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Professional investors
with large property portfolios are cleaning up; many are sitting on
substantial sums of equity built up throughout the housing boom.
Unlike new investors, they can afford to meet lenders' more
stringent requirements for larger deposits.
Figures from Hometrack, the property data company, indicate that 82
per cent of rented property is in the hands of professional or
semi-professional landlords who own at least ten homes. For these
people, a weak housing market represents an opportunity to find a
bargain property and take advantage of rents that have risen by 12
per cent over the past six months, according to Paragon Mortgages.
Investors know that fewer buyers in the market equates to a greater
demand for rental homes.
Heenal Lakhani, 27, managing director of Fenwold Properties, is a
typical example of a professional investor who gave up his day job
to focus on property full-time. He has been running his property
investment company in London for more than two years since leaving
his job in the City, and is among those searching for a good deal.
Part of his approach is to target properties that have been
repossessed, refurbish them and sell at a profit - as he
demonstrated in Bricks and Mortar in February.
Since the article was published, Lakhani has experienced a surge in
competition from other investors. “I haven't managed to buy a single
‘repo' since then. I've lost out on some deals where other investors
outbid me,” he says. “There are lots of serious buyers out there who
really want to reap the benefit of rising rents.”
He adds: “The savvy investors know that this is a good time to buy.
Lenders may be asking for deposits of up to 25 per cent. In London
there are lots of investors with cash who are happy to put down that
deposit. They will do the maths and work out the yield. If the
property is at the right price, they will buy. Leaving the money in
the bank will not earn you that much interest.”
Paying about 5 per cent below the asking price has become the norm
but the investors getting the very best deals are those who are
buying in bulk. Matt Tack, director of Hampton's Asset and
Investment Management, an advisory service to property investors who
buy anything from 20 to 100 properties in a single go, says that
some investors are managing to buy properties at 20 per cent below
their market value. He says: “It can be anything from traditional
Edwardian and Victorian buildings in Chelsea to new-builds in
Stratford.
There are a lot of properties on the market which would have been
snapped up within days last year but are now taking longer to sell.
These are now being bought quite cheaply by professional investors
who intend to hold for three to seven years.”
These investors will do well out of rents. Falling property prices
and the tightening credit crunch means that fewer people are willing
or able to buy their own homes and therefore end up renting. The
average rental home generates more than £1,000 a month, according to
Paragon, and that figure could rise even further.
Capital Economics, the analyst group, predicts that although
property values will drop by 8 per cent this year and by 10 per cent
the next, rent will grow by 4.6 per cent in 2008 and by 5.8 per cent
in 2009. According to its forecasts, rental growth will outstrip
growth in average earnings over the next two years.
In the long term, the Association of Residential Letting Agents (ARLA)
forecasts that demand for rental homes is set to grow by between
20,000 and 30,000 a year over the next decade because of the rise in
the number of divorcees and immigrants, as well as increasing job
mobility.
John Heron, Paragon's director of mortgages, says: “The professional
end of the market remains committed to buy-to-let over the long
term. They typically hold their investments for a decade or more.”
Heron adds that professional investors are not under pressure from
the credit crunch because the amounts many need to borrow to fund
future purchases are modest compared with the size of their overall
portfolio. “They borrow an average of less than 40 per cent of the
value of their portfolios,” he says.
Property investors today are a different breed to those who dreamt
of instant riches during the height of the housing boom. Back then
players such as Inside Track, the property investment company that
recently went into administration, could easily charge the
uninitiated £695 for seminars on how to make money out of bricks and
mortar. Novices were taught how they could make money by buying
new-build property “off-plan” before a single brick was laid and
selling it on at a profit before the building was completed.
Dabblers and professionals alike made thousands of pounds from the
practice, known as “flipping”, during the boom years. Even at the
start of this year, many were still hoping to turn quick profits by
flipping properties to other investors.
Few are expecting to make quick money now. The risks are too great
and the stakes are too high. Investors might be able to buy cheaply
off-plan but will have trouble flipping the property now that
smaller investors are not buying.
According to Tack, today's investors take great pains to avoid
costly mistakes. “Property investment has become much more
professional and much more technical. At the moment you could buy a
property and instantly go into negative equity if you got it wrong.
But it is quite an exciting time. This year will be very
interesting.”
Source - Times Online 8/5/08 |
