Property Investor Report : London Breakfast Briefing with the NLA – Part 2

Welcome to Part 2 of our coverage of The Property Breakfast Briefing at London’s Royal Academy of Arts, organised by the UK’s National Landlords Association.

The first part of this report generated a real buzz from readers earlier this week. Here’s the second and final installment of my report on this enlightening May morning in central London, focussing on the future of the UK residential market and the prospects for the private rental sector (PRS) in the new political world of taxed business expenses  for some sectors of UK property investment.

In the second of this two-parter from the Briefing are key comments from the panel and in particular Jim Pickard, the Political correspondent of the Financial Times, who gave his views on the recent Mayoral changes in London and its likely effects on the PRS.

Part 2 : Speaker – Jim Pickard, Financial Times’ Chief Political Correspondent

Here are the key topics covered by JIm during his presentation at the gathering, followed by some animated Q&A…

On the impact to housing of the new London Mayorship

The new London Mayor Sadiq Khan won the election with two key issues in his manifesto : transport and housing, so expect reform of both of these to feature highly (and quickly) during his term. At the end of the day London is a basically a labour city, so such a vote for a labour Mayor during a mid-conservative national term comes as no great surprise.

Issues with private lettings agencies are in focus and the mayor looking at setting up a public run letting agency. No details are available yet but we watch with great interest.

London has a population of 8.6m and this is widely expected to rise to 10m by 2030. The private sector is nowhere near meeting this with new build construction.

Another area of concern has been the proliferation of Iceberg basements (the construction of very large living spaces below existing high end properties, in prime central London – Moves are afoot to tighten up on planning permissions for these.

More significantly it is likely that foreign off-plan investments into London will be made more difficult, to level the playing field for UK based buyers.

Indeed a recent survey on behalf of KPMG indicates that 2/3 of foreign investors are concerned about potential policy changes following the Mayoral election.

Despite a widespread concern, the Mayor has no direct power to place a cap on rental income. 

The mayor is expected to encourage all London boroughs to introduce landlord licensing, based on the results of the “test case” in the Borough of Newham. But there are government restrictions on how widely this can be implemented. If a borough wishes to have more than than 20% of its rental stock to be under license, it would need to seek direct permission from the housing minister, who can refuse this.

On Brexit

Pickard believes there would likely be an Immediate depreciation of sterling in the event of a vote to leave the EU.

This would further increase the popularity in London and elsewhere for foreign property buyers.

Panel Q&A

Not surprisingly much of the discussion centred on the impact of the new world of tax legislation for private landlords.

One audience member, a landlord of 30 years, commented that despite the many challenges during that time, she has never felt so gloomy.

The panel commented on methods likely to be used by landlords to survive in the new climate. Landlords will need to carefully control their costs.

Notably, there was a prediction that landlords are likely to shop for better letting agent deals. In particular they will be more critical of tenancy renewal charges. They expect the market to become less complacent and more competitive, good news for those relying on agents.

Landlords are expected to be more likely to self manage their properties to improve cashflow. Whilst professionally-minded landlords will respond to the challenge appropriately this is seen by some to represent a danger to the quality of property management in the PRS in the near future.

One final sobering word came from Richard Lambert, CEO of the National Landlords Association: Given the track record, and the current political and popularist sentiment, It’s quite possible that rent controls could be introduced by the present conservative government.

For that, we will just have to wait and see…

Please post your comments or questions on any of the issues raised, or if you’d like more detail with a one-to-one chat with me over the next few days, contact me directly using link below. 

Property Investor Report : London Breakfast Briefing with the NLA – Part 1

Along with distinguished guests,  I was recently invited to a Property Breakfast Briefing at London’s Royal Academy of Arts, organised by the UK’s National Landlords Association. Here’s the first part of my report on what was a valuable insight on the present and future of the UK residential market and the prospects for the private rental sector (PRS) in the new political landscape for UK property investment.

Here in this two-parter are some rather insightful observations from Richard Lambert, CEO of the National Landlord’s Association and Jim Pickard, the Political correspondent of the Financial Times, who gave his views on the recent Mayoral changes in London and its effects on the PRS.

Part 1 : Speaker – Richard Lambert, CEO National Landlords Association

Here are some insightful observations from Richard Lambert, CEO of the National Landlord’s Association, made during his presentation at the gathering.

Based on a recent UK-wide NLA survey, Landlord confidence has collapsed as a result of the UK government’s tax assault on private landlords. As many of us know, since April this year a “second-home” stamp duty surcharge of 3% has been in place on all second homes and traditional buy-to-let residential property investment. 

From the survey it appears that George Osborne has had the equivalent effect on confidence in the PRS as the Property Crash during the Great Recession of 2008/9. Quite an accomplishment!

More feedback from the NLA PRS survey- Landlord Sentiment

The more properties owned by a landlord, the more likely the landlord is to expect a forthcoming crash in the residential property market. This is as expected though since landlords with larger portfolios statistically tend to be more highly geared.

