Buy-to-let bargains
It’s not all doom and gloom in the great British property market. In fact if you have the cash, now’s a good time to buy-to-let, says Andre Cooray
‘‘ Aside from buying in as upmarket an area as you can afford, Louise Ng, manager at Benham and Reeves Residential Lettings in Hong Kong recommends overseas buyers focus on small-sized London properties, which she says are easier to tenant out’’
British property may be losing value, fast, but many overseas investors are seeing this as an opportunity to get in while prices are low. Savvy cash-rich investors are taking advantage of the 20 percent drop in property prices to buy homes in areas that they would not otherwise have been able to afford. What’s more, they are finding the buy-to-let market an attractive long-term option.
So as a Hong Kong investor, where in the UK should you be looking to buy? “Historically, central London has always brought good returns,” advises Louise Ng, manager at Benham and Reeves Residential Lettings in Hong Kong, a specialist in the rental of London’s most desirable homes. “Even in soft rental market conditions, the sales market has kept growing with investors enjoying good capital gain. London’s position as financial capital of the world still makes it the top choice for professional and corporate tenants. With purchase prices falling and the exchange rate having depreciated considerably, you will be surprised at what you can find.”
Fuelled by the drop in property prices and the weakening of the pound, foreign investors are now lining up to buy London homes. Late last year, a Russian investor reportedly bid £647,113 (HK$7 million) for a one-bedroom flat in Queensgate, located close to Hyde Park, with the intention of renovating and letting it out. The deal went through even though the offer was £20,050 less than the listed price. According to Ng, a growing number of investors from the Middle East have also been expressing interest in prime London districts, like Mayfair, Knightsbridge, Belgravia and Chelsea.
Russian and Middle Eastern millionaires are two-a-penny in central London but now investors from all over Europe are stepping in to buy while the Euro remains strong. There has been a 12 percent rise in European and American property investors registering to buy in the last quarter of 2008, year on year. In January, a Dutch investor reportedly snapped up a townhouse in Belgravia with a market price of £7 million for just £5.6 million, and a buyer from Spain purchased an eighth- floor, two-bedroom flat in Chelsea with an asking price of £1.39 million for £1.13 million.
Ng advises people interested in renting out London property to focus on housing in the popular, ‘safe’ areas. “This brings me to our golden rule of letting,” she says. “If you buy in the best area where there is good tenant demand for the type of accommodation you own, you can expect to enjoy respectable yields – as much as 6 percent in some of the more recent mixed-use developments.”
Ng goes on to reveal that rental properties under Benham and Reeves Residential Lettings in Beaufort Park, north west London, are still receiving healthy yields of 5 percent to 6 percent, and demand has remained steady. Studios rent for between £165 and £200 per week, one-bedroom homes lease from £210 to £240 per week and two-bedroom pads can go for £350 per week.
Aside from buying in as upmarket an area as you can afford, Ng recommends overseas buyers focus on small-sized London properties, which she says are easier to tenant out. Rents are reducing slowly on studios and one-bed apartments due to the high demand. “Properties in London leasing for around £600 per week have experienced smaller rental adjustments compared to higher ranged rentals in the £800 to £3,000 per week categories,” Ng says.
It’s undeniable, however, that many UK landlords are having to tighten their belts, and anticipate doing so for the foreseeable future. In February this year, The Guardian reported that the average rent across the UK fell by 16.3 percent from £950 in May 2008 to £795 in February 2009. But here again Ng remains positive stressing that existing investors with buy-to-let properties in the UK are successfully maximising their investments by adjusting to the UK’s current economic climate. “Be flexible on the rental,” she says. “With dramatically reduced interest rates a landlord can afford a drop in rent and still be in the same position financially.”
While few would doubt the viability of this sort of investment long term, UK analysts believe the buy-to-let market is in good shape even in the short term. The British Property Federation states that the demand for rental properties will rise as UK homeowners, whose properties are repossessed, join the rental market, and it notes that first-time homebuyers are unable to
get on the property ladder because of the lack of lending from banks. In fact, according to a recent report in The Guardian, an estimated 1.6 million 20- to 39-year-olds in the UK are renting because they cannot afford to buy a home, and it was predicted that only 600,000 potential young homebuyers would be able to take advantage of the 20 percent fall in the market. The report also stated that the number of people renting property in the UK increased by 50 percent in October 2008, year on year, due to greater lending restrictions.
Ng’s advice to Hong Kong investors, then, is to get in while the going is good. “The fast drop in the exchange rate from sterling to Hong Kong dollar has made London an even more attractive place to invest,” she says. “There are distinctive signs of investors re-looking at London with definite demand for well-priced properties in the right locations. People who hold out for the market to bottom out usually miss it, so while prices may fall some more over the next year or so, I see many opportunities for cash-rich investors.”
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