Grosvenor property fund reports huge drop in return for London property

See the article here.

What sort of drop? 10.7% to 0.3% (yes, you read that right, 0.3%). How is the Grosvenor property fund still in business? It divested itself of the UK mostly and now invests elsewhere in the world.

Interesting Grosvenor is now focusing on building homes to rent out:

Mr Preston said: “…we’re looking at the mid market residential sector,” adding that the group is planning to build 4,500 homes across the UK. “We are doing our bit to help solve London’s housing problem.”

Well, actually, when people talk about London housing problem, they mean there are not enough houses to buy. They don’t mean there are not enough to rent. If you look closely, there are more than enough houses in the UK to house people (i.e. landlords take care of that). The issue is people want to get onto the property ladder and can’t. Becoming a tenant does not ‘solve London’s housing problem’ as Preston puts it. If anything, it makes it worse.

On a related point: I was speaking to an acquaintance who has just returned from abroad and now rents in Kings Cross. He told me that it is a bloodbath out there for landlords and revealed he negotiated £1,000 off the asking rent. I am assuming he meant the annual amount. If it’s the monthly amount then buckle up, Brexit is still to come.

 

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Landlords in UK set to become corporate funds rather than individuals (Updated)

corp 3

This is according to Sky. Article here.

What does this mean for renters? One thing is that you are about to lose your power in negotiations. A private landlord with only one property really needs the monthly rent. They can’t afford to have the flat vacant for a month, let alone two or three months. That gives you some power as a tenant (particularly if you are trouble free and pay on time). Corporations are different, they could not care less. In fact, when corporates own real estate they often leave them vacant, sometimes for years.

Corporate landlords are looking for a certain percentage increase each year and if they don’t get it, they can afford to leave it vacant until they do. The reasoning is that it is better to have it vacant than let out at a low rent which they are then stuck with. When a corporate owns 10,000 flats, they don’t care if a few are vacant, it is not going to move the needle. For you, it is a matter of being booted out which is deadly serious so when they say jump, you say ‘how high?’

When it comes to negotiating, you don’t want to be negotiating with an intern running a spreadsheet who in any event, won’t be there 6 months. Which is a bit of a coincidence because if you don’t play your cards right, neither will you.

UPDATE:

It seems private landlords are a bit more savy than the government planned for. The changes that the government put through which penalised private landlords can simply be circumvented if the private landlord operates through a limited company. As a company, you should still be able to deduct interest payments from your taxable income (the ability to do this is much reduced for the private landlord) and you can deduct wear and tear.

Therefore, if you are a private landlord and don’t like the current tax set up, have a chat with your solicitor and accountant and consider setting up a limited company.

See an FT article on this here

 

Is Brexit bringing the biggest house price adjustment since the Financial crisis?

Big Ben stormBloomberg seems to think this might be the case. Article is here.

I am not so sure. From what I have read this appears to be in relation to the premium bracket, the fall of which is well documented.

In the normal housing market I think people will wait and see as if you are renting and about to buy, all signs are there for a correction. While it does not make sense to buy right now there still is structural demand rather than commercial demand (by this I mean, people want homes but not at any price). Prices are not going up and there is an outside chance of them coming crashing down, particularly if the Brexit negotiations look anything like the Gibraltar debacle.

Buying now is risky and I can’t see the upside. I would keep renting and watching. Possibly take out a pound hedge (move money into dollars) as if Brexit goes south, the pound is going with it which means you will become poorer from a global perspective.

Is there a storm coming? I think so but how big it is and whether the new look London (without its immigration lifeline) will weather it? Time will tell…

Foreigners buying up UK property and causing crisis for residents

Is this true? The Guardian seems to think so: Guardian article

It all comes down to data. We need to check how widespread this really is. If anything new is being bought up by foreigners and then left vacant… that is a problem for a number of reasons.

One of which is quality control. Recent articles have been published about the poor quality of housing produced by some of Britain’s leading home developers. The more you build for absentee homeowners, the more you don’t care about quality and the bigger this problem becomes.

Restricting foreigners from buying property in the UK may not solve the problem

The one issue I see with the Guardian article is that there is a circle here. Foreigners buy up new housing – this puts upward pressure on prices as demand exceeds supply – encouraged by the higher prices, developers build more properties – these are bought by foreigners – this puts upward pressure on prices so more get built by profit savvy developers – you see where this is going?

If the government restricts foreign ownership of property, this means foreign buyers can’t buy up new developments – this means downward pressure on prices – this means developers are discouraged from building more property – so either way, there are not going to be enough new houses for UK residents.

Do we need a bit more protectionism?

Are countries a bit like families? I mean – there are rich people that could come into your house and offer you tonnes of money for your house and furniture, plus all your kids’ toys. You have the power to say no and prevent this from happening. In effect, by doing so, you are voting for protectionism and local only ownership. Is that a bad thing? In this context, probably not. I think the answer is that in a completely global economy where there is a complete free movement of labour and capital, many will get completely marginalised. On the other hand, complete protectionism and nationalism have their own problems. A happy medium is required and that medium is always moving, a little like interest rates. There is no perfect interest rate, for capitalism to work, interest rates move up and down as required. Same with inflation. Perhaps that is true for protectionism – at the moment, at least according to the Guardian article, there is not enough. Time for change?