advantage of investing in something off plan is that upon completion your unit will have already accumulated some capital growth upon the units purchase price.

5. Better returns than the bank.

Interest rates for many savers constantly fluctuate, with the most attractive current rates between 2.5 – 3%. Offering a relatively low percentage compared to other investments, options such as ISA’s and fixed term saving accounts provide a stable, low risk return on investment.

Savings accounts are a very safe way of looking after your money with the fact that government regulations are in place, however there are rare occasions where things can go wrong – for example the Northern Rock bank crisis of 2007.

This form of investment however, unlike property investments, does not factor in far superior return on investment found from capital growth and average net yields between 5-7% that ERE Property offers.

6. Providing for your family’s future.

Purchasing an investment property can help to provide a steady income for you family in the future. There is a current trend of parents who buy properties for their children starting university for them to live in – renting out the additional rooms – or just to create revenue to fund the fees and living costs of that child.

Alternatively, helping to provide for your family’s future could come from any properties that you leave as inheritance. You must bear in mind extra costs such as Inheritance Tax (which can be minimised through planning), but it is wise to seek professional advice from an IFA about this.

7. Fully tenanted units.

ERE Property are committed to ensuring that all units sold are tenanted before completion, thus enabling landlords to make the most out of any investment through instant ROI’s. Our various management companies, depending on the development, are on hand to assist with re-tenanting your unit in future.

8. Capital release opportunities.

Various equity release options are available to release funds upon the value of the property, in case quick cash flow is required. This can obtained in the form of additional income, a cash lump sum, or both. 

9. Property is an asset that consistently performs well.

In recent years property has seen an upsurge in investment following the markets 2007 economic downturn. However a recent report from the National office of Statistics has found the “professionally managed private-rented sector investment portfolio has consistently shown itself to be one of the strongest performing assets, even during the downturn when residential assets lost over 17% of their value”. This success of property as an asset class has been predominately due to the shortfall in residential properties within the UK.

10. Regional property experts.

At ERE Property we pride ourselves on the extensive research and due diligence we carry out on all our developments, to provide our investors with the most attractive and lucrative property investments available. This has led us to becoming one of the UK’s leading experts on regional properties due to their strong return on investment rates and potential for capital growth. 

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Work on Leeds City Centre’s latest investment development began in April of this year, following the demolition of the old framework. Paired with the recently completed Trinity Shopping Centre, Victoria Gate hopes to make Leeds one of the biggest retail centres outside of London, with a flagship John Lewis store and a range of high end retail units and restaurants planned for the development. Along with the shopping centre, plans for a multi-storey car park, holding up to 800 cars, will be built in place of Millgarth Police Station. Construction of the £150 million project is being managed by leading retail developer, Hammerson, filling space in the city centre that has been left unoccupied for decades.

The building’s design aims to be similar to that of Victoria Quarter, “with a striking facade drawing on Leeds’ textile heritage”,¹ in keeping with the city’s image in order to attract more trade and tourism. The centre itself hopes to create “up to 1,000 retail and hospitality jobs and 1,000 construction employment opportunities”.²  Leeds City Region already boasts the second largest economy in the UK, generating 4% of national economic output,³ and this prospective boost from Victoria Gate could improve the City Region’s economy further.

Clare Poolman, Project Support Officer at Leeds City Council, commented; “Victoria Gate is significant in that it will bring a vacant site back into use, regenerating this part of the city centre and bringing new anchor retailers to Leeds like John Lewis. Trinity has already increased the catchment of Leeds, with additional new visitors from the west, north and east plus had international PR. Trinity re-established Leeds as a significant city destination nationally and we would expect this trend to continue, even accelerate, with Victoria Gate.” ⁴ With promising statistics coming from Trinity Leeds – the scheme welcomed over 22 million customers in its first year⁵ – the same increasing interest is hoped for Victoria Gate.

