BRICKS AND MORTAR: Residential market growth opportunities lie outside London, in cities such as Edinburgh

by HOWARD ROBIN INVESTORS EYE HIGH RETURNS IN CITIES SUCH AS EDINBURGH AND MANCHESTER THE UK property market may be cooling off, but it is still offering hot opportunities for smart investors. According to the latest report from Halifax, prices dropped by 3.1 per cent, or an average of £7,140, in April. That’s the second-largest monthly fall since the lender began its index in 1983. Falls have been sharpest in London, with the southeast also bearing the brunt of lower price trends. In addition, values have fallen in the south­west of England for the first time since 2013. However, despite the gloomy headlines, the out­look for investors remains positive. For one thing, prices are typically 2.2 per cent higher than they were this time last year. And, according to some es­timates, they are set to rise over the next 12 months by up to three per cent. There are also significant regional variations. Within London, there are property hotspots such as Barking, Dagenham, Bexley and Havering, record­ing more than four per cent growth. Around the UK, the large regional cities like Bir­mingham, Manchester, Coventry and Edinburgh are experiencing property booms. Then there are sectors that are expected to con­tinue to offer substantial returns, such as retirement homes, commercial property and holiday lets, not to mention price-cut hotspots where buyers are be­ing tempted by favourable discounts. Alan Collett, of Hearthstone Investments, said: “Despite the gloomy headlines on property prices, the outlook for investment remains strong. There are plenty of opportunities despite the cooling market.” According to most analysts, many of the major hotspots for growth in the residential market cur­rently lie outside London. The latest index from HomeTrack, which analysed 20 cities around the UK, suggests investors looking for the best locations for capital growth in the residential property market should target the major regional cities. It says the “scarcity” of property in such places is supporting higher than average capital returns. Nottingham According to HomeTrack, prices in Edinburgh rose by 8.1 per cent in the year to March 2018, fol­lowed by Nottingham (eight per cent) and Man­chester (7.4 per cent). This compares to growth in London over the same period at just 1.6 per cent. The HomeTrack report states: “In cities where house price growth is above average, new supply is broadly in line with sales. The ratio of sales to new supply is around one to 1.1 times in Manchester, Birmingham, Edinburgh and Glasgow. This creates scarcity and, together with attractive affordability levels, supports above average capital growth.” House prices in Manchester, recently named by Deloitte as one of the fastest growing cities in Eu­rope, are forecast to rise by 28.2 per cent between 2017 and 2021. The only area in the UK set to match it is Birmingham, while rental growth for the same period is forecast to reach a healthy 20.5 per cent. The figure for Manchester is partly based on the fact that its population is rising 15 times faster than the rate at which new homes are being delivered. Real-estate expert Simon Bedford said: “We’ve reached the point where Manchester should be judged by different criteria from other UK regional cities. Manchester is now in a different league, gen­uinely competing with other European and interna­tional cities.” While London properties are traditionally the most expensive in the country, one district in the borough of Haringey has seemingly broken the mould. The less-than-average prices compared to the rest of the capital, together with a major regen­eration programme, means Tottenham Hale has been dubbed one of the UK’s investment hotspots. in London areas including Tottenham Hale The area boasts one-bedroom properties for the relatively low price of £300,000, compared to an av­erage for the capital of £429,372. It also offers a fa­vourable location, just minutes away from central London via public transport. “Tottenham is definitely one to watch,” said Mark Stephen, founder and managing director of Reditum Capital. “With the £1 billion regeneration scheme and the new £400 million Tottenham Hotspurs Sta­dium, Tottenham is enjoying a welcome transfor­mation. The increased expenditure in this formerly overlooked part of London is set to bring new char­acter to the area and with that, a great new opportu­nity for investment.” The cooling of the property market has sparked speculation as to whether the UK is witnessing the beginning of a prolonged period of value deprecia­tion or whether it is a temporary blip. Accordingly, some would-be purchasers may hold fire on the ba­sis they could pay even less at a later date, while others may decide now is really a good time to buy. One new piece of research has pointed to anoth­er factor coming into play. Analyst InvestorSquare suggests there are likely to be major opportunities thrown up by the exit from the market of Russian investors in the wake of the Salisbury spy poisoning affair. Its study points out that prominent Russian figures with links to Vladimir Putin own well over £1 billion worth of British properties. These are located mainly in London and Surrey, but also in places like Birmingham. In 2013 alone, rich Russians headed the list of foreign purchasers of London homes worth £1m or more, accounting for more than £500m of sales. By early 2014, nearly one 10th of all property transactions in the capital involved Russian buyers. InvestorSquare founder Ross Kelly says: “Signifi­cantly