Advice for Overseas Property Investors from LettingFocus
At LettingFocus.com we often advise people from overseas who wish to buy and let property in the UK.
Overseas Property Investors
Typically, if they are abroad, my advice will take the form of one-to-one help delivered over the phone or via Skype. If the client comes to the UK, if time allows, we will meet up.
I help a wide range of clients, with the largest number coming from China and Hong Kong. (Note: I will not advise anyone who just wants to buy a property to leave it empty – as I think this is unethical. Fortunately none of my clients has ever had this intention).
One of the characteristics of overseas buyers is that they are very keen on buying new build apartments, mainly in London.
There is a reason for this: The new build properties are easy to market in one go at big shows abroad. The marketing spiel will usually be all about how close the apartments are to booming central London or Manchester. Smart lifestyle-type pictures of young folk enjoying a glass of wine with some canapes, whilst they take in the view of Tower Bridge from their Juliet balcony complete the marketing picture in the brochures.
New Build Flats and Investing in London
Many overseas buyers will be very familiar with new build stock from their homes in Shanghai, Moscow or Singapore. (Note also that many wealthy overseas parents sending their children to UK universities will opt for a safe, if bland and slightly costly apartment of the type that Unite specialise in building – it’s safe, it’s clean, it’s compact and it’s so much easier for the offspring that way).
If you watched “The Apprentice” shows on TV, you will have seen in one episode a very clear picture of how the marketing of such new build flats works at the UK end. You will have seen the candidates for Sir Lord Your Worship Sugar’s cash (yes, I jest) acting as estate agents. And you would have seen them trying to offload shiny new build flats in Lewisham and Peckham to punters – all of whom, natch, seemed to come from overseas and all of whom were described as “investors”.
The properties the candidates were marketing would, in my opinion, make very poor investments indeed. (If you want to know why, you’ll have to become a client!)
The fact is that houses have long outperformed flats in terms of rental income growth and especially, capital growth in the UK’s major cities. This trend will not stop anytime soon because developers can build up into the sky, (i.e. build flats) but they cannot find much new space for houses with gardens. And as the returns to home builders like Barratts and Bellway are much lower on the houses, they don’t tend to build too many either.
And yet, I can fully understand why overseas buyers who are not in the UK, will want to plump for flats. They think that by paying a service charge to a block managing agent, everything on the estate will be fixed promptly, fixed well and kept in good order. This, to them, looks easier, than say having to worry about the hassle of finding a tradesman to redecorate the outside of a house or fix a roof, in a country where they have no connections.
New Build Flat Service Charges
That much is understandable, but service charges are always a huge drain on returns, so one aspect of what we do for our clients at LettingFocus is to figure out what the management arrangements will be – and whether the investor will be well served by the block managers. In particular, what is their service like, whether they have any past history of ripping off flat owners at other developments etc.
We also look carefully at the area they are proposing to buy into – and we advise on those areas that have the best chance of growth, due to a number of external factors. (Again, you’ll have to be a client of mine for more on what these are).
In general, there is little getting away from the fact that buying new build flats will nearly always produce lower returns than buying houses. This applies to whether people are buying just for themselves to live in or to those thinking of buying to let.
However, I do understand why new build flats have appeal for the overseas buyer, and whilst we often try to persuade them of the merits of buying existing stock (and especially houses) instead, we often have to accept that for the really hands-off overseas buyer, the new build flat, sometimes does have its place.
But at least, by working with us, our clients are steered away from flats in the kind of blocks and areas, which five years after they’ve been built, will mostly be filled with tenants on housing benefits, (no owner occupiers is not good!) and which have been flogged off entirely to overseas buyer-landlords who, by dint of being on the other side of the world, have no real power over the block managers to provide anything like a good service.
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We help landlords and property investors by showing them how to make money in the private rented sector using ways which are fair to tenants and which involve minimal risk.
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We advise a range of organisations including banks, building societies, local authorities, social housing providers, institutional investors and insurers. We help them develop and improve their services and products for private landlords. David Lawrenson, founder of LettingFocus, also writes for property portals, speaks at property events and is regularly quoted by the media.
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