Over the past few years, Leeds City Centre has received much investment, with the opening of the First Direct Arena and Trinity Leeds last year, and next year, as well as the Victoria Gate development, a new, state of the art Maggie’s cancer centre is due to open. “The £5m centre is being designed by award-winning architect Thomas Heatherwick – the man behind the London 2012 Olympic cauldron design.” ⁶

Recognised as the UK’s second financial sector, Leeds City Region generates over £13 billion each year, and growth of up to 55% is forecast by 2022.⁷ The potential success of Victoria Gate will only help to boost this growth in the coming years.

To find out more about our opportunities in the Leeds City Region, please contact us on 0113 380 8930 or alternatively you can email us on [email protected]

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Technology has advanced at such a rapid speed over the past few years, with the development of smartphones and tablets, and the innumerable amount of things we can now do on the go – it can often be a struggle to keep up. The construction industry, however, has always relied on more traditional, labour-based methods, taking more than just a click of a button to create something from scratch. Building houses takes time and an extensive amount of effort, with costs incurred from employing people to carry out the building work on top of the materials needed.

However, news from earlier this year showed that the construction industry could potentially go through major changes in the future. Private Chinese Company, WinSun, hit the headlines back in April when they used a giant 3D printer to build ten full sized, detached, single storey houses all in one day. All ten houses were built from recycled materials, each measuring approximately 2,100 square foot, and costing less than $5,000 each to construct.¹ Not only does this method cut the costs and time scales of construction, it also provides a safer way to deliver new housing – “this process also means that construction workers are less likely to be exposed to hazardous materials or work environments. Plus, it's eco-friendly.” ² Four 3D printers were used to construct the ten houses – each measuring 10m x 6.6m – and using “a mix of cement and construction waste to construct the walls layer by layer, a process much like how a baker might ice a cake.” ³

Buildings can be designed to a customer’s specifications, and WinSun Chief Executive, Ma Yihe, hopes that their printers can be used in the future to build skyscrapers. “At the moment, however, Chinese construction regulations do not allow multi-storey 3D-printed houses.” ⁴

The popularity of 3D printing is increasing across the world, with companies mainly focusing on smaller items such as jewellery and furniture for the moment.⁵ Just recently Andrey Rudenko, a contractor from Minnesota, constructed a children’s playhouse castle in his garden. Similarly to WinSun, Rudenko designed his own 3D printer and has hopes of venturing into full size house construction. “Rudenko believes his own plans would protect workers from coming in contact with an ‘extensively dust-filled environment.’ He said, ‘This is why I’m currently conducting a large scale of experiments to extend the possibilities of this new technology – printing different elements, structures, and studying and developing new techniques.’” ⁶

It will obviously take time for this new technology to kick start in the construction industry, as more trials need to be run with the equipment needed. However, it’s an exciting prospect for the future, one that may help to boost the number of houses built across the world.

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The Private Rented Sector is the fastest growing segment of the housing market in the UK with “Private landlords putting an estimated £20 billion into providing homes in the UK” according to Carolyn Uphill, chairman of the NLA. The current housing shortage in the UK is pining for the growth that buy-to-let landlords can potentially deliver. Whether a full time or part time landlord, any and all additions to property portfolios can provide residence for renters such as commuting professionals right across the board to housing for families.

New figures from the NLA show that part time landlords now make up more than 70% of the sector, and a fifth of these landlords are massively encouraged by the current rental market. “A typical part time landlord has on average four properties and generates an annual gross rental income of £31,000”1. The Private Rented Sector itself has doubled in size over the past 20 years, and looks set to do the same over the next 20 years. “40 per cent of all landlords feel it is now easier to access buy-to-let mortgages, whilst four in 10 have used buy-to-let finance to expand their portfolio”2. This news is incredibly encouraging for the residential property market, and the government has already recognised the importance of the rented sector by setting up schemes such as the £1 billion build-to-rent fund. Further investment would create a more dynamic market and boost the economy through the generation of jobs throughout residential projects, thus fuelling the construction industry and boosting the number of properties on the rental market.

