Investment: life beyond London
Michelle Funke finds out from the experts how to achieve high yields on UK property investments outside of London
IT IS A fact of South African offshore-investing culture that most people focus only on London property as an investment vehicle. However, the high cost of entry and lack of viable mortgages have scared many away from the UK as a whole. Many investors have not invested at all as a result, missing many other property opportunities outside of London.
With property prices in London back to pre-crash levels of 2008, and the Far East market investing heavily in new developments, there are many parts of London that could be heading to a price bubble with little or no value being offered to the investor. This has created advantages for the savvy buy to let investor
“The reality this year is that yields are low in London, but capital growth is strong if you know where to buy,” says Craig Illman, director of UK-based investment company Propwealth. “However, many UK investors have given up on London as it is offering no value and they are rather looking at cash-flow-generating cities throughout the UK. Furthermore many … investors who have property in London are balancing these with cash-generating real estate elsewhere in the country.”
So how do you find your next hot city in which to invest? As a start, investors need to begin at a macro level and work their way to the grass-root levels, according to Illman, who says that the following strategies are important in allowing investors to pinpoint a new hot spot that will offer cash yields with capital growth potential in the medium to long term:
Employment is key — tenants will rely on this. Look where head offices or businesses are being created. Don’t rely on a city that has one industry (such as mining) — if there is a downturn in that sector it will have a detrimental effect on tenants’ lifestyles.
Regeneration is also important because if there is substantial infrastructure upgrading this will offer capital growth prospects. Also if upgrades have to do with lifestyle improvements, more tenants will find the area desirable, increasing demand and yields.
Forget capital growth but look at cash flow. There is very little capital growth outside of greater London, but excellent cash flow. Look at areas that offer good rental returns and demands. The UK average gross rental yield is 3%-6.1%. Aim as high as possible — try to look at 7% plus options.
Do your homework. The UK has sophisticated, and free, online resources like Rightmove that can help you pinpoint selling prices and compare rental returns for the same street. Read through local council websites to investigate possible spending on area redevelopment.
Transport links are the future. The UK is planning high-speed links from London up the west coast which will make access to the capital three times faster. Investing along this route, or at various stops will boost your buy-tolet portfolio’s yields over time.
The latest cash-generating area that meets all the criteria is Liverpool. Most buy-to-let investors are upgrading Victorian buildings in Liverpool, refitting them with modern appliances, kitchens, bathrooms, and highspeed internet access to offer tenants comfortable accommodation, while they enjoy excellent cash returns.
Furthermore, Liverpool council is spending billions on regenerating the city with many service and financial businesses relocating to the region. Employment is on the up and the city is once again seen as the key north west citywith easy transport links as well as a vibrant student population.
A new development called The Egerton, situated in Liverpool, is a good example of the kind of investment opportunity that is popular among South Africans. It is a Victorian building in its own grounds that was once used as a nursing home.
The developer is converting 13 flats into high-level investments for professional tenants. The Egerton is situated on The Wirral, traditionally where wealthy “footballers and their wives” live and is well situated with many transport links into Liverpool city about 6km away.
“These flats will have a minimum yield of 8%. This is a very strong yield for our South African investors as they will be getting between £360 and £410 clear every month after expenses with a cash investment of £67,500,” says Illman.
“That adds up to returns that are far more than banks will offer, plus you own the property and will enjoy capital growth in future.”
Craig Illman and Anthony Doyle will be meeting with South African buy-to-let investors on June 5 and 6 in Johannesburg and June 11 and 12 June in Cape Town. Contact: www.propwealth.co.uk