When only the best is good enough for the in­vestor

In­vestors have sensed the bot­tom of the mar­ket and they are pur­chas­ing prop­erty again, says Ju­lian D’Arcy, who be­lieves York­shire’s prime lo­ca­tions of­fer the best buys.

Yorkshire Post - Property - - PROPERTY -

FACED with in­fi­nite choice and sub­stan­tial re­sources, where would you in­vest in the prop­erty mar­ket? Of­fices in Lon­don? Shops in Leeds? In­dus­trial units in Don­caster? Flats in York? Houses in Chel­tenham?

Tricky, re­ally, given the di­verse views on the strength of the eco­nomic re­cov­ery, the po­ten­tial ef­fects of the Gov­ern­ment’s aus­ter­ity mea­sures and the seem­ingly con­flict­ing sta­tis­tics be­ing churned out by mar­ket com­men­ta­tors.

Prob­a­bly not a time for putting all of your eggs in one bas­ket – I’d cer­tainly feel more com­fort­able with an each-way bet at this stage of the game. Def­i­nitely a time to be in the game, though, given the op­por­tu­ni­ties that are be­com­ing avail­able as the banks get to grips with some ex­cel­lent, but over-lever­aged as­sets and the falls in price that all of the sec­tors have seen.

This was the dilemma that my busi­ness part­ner, Mike Hard­man, and I faced when we left the se­cu­rity of the cor­po­rate world and set up Ri­p­ley As­set Man­age­ment, which man­ages the Longcross Prop­erty In­vest­ment Fund and ac­quires prop­erty as­sets for high net worth in­di­vid­u­als.

Lots of peo­ple like in­vest­ing in prop­erty as an al­ter­na­tive to eq­ui­ties, gilts, cash de­posits and gold. It’s tan­gi­ble, it’s un­der­stand­able and if bought at the right time, for the right price, gen­er­ally per­ceived as a con­trol­lable risk.

Un­for­tu­nately, it’s also rel­a­tively illiq­uid; the good deals are hard to source, your in­vest­ment is usu­ally lim­ited to a sin­gle or few as­sets and your in­vest­ment fo­cus is, there­fore, on a very spe­cific area of the prop­erty mar­ket. Then there’s the mat­ter of man­ag­ing the as­sets.

With the fund, we saw that there was an op­por­tu­nity to cre­ate a ve­hi­cle that could take ad­van­tage of the dif­fer­ent tim­ing cy­cles of the res­i­den­tial and com­mer­cial mar­kets, to buy at the op­ti­mum time and re­duce the risk to in­vestors by in­vest­ing in a va­ri­ety of as­set classes.

There are plenty of com­mer­cial prop­erty funds, but, at present, op­por­tu­ni­ties to in­di­rectly in­vest in res­i­den­tial prop­erty are very far and few be­tween. We now be­lieve there are some ex­cel­lent op­por­tu­ni­ties out there for res­i­den­tial prop­erty in­vest­ment and the fund is struc­tured so that peo­ple can do that.

The time for in­vest­ing se­lec­tively in res­i­den­tial prop­erty has fi­nally ar­rived af­ter three or four years of un­remit­ting gloom. While it is very dif­fi­cult to call the bot­tom of the mar­ket, once fa­mously likened to catch­ing a fall­ing knife, we be­lieve that the worst is now over. Here’s why.

When we first be­gan to think of a fund, we de­cided a com­bi­na­tion of com­mer­cial and res­i­den­tial of­fered the most sta­ble plat­form. We de­cided that the cy­cle of com­mer­cial ini­tially favoured well-let sec­ondary of­fices – the best com­bi­na­tion of low val­ues and high in­come. The in­crease in the value of as­sets bought to date and the re­duc­tion in debt has shown this strat­egy to be cor­rect thus far. The fund is sig­nif­i­cantly out-per­form­ing its tar­get re­turn.

We now be­lieve that the time is right to start in­vest­ing se­lec­tively in res­i­den­tial prop­erty. To be­gin with, the new hous­ing sup­ply is at its low­est since 1923, with fewer than 80,000 pri­vate sec­tor units be­ing de­liv­ered.

Even ig­nor­ing the ef­fects of im­mi­gra­tion, un­der­ly­ing de­mo­graph­ics in­di­cate a need for 175,000 units per an­num. Putting lo­cal and short-term price trends to one side, this will have a pos­i­tive ef­fect on house prices in medium to long term.

The lack of mort­gage fi­nance has led to a sig­nif­i­cant in­crease in peo­ple rent­ing and strong in­creases in rental val­ues. Rental oc­cu­pa­tion is be­com­ing much more so­cially ac­cept­able, and while peo­ple would still pre­fer to buy, rent­ing is now seen as a valid al­ter­na­tive.

What we look for is a mix­ture of in­come and cap­i­tal growth and we buy with an even­tual sale in mind. We will buy in good qual­ity re­gional cen­tres across the coun­try, ie Har­ro­gate, Chelms­ford, Chel­tenham and Al­trin­cham. We will avoid ar­eas where there are wider eco­nomic prob­lems, ie econ­omy is over­re­liant on the pub­lic sec­tor.

In York­shire, gen­er­ally, you need to be in an ur­ban lo­ca­tion in or­der to cap­ture the rental mar­ket, and I would favour the larger, more pros­per­ous, towns and cities such as Har­ro­gate, York, Leeds, Wetherby, Skip­ton, Bev­er­ley, Ilk­ley and parts of Sh­effield. You can get higher yields in less good ar­eas, but I think that there is less prospect for cap­i­tal growth.

Our fund is favour­ing fam­ily hous­ing, but not very large houses. I think there is a case for apart­ments in in­tensely ur­ban lo­ca­tions, such as Leeds and York, but only in the very best lo­ca­tions.

There is def­i­nitely a flight to qual­ity, for both buy­ers and renters and there are rea­sons to be op­ti­mistic about the res­i­den­tial prop­erty in­vest­ment mar­ket in York­shire and be­yond. But it is cru­cial to be se­lec­tive and to take ad­vice.

Ten Firs was built to last on a plot with in­cred­i­ble, long-range views to Hare­wood House and Ot­ley Chevin. The prop­erty has five bed­rooms and a swim­ming pool and spa.

STUN­NING:

PROS­PER­OUS: Har­ro­gate is a good lo­ca­tion for res­i­den­tial in­vest­ment.

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