Not only does the rise in UK Landlords provide a positive outlook for the economy, but it also looks promising for the housing market alone as well. The increase in demand for housing has fuelled the supply, for rented accommodation, leading to the rise of full time and part time landlords.

The NLA recently launched new guidance to support those who wish to expand their investment portfolio and take on the role of a landlord, whilst also remaining in employment. The number of investors interested in this route is quickly growing, showing that seeking the right advice and guidance can help you to make the most of your money, regardless of your budget.

“Being a landlord can be very rewarding but it’s vital that anyone considering a move in to buy to let, or indeed looking to expand their portfolio, is thoroughly researched and aware of what it involves”3.

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With the shortage of housing in the UK a constant subject in the news, the time has come for alternative investors to step forward and help to increase the current supply to fit the demand. The Governor of the Bank of England, Mark Carney, commented back in May; “At 123,000 units per year, house building remains well below the 200,000 many economists consider to be the minimum needed.” ¹ With this in mind, the news that supermarket giants, Tesco, plan to build 4,000 homes across the country by 2017 is a promising start.

The company owns 310 unused sites throughout the UK and now plan to use some of the land they own to construct new residential developments over the coming years – a building plan totalling £1 billion. So far, the sites listed in August’s issue of Property Week are all located in the south of England “but developments are also scheduled further north, including Liverpool and the west of England.” ² Plans in Liverpool include a development of two and three storey homes; “The company’s property-owning offshoot, Spenhill Developments, has applied for outline permission for 37 homes on a site at the junction of Aigburth Road and Tramway Road, once occupied by St Augustine’s House.” ³ As well as building homes via their own development company, Tesco also plan to sell some of their sites to other developers, further encouraging the boost in house building that is needed.

Tesco are not the only supermarket choosing to take the route into residential housing development – 4,500 more homes are expected to be built by other major grocers between 2013 and 2018. “J Sainsbury is set to begin projects involving more than 1,500 homes this year, including a partnership with Barratt on a major development in Battersea, South London, which includes 700 homes and a new tube station.” ⁴

Pension funds are also being considered as financial solutions for new housing, with the Greater Manchester Property Venture Fund (GMPVF) set to focus its £300 million investment pot on developing residential schemes within the city. Their plan is to focus on housing to increase the amount of residential property in their portfolio, sticking to a similar idea as their partnership venture with Manchester City Council on the Matrix Homes project - which will deliver 240 homes across five sites to the city of Manchester. Partnerships all across the country are proposing plans to tackle the housing shortage – Legal and General included. Earlier this year they announced a £252 million investment - “the largest direct investment into the sector to date.” ⁵ This funding is to be used to build 7,000 properties over the next seven years.   

Not only will these proposed plans help to tackle the housing crisis in the UK, but they will also boost the economy. Jobs will be created in the construction industry, fuelled by this demand for new homes. Going back to comments from the Governor of the Bank of England, it is the shortage of new homes that is currently driving house prices up so rapidly in Britain, and this could be exactly what is needed to steady things and make growth more sustainable.   

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When choosing a property to invest in, location is key. In order to make money back on your initial investment, it really pays to do the right research and find out which area will work best for the budget you have. Whether you are a first time investor, or have a portfolio brimming with all manner of investments, or if you are looking for a way to successfully fund your retirement, picking the correct location is a huge factor to think about.

