Friday, October 22, 2010

Why London is the best property market to invest in now?

10 most important points in purchasing an investment property by Tim Murphy, CEO IP Global

1) Potential capital growth – there must be strong reasons that the property will appreciate in value over time

2) Demographics – invest in cities with a growth story. (Growing population)

3) Political conditions – strong, stable and free government

4) Clear ownership/Legal title – the government must respect individual rights and its property laws

5) Currency – Property purchase may be over-valued if the currency of the country is over-valued

6) Tax Regulation – Familiarize with the capital gains tax, income tax, stamp duty tax and inheritance tax

7) Availability of leverage

8) Availability of liquidity – must be able to get money out and have a market to sell to

9) Accurate calculation of rental yield


Why London?1) The policies of the city of London would always ensure that supply of residential housing will always be tight.
- Green belt around London restricts its expansion
- Any British will agree that it is almost impossible to tear down any houses or buildings in London as the city wants to preserve its architectural heritage. The city council will not approve any developer to tear down the existing houses in UK.

2) Strong population growth. London’s population had never decreased since WW2. There had always been population growth even during the depths of the recession. London is an important financial centre in Europe and will remain that way for the foreseeable future. (IE Singapore website) The European troubles are not explicitly linked to UK, as UK currency is independently regulated. According to independent research from IP Global, an international property investment company, there are around 5.5 tenants for every 1 property in London. Supply is very tight. Average rental yield in London is around 4.7-5% with yields going up to 9-10% in certain locations. (My parents recently bought a property in central London with rental yield of 10%) Even with management fees, some allowances for maintenance costs and taxes, it is possible to have a clean profit of 2-4%.

3) The government of UK is one of the most transparent and stable governments in Europe. The largest group of property owners in UK is the aristocracy and they form the largest group in the House of Lords which govern the country on behalf of the Queen. The Prime Minister of UK reports directly to the House of Lords. Hence the rules and regulations of UK will always favor property owners. For example, foreigners can sell their property to anyone and there are no restrictions on the property foreigners/foreign companies can purchase. Hence liquidity would never be an issue.

4) Pound Sterling to Singapore dollar exchange rate is at the best level ever.

5) UK banking system is still in crisis. Developers cannot get loans and the maximum loan that locals can get is around 50%. However foreigners can borrow from foreign banks to purchase UK property but many property companies are selling to us at a huge premium. The tight money supply situation in UK would lead to potential for a serious supply crunch when economic conditions improve a few years later.

Benefits of Doing It Together- As a group through our investment company, we will be able to negotiate for better terms when we ask for loans from banks.

- Able to negotiate better prices with renovations/maintenance companies in UK

- Investment through a private limited company alienates the individual from government policy restrictions.

My Qualifications- Graduated from University of London and studied UK tax laws and accounting policies.

- Will be based in UK from March 2011 onwards. Will be in charge of running a building material supply business to the construction industry in London

- As I’m involved in the construction industry, I’ll know the renovation/maintenance companies there. Will be able to get a good price for renovation works. This should be the highest cost in this business

- I’ll be able to be on the ground to source for bargains and manage the properties

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