A prevailing comment from landlords was on the lines of  “I was going to buy more property, but because of the taxation changes, now I won’t”. Some are reported to be selling off property immediately or planning to sell up completely.

The number of buyers are falling, and sellers increasing. In the first quarter of this year a cross-over was reached where the number of selling landlords exceeds the number of those buying.

Tenant Demand remains high

A piece of good news for landlords was there is no evidence of weakening in tenant demand across the UK. Therefore a common response to the forthcoming “landlord Tax” on mortgage interest for those landlords staying in the game, is to consider simply raising the rents to stay profitable.

A fascinating debate around this is : can landlords really define the rental market in this way? Aren’t business-centric landlords already achieving this? In other words, charging the most the market can stand already?

Specialisation and going “Ltd”

Other landlord responses to the impending changes are equally interesting: a trend is being seen towards specialisation and segmentation in the PRS. This presumably is borne out of the idea of adding value to a tenant’s experience with greater expertise in specialism that comes from a vertical and/or niche market. That is my take though – this wasn’t reported in detail.

The survey showed that 1/3 of landlords questioned are looking at incorporation.

In his summary, Lambert concluded from the survey that property still seen as the best investment option by most landlords, but a growing number are no longer convinced. 

Disclaimer : all stated remarks in this article are my personal interpretation during the event and should not be taken as direct quotations from panel or audience members.

(Watch out for second and final part of this article¬†which will cover the presentation¬†from Jim Pickard, Financial Times’ chief political correspondent as well as lively questions from the audience).

Please post your comments or questions on any of the issues raised, or if you’d like more detail with a one-to-one chat with me over the next few days, contact me directly using link below.

3 Key Facts you probably never knew about Purpose-Built Student Property

Lets face it, some property investors have a problem with purpose built student property (PBSA) investments. Here are the most common objections:

  • Tenants are restricted to students only (usually by covenant).
  • There’s seemingly a restricted secondary market so how do you sell up when you need to?
  • There’s no control over the running of the property.
  • These guaranteed rents being offered are just paid directly from inflated purchase prices.

Hands-up if you recognise at any of those?

Truth or urban myths? Lets take a look at each of these comments in a bit more detail.

Tenants are restricted to students only (usually by covenant). That is indeed usually the case, but for good social and business reasons, and to the benefit of the owner. One key reason that PBSA is so popular with today’s demanding students is that they offer a safe secure community of like minded individuals. That’s why rents are higher and often demand exceeds supply when in the right location.

You can’t sell PBSA apartments on. This was perhaps the case, or at least a fear a few years ago when the asset class was emerging and the secondary market untried. The worry was that PBSA would be a flash in the pan and owners would be left with property that no student wanted and that no-one else was allowed to occupy.

That worry has proved unfounded, provided property buyers were careful to select the right development in the right location. Exactly the same level of buyer research is needed here as with choosing any residential investment property, it really is no different. Fundamentally the problem is when unwary investors are led to confuse passive investment with passive research.

What I mean by this is that the promise of hands-free property ownership does not imply there is less work to do when choosing which PBSA property to buy. It seems obvious but inexperienced investors can have their heads turned by over-zealous and perhaps less-than-well-informed sales and marketing. And this is compounded when buying off-plan when computer generated images are relied on to some degree to make a purchasing decision. But find a good reputable independent broker and help is at hand.

Today there is a proven track record in the resale market amongst the best developments, and with rents increasing from the second year, a decent capital gain can be made in a short space of time. There is now an established local and overseas investor market for UK PBSA. Because they are hands-free this is a great asset class for overseas buyers. The secondary market has arguably an even wider appeal than the initial one.

There’s no control over the running of the property. Managing a PBSA is a specialist activity and involves decisions that affect the entire development. Letting the experts do what they do best is really the power of this asset class. that’s why researching the facilities management company before investing in a PBSA is crucial. Again an experienced broker will help massively with that. Such facilities managers charge a relatively high level of rental income percentage (around 20% of income), but this covers everything from routine maintenance to finding tenants compare this with the combined costs of running a rental apartment. And gross yields are usually much higher than standard residential lets, meaning your net income is way higher and without all the hassle.

What about guaranteed rents – aren’t these a number-juggling exercise? Assured rental income for the first few years is very common in PBSA and do offer the advantage of a secure income in the early years of a commercial property in operation. They also make sound commercial sense for the developer. A benefit to an investor is that it smooths the ramp-up of rental income and occupancy to ensure positive cash flow from day 1. A good location should expect to see actual net rents in excess of the guaranteed figure within a couple of years, so the developer can retain the excess in the latter years of the guarantee period, after which the investor gets to enjoy those benefits for themselves.

With the best of breed PBSA’s the rental income will usually exceed the guaranteed figure from opening day. Whilst this can be slightly irksome to the investor at first, it shows they have backed a winner and they will receive greater rewards in the years to follow. So with the well-chosen development everybody truly wins.

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