Now that the UK property market is back on the up, with prices rising at a steady pace, there are a wide range of choices available to potential buyers. The Telegraph have compiled their own lists of the top places, both in the world and in Europe, to buy investment property. Whilst a great many of these locations are overseas, many of them are on our own doorstep, and spread all across the UK. It’s incredibly encouraging to note that out of the 20 places picked, Manchester and Leeds are included in this list. Interest in regional investment is increasing, as we have pointed out in previous blog posts and the report

The graphic above shows some of the findings from the Nabarro report. The 250 surveyed are collectively responsible for portfolios worth more than £150 billion, so this increased interest in areas outside of London is incredibly promising, and suggests that high net worth investors could further popularise this northern trend. Alex Jeffrey, Chief Executive of M&G Real Estate commented, saying: “We see 2014 and 2015 as the years of the regions.” The attraction towards this side of the buy-to-let market is predicted to increase - 86% of those surveyed in the Nabarro report think that the appetite for investing in regional property will increase in the next 2 years.

With the Telegraph’s list containing some well-known property hotspots of the world, including the USA, Brazil and Greece, it’s promising for our regions to appear alongside them and stake their claim as worthwhile places for people to consider investing their money in. Markets are recovering across the world, and one of the key factors needed to help the British recovery is the boost in regional investment.

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It’s no secret that when it comes to any type of investment, supply and demand are key factors to think about.  What we mean by this is, supply is about the availability of a product whereas demand refers to the level of interest in that product. This relationship is what drives the market; it determines what everyone will be looking to invest in. Generally if the demand increases, supply will decrease as more people will be buying, causing prices to rise – this works in the opposite way too when prices drop.

However, the constant fluctuation between the values of stocks and shares can make it easy to get lost in your investments; especially if you’re a beginner. You have to remember that stocks and shares can potentially pose huge risks. Even though the price of your share could be rising, there’s no way of predicting its market value if it drops – take for example, Tulip mania.¹ This risk is far smaller when it comes to property investment and other physical assets.

Another type of classic investment would be gold, which hit a peak of £1178.92 in 2011 and has declined in value since then. Although the value of gold is not in sync with assets such as equities or property, its value has fallen by nearly 40 per cent in under three years.² Gold has long been a commodity that people class as a “safe haven” ³ during difficult financial times, but because of its volatility and lack of functionality it is not as popular as investing in property.

Oil is another commodity that many people choose to invest in. Why? Probably because of its ability to make substantial profits and the fact it has limited supply – taking us back to the relationship between supply and demand again. The finite supply can work to an investor’s advantage as the demand for oil is sky high, and if the supply is decreasing, the price of oil will inevitably increase. Statistics say that the return of investment could be five to ten times larger than the initial capital.⁴ Investment in oil is similar to that of gold – the market is volatile. The value of oil is said to change significantly more than other investment types. The possibility of renewable energy in the future would decimate the demand for oil, thus rendering the market worthless. This gives an indication of how risky the investment in oil can be.

Finally, we have residential property investment which has been the best performing asset over the past 30 years (see chart below). Investment in buy-to-let property has many advantages. To begin with, it’s a lot less risky than the alternatives as it offers immediate returns through the rent from tenants living in the property already – at ERE Property, we ensure that our client’s apartments are tenanted prior to completion. The constant rise in population means there is increased demand for properties, as homes are always needed. This demand will gradually push prices higher making your investment worthwhile.

Sources

There is a great deal to consider when looking to invest in property, especially for first time investors who may be unfamiliar with the processes involved. Below is a compilation of questions aiming to outline the basics of Residential Property Investment and help to define some of the terminology that you may encounter.

Define Residential Property Investment?

Residential Property Investment is a real estate property that has been purchased with the intention of earning a return on the investment.

What is a buy-to-let property?

A buy-to- let property is the process of purchasing a property in order to rent it out to tenants.

At ERE Property, we focus solely on residential apartments, and offer these to our diverse clientele. With regard to buying an apartment, you may have some of the following questions in mind:

What is the difference between ‘leasehold’ and ‘freehold’?

The difference between ‘leasehold’ and ‘freehold’ is that ‘leasehold’ means that a person has the right to use a property for a set period of time and at the end of the term, the property reverts back to the freehold owner. Whereas ‘freehold’ means the property is owned for an unlimited period of time.

