By Howard Robin
THE UK property market may have flattened due to Brexit, but that doesn’t mean the savvy investor should avoid real estate.
Eastern Eye checks out the dos and don’ts of making money from bricks and mortar.
What are the three golden rules of successfully investing in real estate?
Location, location, location is the traditional answer, but the experienced investor will tell you that too rigid a geographical focus can lead to problems.
There are many so-called ‘great’ locations – for example the West End of London – where investors have lost millions. Conversely, there are many downmarket areas where investors have made millions; in other words, to a certain extent location is only as good as the price you pay.
Property expert Dan Vovil, who has made millions over many years in property markets around the world, gives his three golden rules of real estate
First, ‘cashflow is king’. He points out that a property “may be the best house in the best street in the best suburb,” but it amounts to nothing if circumstances such as an increase in mortgage rates or tenant vacancy rates forces you to sell up because you haven’t taken the precaution of creating an ample cash buffer.
The second golden rule, according to Vovil, is to always protect your positive equity. “Never over-leverage yourself, no matter how great the property, how good the location or how much the property is a ‘once in a lifetime opportunity.’
He adds: “As a rule, I never let my loan-to-value ratio go above 60-70 per cent. Actually, I’m more comfortable with an LVR closer to 50 per cent.”
Third, he says, “remove emotion from any transaction and focus on the numbers”, citing friends who have “fallen head over heels with a ‘dream’ property” and come unstuck”.
He adds: “Some of the best properties I’ve purchased have been the ones that are the least attractive and most generic, yet have the best cashflow.”
Where are the best locations to invest in UK property in 2020?
According to property investment experts Seven Capital, the smart buy-to-let money is flowing towards the UK’s regional centres with Birmingham, which has seen a 19.3 per cent rise in house prices since 2014, top for investors, closely followed by Liverpool. Its full top 10 list is as follows: Birmingham; Liverpool; Manchester; Leicester; Nottingham; Sheffield; Oxford; Cardiff; Leeds; London.
The desirability of investing in these places is based on a combination of projected rental yields, capital growth, local supply and demand, and regeneration projects.
According to estate agent Knight Frank, property prices in Birmingham are projected to rise by a further 12.5 per cent by 2022, with rental yields remaining strong, fuelled by growing demand for flats in the city.
In terms of rental yield alone, it seems they get higher the further north you go, with four postcodes in the Northern Powerhouse regions taking the top spots for properties priced over £100,000. These top four rental yield codes are: L1 in Liverpool; S1 in Sheffield; M14 in Manchester; and LS6 in Leeds.
Where will a £25,000 property investment earn the best return?
Hamptons International says there are 105 local authority areas in the UK where the average price of a flat or house is under £100,000 – providing an opportunity to the buy-to-let investor with a 25 per cent deposit of £25,000.
In this price bracket, Hamptons says, Hartlepool has the highest rental yields in England at 10.8 per cent – a 25 per cent deposit on an average two-bedroom flat in Hartlepool would be between £15,000 and £25,000, while an average terraced house would require a 25 per cent deposit of £19,180. In second place is County Durham with yields of 10.2 per cent based on deposit requirements of £16,780 for flats and £20,300 for an average terraced house.
Although rental demand in these markets remains strong, some small investors have been put off due to cuts in tax relief on buy-to-let mortgages since 2017, and the recent abolition of tenant fees.
Local agent Daniel Craig Residential said around half of landlords in these areas come either from the south of England or overseas. There is a growing shift towards corporate investors and well-organised professional landlords with large portfolios, attracted by the prospect of low costs and high yields.
According to the National Landlords’ Association, rental yields across Yorkshire and the Humber in this £25,000 investment bracket are the second highest in the country, offering returns of around 5.8 per cent.
Can you get a property bargain at an auction?
Martin Roberts, of the BBC’s Homes Under the Hammer, said: “Not enough people buy property at auction and there are some great bargains to be had. But you’ve got to be really careful. Not all auction properties are bargains, but there are bargains to be had.”
As well as being a possible route to a bargain, snapping up a property at an auction means you avoid the hassle of a long-drawn-out buying process. However, extreme caution is advised as there are a number of potential pitfalls for the inexperienced investor.
The first thing to bear in mind is that a property bought at auction is not covered by consumer contract regulations. The old adage ‘let the buyer beware’ really does apply. If it turns out that the property has serious defects, you can’t claim your money back.
Moreover, once the hammer falls, the winning bidder is required by law to pay a deposit of 10 per cent of the purchase price, then pay the remaining 90 per cent within 28 days. There is no get-out clause, the contract is legally binding and therefore the deposit is non-refundable. For this reason, it is essential to take full advantage of the month-long window of opportunity between publication of an auction catalogue and the auction.
Once you have got a copy of the catalogue, note any properties you are interested in and then book a viewing. Don’t be shy about arranging as many viewings as you feel you need, and make sure to arrange for an expert to come with you, preferably a builder or surveyor.
Since many properties sold at auction are not always in the best condition, you may wish to commission a formal survey too.
What are the best ways to boost a property’s value?
It goes without saying that capital appreciation is the ultimate aim of any property investment. A shrewd purchase will be based on projected house price growth.
