Fast facts for investing in...property
Published : July 2008
The property market has stalled dramatically in the wake of the credit crunch. But for the shrewd investor, there is still money to be made
International investment in current residential hotspots
Montenegro – Spectacular coastal, lake and mountain scenery and highly affordable property are making Montenegro one of the most sought-after second home hotspots. This demand is likely to grow as the budget airlines move in.
Brazil – Now the money is coming in and infrastructure is being put into place, this is an opportunity to get in at the beginning of the gold rush in Brazil. The new, self contained luxury resorts being built here are on a huge scale – encompassing beachfront, championship golf courses, fresh water lakes and even hilly terrain perfect for mountain biking. Everything the discerning buyer wants will be accessible from Natal – from cosmetic surgeries to a 500-boat marina.
Austria – investors are ticking the Austria box because it is outstanding value compared to other European countries and comparable ski resorts. The country benefits from a stable economy and the ski resorts where we are selling offer strong rental returns and predictions of process doubling within five years.
Harry Lewis, Savills
Investing in residential development
- Find out when the developers’ full- and half-year deadlines are and you will be in a great position to achieve a bargain. Housebuilders don’t like standing stock, and once they have paid the contractors off and they have a half-year or full-year looming, they will be keener than usual to sell. That is the time for you to sweep in and do a deal.
- Look for rental guarantees – ask the developer if they will give you one.
- Look into deposit bonds – finance companies maylend you the deposit if it doesn’t suit you to free up the cash.
- America is a good place to buy now with the exchange rate. Savills is selling the Chicago Spire which, with its five-year completion and two-year post-completion rental guarantee of 7.5 per cent, offers a seriously good deal for investors.
Dominic Grace, Savills
Buying at auction
- Draw up a business plan determining your investment requirements and what role property will play in your portfolio.
- Research the market by obtaining all relevant electronic paper and auction catalogues.
- Retain a solicitor, surveyor and any other professional you require for your purchases.
- Visit the properties that interest you, to ascertain current and future uses.
- Inspect the legal pack, check tenants’ covenants and, if required, seek professional advice on the properties that interest you.
- Ensure your lines of finance are agreed prior to purchase. This will normally involve a valuation. Get ready to pay a 10 per cent deposit in the room.
- Register your interest with the relevant auctioneer to find out if the property is available for sale prior to auction and to ensure the property is not sold prior.
- Turn up to the auction early to pick up any last-minute changes to the agenda or guide prices.
- Check results of other lots being offered prior to yours to see how the market is faring.
- Set yourself a limit for your maximum bid.
James Cannon, Savills
London residential
The criteria for selecting should be in this order:
- Location is everything – buy in the best location you can afford – area, street, position
in street.
- Close to a tube station or railway station.
- As quiet as possible.
- For apartments, buy in a well-presented, well-managed block with good common parts and modest service charges.
- For houses – in the catchment area of good schools.
- Light and airy.
- Off-street parking or garage.
- Fewer large rooms are better than more small rooms.
- Pleasant outlook.
-Good local amenities – parks, shops etc.
Simon Edwards, Savills
Farms and estates
- Decide what is required from the investment. Is it income or capital growth, bearing in mind that against some other investment classes, farms and estates can look low-yielding? Is it a commercial venture and/or ‘recreational’? Which is most important: the financial performance or the enjoyment of ownership, including its sporting and amenity value?
- What are your thoughts on the immediate future and ongoing management? These will depend upon the commerciality of the venture.
- Make yourself known to the main sales agents and land dealers. This is particularly pertinent at the upper end of the market, where a number of deals are off market. Likewise, calling the market is critical when, as currently, and contrary to other property sectors, the land market is very strong indeed, leaving few obvious bargains.
- Be alert to any overlooked opportunities. Today’s farmers and landowners are extremely shrewd, but occasionally opportunities for future enhancement of value are missed. Consider the personal tax benefits of land ownership, including capital gains and inheritance tax and those related to active farming (income and capital taxes).
Alex Lawson, Savills
Finance
- Obtaining finance to invest in property is particularly tough at the moment as a result of the credit crunch. Lenders have to pay a significant margin above bank base rate to borrow funds to lend in turn to homeowners and investors, so the cost of borrowing is high, despite three rate cuts this year.
- Lenders are also chasing margin rather than market share and are fussier about who they lend to, insisting on lower maximum loan-to-values (LTVs) and tighter rental criteria on buy-to-let. There are fewer products available and less choice for investors.
- But it’s not all bad news: there are lenders still willing to lend and an independent mortgage broker will know which ones to approach for competitive rates.
Melanie Bien, Savills Private Finance
Residential investment property
- Buy in locations where there is a strong rental market and view the investment as one of medium-term.
- Be prepared to hold onto the property for at least three years to benefit from capital growth.
- Invest in houses rather than flats, ensuring they are in an accessible location and close to large employment centres.
- Think about who would be interested in buying the property when you do come to sell it. Aim for as wide an audience as possible, and with this in mind, avoid blighted property.
Jacqui Daly, Savills