The average term of a leasehold is between 100 – 999 years.

As an owner of a leasehold apartment, you must pay ground rent each year, which is paid to the freeholder – the person who owns the land.

Explain what a Tenancy Agreement involves.

A Tenancy Agreement sets out the rights and responsibilities the landlord and the tenant have to each other and the property. All Tenancy Agreements should also state the parties involved, the rental price, any deposit, the address of the property, the start and end date of the property and the obligations of the tenant and the landlord.

What are the most important factors when picking out an apartment?

Price

Size (SQ FT)

Return on Investment (ROI)

What is the Ground Rent and who is this paid to?

Ground Rent is what the leaseholder must pay to the freeholder each year. The land belongs to the freeholder, so this rent must be paid to them for the ownership of the apartment.  

What is the Service Charge?

Service charge is what the management company charges the landlord in order to cover the costs incurred when providing services for the tenants. This charge usually covers things such as general maintenance and repairs, insurance of the building and where the services are provided.

The Block Management Company are responsible for allocating an amount of the service charge budget into a sinking fund, this builds up over time and is put towards key communal maintenance.

Explain what Rental Management is.

Rental Management is the process of managing property that is available for lease and may involve looking for tenants, collecting rents and maintaining the property.

How much Net Income will an apartment generate per annum? What other costs are involved?

Net income per annum is the total rent income received minus all the management costs, for example, service charges, ground rent and rental management.

Explain the different yields – what is the Net Yield? What is the Gross Yield?

Net Yield is basically the Net Income per annum as a percentage of the sales price. The Gross Yield is the yield on an investment before the deduction of taxes and expenses.

What is a Block Management Company? What are they responsible for?

The Block Management Company are responsible for the upkeep and general management of the whole block of apartments. Any maintenance or issues related to the block/communal areas should be reported to them, and they ensure that all public areas and in good shape.

  There are differing processes involved when purchasing property, depending on whether you choose to buy your apartment with CASH or with a MORTGAGE. Generally speaking, a CASH purchase completes far quicker than a MORTGAGE purchase because of the fact that there is less administration involved. Below are some frequently asked questions that many investors have about the MORTGAGE process:

What is a Decision in Principal? Is this necessary to have before purchasing a property with ERE Property?

This will involve a full credit check by the lender and confirmation in writing of how much they are prepared to lend to you, subject to them checking the information you have given to them. This DIP can then be used to confirm your credit worthiness and is useful to have before you choose a unit.

At ERE Property, we do advise that you get your mortgage agreed in principal before proceeding to choose an apartment that you wish to buy. It ensures that the sales process moves a lot more fluidly.

What details will a mortgage broker need to know about your chosen apartment for the full mortgage application process?

A mortgage broker will need to know information such as the sales price of the unit, the size (SQ FT), number of floors, the length of the lease, the full address and the rental income details.

What documents will you need to provide your mortgage broker with?

You will need to provide your mortgage broker with various documents such as proofs of income, address and identity to pass to the lenders so that the underwriters can then approve the mortgage.

What is an underwriter?

An underwriter is usually a large financial service provider which assesses the eligibility of a customer to receive their products, for example, a mortgage.

A valuer must carry out a survey on your chosen apartment – what is involved in this process? Why is it carried out?

A survey will decide the value of the property and points out any faults which may affect the value and any future problems which may occur.  

As life expectancy within the UK is rising yearly, this has resulted in some retirees’ pension plans not providing the income expected, making later retirement financially very difficult. After the 2014 budget was announced, the government spoke of their plans to change the way in which the UK’s pension scheme works. Changes have already taken place back in 2012 when the Workplace Pensions scheme was introduced for the government, and also for employers, to contribute towards state pensions. From April 2015, new government schemes will be introduced to allow more freedom when it comes to how savers withdraw their pension funds, meaning that more money can be taken out without the restrictions previously in place.