At the same time, there are many ways of adding value to a property yourself.
Chief among value-boosting measures are redecorating, installing modern windows and fixtures, garden make-overs and sorting out any structural problems.
If you are investing in a new-build property and buying off plan, choose the highest quality and most attractive units available.
Those that add the most value include state of the art new kitchens, new bathrooms, loft conversions, garage conversions, installing top-quality modern flooring, painting the exterior and adding attractive shrubs to a front garden.
What are the best places in the world for overseas property investment?
One way of knowing where the smart money is going is to follow the trail of Middle East investors.
According to Bayut.com, the United Arab Emirates’s largest property portal, Indonesia is currently one of the best places in the world to invest in property. With an extremely dense population, the domestic rental market is very profitable, with rental yields of 8.61 per cent on an average two-bedroom property.
Though it is not particularly easy for a foreigner to buy a property outright in Indonesia, it is common for overseas investors to buy leaseholds. Moreover, the Indonesian government is currently considering introducing a bill to make it easier for foreign property investors to access the market.
The second top country singled out by Bayut for overseas property investors is Colombia. As it has tackled its crime problems of recent years, its economy has grown significantly with GDP doubling over the last decade.
Rental yield is a very healthy 6.5 per cent and the country’s new-found economic and social stability is attracting increasing numbers of property investors from the Middle East.
There’s an old saying that goes, ‘where there’s scarcity, there’s profit’. With a growing number of foreigners settling in the country, the Philippines is number three on Bayut’s list and is now being touted as a great place to invest in buy-to-let.
“There’s a massive housing backlog in the Philippines which means that more than 20 million Filipinos are looking for rental properties,” said Bayut.
With a low rental income tax of just 4.06 per cent and average rental yields of 6.13 per cent, the return on investment is expected to be very high for the foreseeable future.
What are the hottest emerging real-estate markets in Europe?
With more and more companies exiting the UK over Brexit, property investors are identifying emerging centres of commerce on the European mainland.
LeadingRE, a consortium of over 500 international real estate brokerages in 70 countries, has identified a number of ‘secondary’ property markets in Europe with the prospect of high returns on investment.
Chris Dietz, the consortium’s executive vice-president, said: “While London, Geneva, Paris and Monaco continue to command Europe’s highest property prices, other cities are emerging as increasingly popular with international buyers.”
Among the top emerging secondary hotspots cited by LeadingRE, Zagreb, the capital of Croatia, has been seeing explosive growth. Property price growth in Zagreb was around 20 per cent in 2018, more than twice the rest of the country.
The second European property hotspot cited by the consortium is Lisbon, the capital of Portugal, where prices increased by 20 per cent last year. The growth has been partly fuelled by new laws for foreign property investors giving them improved tax rates and fast track access to citizenship. International buyers’ interest has focused mainly on new luxury apartments, with strong interest reported by local agents from China, the US, Germany, France and Brazil.
If it sounds too good to be true, is it really too good to be true?
The internet is full of advertisements promising returns of up to 10 per cent a year from relatively small investments on purpose-built student accommodation – generally in the form of en-suite studio pods with concierge and other services. These ads can sound particularly tempting as the developers’ offers generally stipulate that returns will be guaranteed and fixed for up to five years.
According to MoneyWeek, the UK’s best-selling financial magazine, investors may find that once the guaranteed period runs out, the real market rate for tenants is significantly lower than they were initially told. It advises investors to do their homework thoroughly before buying a pod.
Robert Bruce of the Property Hub forum goes one further, pointing out that pods should be avoided altogether as – because of their unique nature within a student building – they can be very difficult to sell, “with the owner’s only option being selling to another cash-rich investor as opposed to the whole of the market.”
Should you buy new-build or second-hand?
Though new-build homes tend to come at a price premium, evidence suggests it is worth it. The extra price of a new-build home will reflect higher build quality, structural soundness and energy efficiency, all qualities buyers are looking for.
According to a survey by estate agents Stone Real Estate, new-builds have increased in value by an average of 25.3 per cent in the last five years, while older flats and houses increased by just 20.6 per cent. The differential remains broadly the same if you go back over 10 years, with new-builds outperforming older stock.
That said, if you’re considering buying a newbuild property, it’s probably best to do it sooner rather than later because of changes to the government’s Help To Buy scheme. This is because the scheme, which provides interest-free equity loans of up to 40 per cent on new-builds worth up to £600,000, is being phased out by 2023.
Finally, will house prices crash after Brexit?
Whether you’re a prospective buyer or seller, you’ll want to know whether all those rumours circulating on the internet about a 20 per cent house price crash post-Brexit are likely to come true.
The good news for homeowners is that with the prospect of a no-deal Brexit virtually ruled out, the chances of a crash of epic proportions are substantially lower. Moreover, in the long run, prices are unlikely to come down for the simple reason that the housing shortage shows little sign of being solved. Despite efforts by successive governments to build more homes, Britain is still massively behind in its new-build targets, with supply still failing to keep pace with growing demand. By way of illustration, the UK has double the population of Canada but is building just half the number of new homes.
That said, most property economists predict that future growth will be fairly sluggish. This is because years of falling interest rates and growing debt, as mortgages have grown in relation to income, have created an over-inflated market.