the UK has announced a review of 700 visas granted to wealthy Russians who were given permission to come to the UK before 2015 under the inves­tor visa scheme. Russians are also significant investors in ongoing property developments across the UK. For example, our report reveals a private Russian buyer acquired the City Edge student accommoda­tion block in Birmingham from Shaylor Holdings for £10.6m in March. “Their potential withdrawal from these invest­ments is both a threat to some much-needed devel­opments and an opportunity for UK and other non-Russian investors to pick up on these investment prospects… there may be significant opportunities to snap up some unexpected properties at lower than usual prices, from Hyde Park stores and Kens­ington mansions to Birmingham student flats. It is an ill Cold War wind that blows no one any good.” For those looking to snap up possible bargains in the capital, data from property website Zoopla shows London’s price-cut hotspots – as measured by the proportion of homes on the market carrying a “reduced” tag – are Twickenham, Mitcham, Croy­don and Harrow. In cash terms, the biggest falls in price have been in the most expensive areas such as Chelsea, Westminster and Kensington, where they rose fastest during the boom years. For those looking to invest in non-residential property, the care homes sector has traditionally been a favoured option. However, the last year has seen a dramatic rise in the number of private care homes businesses going under – from 81 in 2016/17 to 148 in 2017/18, according to the accountancy firm Moore Stephens. The Competition and Markets Authority (CMA) has pointed to a £1bn shortfall in government fund­ing of residential care in 2017. At the same time, the cost of care provision, with a typical establishment spending over half of its turnover on wages, has shot up after a substantial increase in the National Living Wage, now £7.83. Professor Martin Green, chief executive of Care England, said: “Care homes should be benefiting from the demographics of the UK, an ageing popu­lation. But they are not.” though expensive areas like Kensington and Chelsea One sector subject to the same demographic ad­vantages but not facing the same financial pressures is retirement homes. This is because they are not targeted at people with complex medical needs, but at elderly people wishing to release equity from their property or spend their golden years with sim­ilar individuals. Some just want to downsize while others seek a sheltered environment. Retirement homes are usually self funding, less labour intensive than care homes and not subject to the same finan­cial pressures. For such reasons they may constitute an ideal investment environment, offering good re­turns and long-term sustainability due to the UK’s increasingly ageing population. Research carried out by Legal & General found an estimated 3.3 million people in the UK are look­ing to downsize, while just 7,000 retirement homes are built each year to accommodate them. Recognising the undersupply of retirement homes, Legal & General last year acquired an exist­ing UK operator and £40m of assets. But it is not just large corporations that are attracted to retirement homes. Companies like One Touch Property have been successfully tailoring opportunities in the di­rection of individual investors, claiming an annual return of 10 per cent over a 10-year commercial lease for investment ‘suites’ that can be leased back to the developer for a fee and then operated by an experienced management company. These are classed as commercial property, and, as many of the suites are under £150,000, they are exempt from stamp duty charges. Many buy-to-let landlords have been under strain over the past two years, due to the loss of tax reliefs, stamp duty rises and a tougher mortgage re­gime. Sarah Davidson of investment platform Prop­ertyPartner said: “In October, landlords with four or more mortgaged properties became subject to fur­ther affordability checks by lenders when they re­mortgaged one property or applied for a new loan. Rather than the numbers having to stack up for that one property, landlords now have to submit figures for all properties in their portfolio before lenders can approve a loan. Taken together, this has put considerable financial pressure on landlords, many of whom have simply thrown the towel in.” Others have been revising their portfolios to in­clude commercial and semi-commercial properties. According to respected financial website This Is Money, one of the hottest sectors to emerge in re­cent years is the commercial sector. Some analysts have dubbed it ‘the new buy-to-let’ as yields can be higher than in residential projects. The market is di­vided into major commercial developments like shopping centres, industrial units and large office buildings, and micro commercial units such as con­venience stores, food outlets and garages. It is the micro-sector of the commercial property market that is growing in popularity with traditional buy-to-let landlords as returns tend to be higher be­cause there are more income streams. Shops, for ex­ample, usually have flats upstairs, meaning two rental incomes. Davidson added: “Commercial properties are higher risk, hence the higher rents, because they rely not only on a tenant paying each month, but also on the profitability of the business they run in order to generate that rent. “But for those who are prepared to do their homework and treat their investments as a business, the changes have been something of a catalyst for re­structuring portfolios to make them more profitable.”