This new development and change to the system has resulted in many savers looking for alternative forms of investment to fund their retirement. Residential property is the UK’s largest investment asset class, and has been the best performing asset over the past thirty years.¹ With life expectancy at an all-time high this has led, in recent years, to some pension pots running out prematurely. However, property investment has provided many retirees with a secure source of regular income and has removed the risk of funds running out during retirement. 

Investing savings into residential property has proven to be an incredibly fruitful venture. In terms of investment, the sooner you buy the better. The longer you hold on to your investment for, the greater return you will see from your initial investment. This means that investing your money into an asset like residential property will provide you with a much stronger, more secure income over the course of your retirement.

For instance; withdrawing small amounts of money from of your pension pot will provide you with a set amount of income over the course of your retirement. This has been the case for many years, however, with increasing life expectancy many have found this to be unsustainable. If you choose to take a lump sum out of your pot instead and invest that into residential property, you will now receive regular income from your investment – in a sense refilling your pension pot indefinitely.

Another option for freeing money up during retirement is through an equity release. This method allows older people to get cash out of an asset with capital value - the majority of people take this out of their property without the need to move home. This loan can be taken out as one lump sum or as a few smaller sums, and you have the freedom of being able to spend the money on whatever you want. “All Equity Release Council members offer a ‘no negative equity guarantee,’ which means that, no matter what happens to the housing market, customers will never owe more than the value of their home.” ² A large factor to consider when releasing equity is that it reduces the value of your estate and results in less inheritance for your loved ones.

As the age of retirement increases, it is not surprising that a growing number of people are choosing to turn to investment property to fund their retirement. A hands off property investment with a steady source of income may provide financial security in your retirement as well as providing loved ones with stability for their future.

  Sources

1 – BPF, 2 – The Guardian. Other sources used – Reader’s Digest, The Telegraph, HM Treasury, BBC News.

   Disclaimer

A city that is probably most famous for its musical heritage and achievement within sport, Liverpool is fast becoming a place housing more than just an abundance of culture. Some may think of the Beatles and both of its successful football clubs, but recent news in the region has shown that interest in business in Liverpool is rapidly increasing.  

This year’s International Festival for Business (IFB) was a huge success in June and July of this year, and had Liverpool to thank as its host city. Over 75,000 business delegates attended, coming from 88 different countries across the globe.¹ Organisers of the event dubbed 2014’s IFB “the biggest concentration of business events taking place anywhere in the world this year,” ² and with more than 400 events held throughout the festival, it is clear that this is one of the reasons for the festival’s return in 2016.

Business is not the only sector which is attracting attention for the northern city - yesterday the One North report was announced, which involves plans to improve connectivity between five major northern cities, including Liverpool. Collectively, Liverpool, Leeds, Manchester, Sheffield and Newcastle are set to outline a £15 billion transport plan³ to better the links and access between each other, presenting the report to the government with the aim of working towards the “northern global powerhouse” that the Chancellor, George Osborne, spoke of in June when he visited Manchester.

“The joint One North report will include plans for a new 125mph inter-city rail link, faster links and better access to ports and airports.” ⁴ Creating better connectivity between each of the northern cities will definitely have a positive impact in more ways than one, and with further improvement and regeneration happening in Liverpool – £350 million is currently being invested in building a super-port for the transportation of freight into the UK⁵ – this can only mean good things for the city. It could mean a huge boost to the economy and create jobs for Liverpool’s growing population. The super-port alone plans to create 30,000 new jobs over the next 20 years.⁶

Jay Olshonsky, president of NAI Global, commercial real estate brokers based in New York, commented: “Currently, 45% of North American trade enters the UK via Liverpool, and the location is ideally positioned to benefit from increased Atlantic activity and the growth of Latin and South American economies, providing outstanding opportunities for NAI Global members and their clients, developers investors and occupiers to take advantage of the enhanced competitiveness of the Liverpool City Region for logistics and manufacturing operations.” ⁷

  Sources