Investing in super prime London property
OVER the last two years, some of the best returns from bricks and mortar have been had from investment properties in London, thanks to extreme undersupply and high rental yields.
Indeed, the home of the British monarch has been one of the key investment markets for IP Global, the property investment firm, over the last four years. It has invested over £100 million ($161m) in London on behalf of its clients.
Cashy spoke to Tim Murphy, founder and chief executive, about London property – and what the future might hold…
Why do you favour the London market?
It’s continued to perform well over the last 12 months, and property prices are forecast to grow 29.1% in the next four years.
The exchange rate continues to favour foreign investors, with the pound currently undervalued, making it relatively cheaper for foreign investors to buy London property.
Rental values are at high levels and have increased by 16% year-on-year. It is likely that interest rates will increase in 2011, which will have an impact on rental yields, but we are still seeing a very strong uptake of rents with an average of five tenants competing for every property in the UK. This demand-supply disequilibrium in the market means you will be able to demand higher rents to offset higher interest rates.
The final confidence factor on the London market is how attractive it is compared to other property investment opportunities around the globe. Property in Singapore, Hong Kong and China is inflated and overregulated, which makes purchasing in these markets difficult and very expensive. London has shown consistent capital value growth and good levels of leverage which has not always been present in Singapore, Hong Kong and China.
Is there any way to boost returns further?
Leveraging your property investment especially in London can really push up your returns. Take this example: over the last 11 years property prices in London have increased by 109%. If you were to leverage your investment at 70% in 2000 (so took an average loan of 70% of the property value), then you would have made a 376% return on your investment compared to the price growth of 109%.
This indicates the importance of leveraging assets to optimise the returns on your investment. Leverage is always sensible for a point of using your capital wisely and generating better returns, but also for reducing any tax liability.
For instance your monthly rental is offset against mortgage costs, so if you get £1,000 ($1,609) in rent and pay a mortgage of £800 ($1,287), you only pay tax on net income of £200 ($322).
Where exactly should you invest?
With so many London properties on the market, you can be forgiven for being somewhat overwhelmed or confused as to where or what to invest in.
Keep it simple: focus on super-prime. Over the past few years super prime London property has performed better than the general London market and there are a few boroughs which outperform the rest. The likes of Kensington, Chelsea and Westminster are examples of super prime London.
Even during the recession, if you were to have leveraged your investment property in Kensington and Chelsea in 2006, you would have seen a return of 189% compared with 55% unleveraged. This shows you the kind of return in super prime London and how leveraging your property can more than double your return on investment.
Super prime London is a perceived as a store of wealth with investors turning to these markets as a safe haven in the midst of ongoing global political and economic uncertainty.
Whether you’re an investor in the Middle East trying to get political security, an Asian investor wanting to buy in Europe or investor from Russia looking for top-quality product in an undersupplied market, super prime London ticks all the boxes with a forecasted growth of between 5-10% for this year.
London is a tried and tested market year in and year out. Although the market is cyclical like most property markets, even with natural peaks and troughs London will give you very strong and generous returns without significant risk over time.
Pic credit: Mantas Ruzveltas/ FreeDigitalPhotos.net
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