Professional investors who have held a portfolio of properties for some years are cashing in on the buy-to-let market as for the first time in many years mortgage rates are so low that cash from tenants is actually yielding a profit.
Best yet, is for established landlords, as capital appreciation slips away, rental income is tax free because in recent years they will have built significant income tax losses against their properties, reports the Financial Times.
No wonder cash rich investors at home and abroad are swooping on London to cherry-pick the best properties as developers, homeowners and less experienced landlords are forced to sell at well below market value.
For these property vultures, picking the bones of the market for the choicest deals is good business as rents give high yields, which will eventually fall as mortgage rates rise, fuelling a rise in capital appreciation.
Some newly built flats and houses are selling at 40-45% below their peak market value – it’s not only the London market where these deals can be found, but also Birmingham, Liverpool Nottingham and Leeds as well.
“Yields look favourable,” said James Mannix, head of residential investment at Knight Frank. “For the first time in years it is possible to buy investment property and take an income out of the rent. Investors are buying cheap so they are going to get significant capital upside once growth returns.”
One of the key sources of new builds is off plan strategies that have taken a nosedive because speculators are failing to get mortgage offers. Now, these speculators are losing cash by walking away from the deals and accepting that they will lose cash deposits of up to 10% and leaving developers with completed but unsold properties that are now often worth less than the combined cost of land and building costs.
Many of these off plan speculative deals were signed 18 -24 months ago, when the market was at the top of the boom-bust cycle, said Tim Wright, partner at agents King Sturge.
“Some developers have been very keen to sell existing stock and have been giving further discounts on the market falls just to recall cash into their business,” he said
Developers are targeting long-term UK investors with little or no gearing and buyers from the Euro zone as Sterling has slipped to parity. According to agents, some of these investors have bought between 50 and 150 properties.
Interest from international buyers jumped 70 per cent in December, said Charlie Bubear, an agent in Savills’ Knightsbridge office. Foreign applicants – particularly French and Italians – represent about 70% of buyers looking in and around Knightsbridge. Buyers are particularly interested in flats in the £2m bracket at top addresses. Bubear said they see these as a ‘bullet-proof’ investment, because of the prestigious address, long leases, and state-of-the-art design.
Photo credits: Jo Mur via Flickr