Responsible Property Investing (RPI)

‘Responsible Property Investment (RPI) is an approach to property investing that recognizes environmental and social considerations along with more conventional financial objectives. It goes beyond minimum legal requirements, to improving the environmental or social performance of property, through strategies such as urban revitalization, or the conservation of natural resources.’ (UNEP-FI, 2010.What meaning does it hold for real estate investor, can be explained through current sustainability risks/problems and their affect on property value:

1. Resource use:  Volatility to energy and water supply costs will lead to increased replacement, renovation and running costs of the property.

2.   Obsolescence: 
• Physical –  natural wearing out of the building;
• Functional – arises where new tenant needs  existing building is no longer capable to accommodate;
• Legal – where building standards are forced to change;
• Aesthetic – appears when design or specific use features becomes out-dated;        (IFMA, 2010)

3.  Transparency and stakeholder Influences; higher disclosure of energy efficiency and reporting. (Runde, Thoyre 2010) 

As result this leads to decreasing return on investment yields, longer void periods and status of “second best” in the market place. (Dent, Patrick, XU, 2012). Expectations and Reasons for Investments in Sustainable Property:  Fiscal benefits, Improved usability by third parties, Longer economic life, lower transaction period at resale, lower risk and reputation erosion, lower risk of changes in asset value, expected higher returns at resale, Improved competitiveness, command higher returns, decrease of vacancy risk, increased tenant demand, lower operating expenses, corporate social responsibility; (IFMA foundation 2010) Motivators Behind Energy Efficiency Financial consideration, marketing advantage, market differentiator, indicator of management and paradigm shift are the key motivators identified behind energy efficiency. (IFMA foundation 2010)Summarizing (RPI) is ‘pursuit of greater durability, adaptability, usability and efficiency of buildings and the building stock, leading to enhanced productivity, well-being, and economic benefit measured in terms of financial, natural, manufactured, human and social capital.’ (RICS 2008) RPI should be implemented from the property planning, design, and development stages and continually practiced throughout the property lifecycle. (UNEP-FI, 2010)

Scottish Property Market Sees Boost In Lending To First Time Buyers

The number of loans advanced to first time buyers increased again in the third quarter of this year, according to new figures released today (Monday 26 November) by the Council of Mortgage Lenders in Scotland.

There were 5,100 loans advanced to first time buyers in the third quarter, a 6% increase compared to the second quarter and up by 9% on the same period last year, the highest number of first time buyers in nearly three years.

This represented the third successive quarter of growth but below the rate of growth shown in the rest of the UK at 16%.

By value, first time buyers in Scotland borrowed 460 million, up from ã450 million in the previous quarter and 440 million in the third quarter of last year. As in the UK overall, first time buyers typically borrowed 80% of their property value , a figure largely unchanged in the last 18 months.

The percentage of income spent on mortgage payments by first time buyers in Scotland also remained stable at 17.8%, spending less of their income than in the UK overall which is 20.1%.

The figures also show that first time buyers typically borrowed 2.83 times their income, lower than the 3.25 in the UK, and reflecting the lower house prices in Scotland.

A total of 3,200 first time buyers bought a property under ã125,000 in the third quarter, falling below the stamp duty threshold, and representing 63% of all loans to first time buyers compared to 39% in the UK.

While there was an increase in lending to first time buyers in Scotland, there was a slight fall in lending to home movers in the third quarter. There were 7,400 loans advanced to home movers, a 3% fall compared to the third quarter and down by 6% on the same period last year.

By value, home movers borrowed 1 billion in the third quarter of 2012, down from ã1.01 billion in the previous quarter and 1.05 billion in the same quarter of 2011. In contrast, the number of loans taken out by home movers in the UK in the third quarter rose by 12%.

The increase in first time buyers and slight fall in home movers led to a small increase in the total number of house purchase loans advanced in the third quarter. A total of 12,500 house purchase loans were advanced worth ã1,460 million, up by 1% compared to the second quarter, but down by 1% on the same period in 2011.

While the number of loans increased, the value of loans remained the same as in the second quarter at 1,460 million.

Compared to the rest of the UK, loans for house purchase exhibited a weaker rate of growth, where house purchase lending increased by 13%.

As in the UK overall, there was a fall in remortgage lending in Scotland compared to both the previous quarter and the third quarter of 2011. A total of ã670 million was advanced to borrowers remortgaging, down from 740 million in the last quarter and a 28% fall compared to the ã930 million advanced this time last year.

The boost in first time buyers is encouraging but the rest of the market still remains broadly flat. The Funding for Lending scheme is likely to assist with growth going forward and we welcome the MI New Home scheme, enabling people to access higher loan to value mortgages on new build properties. But itђs still too early to see any meaningful effects flowing into the market as yet, said Iain Malloch, chair of CML Scotland.

US Sees Increased Interest From British Property Buyers

British buyers searching online for a second home overseas are increasingly looking at the United States but Spain is still the most popular destination.

Virtually all parts of the US have seen an increase in searches according to the latest monthly report from Rightmove Overseas.

Overall 1.6% of regions have seen an increase in searches since September, 48.34% have seen a decrease in searches and 0.06% of destinations saw no change.

Spain has retained the top spot for searches, the United Arab Emirates returned to the top 20 and Portugal climbed to fourth place at the expense of Italy which dropped to fifth.

The data also shows that searches in both Australia and New Zealand decreased and four French regions fell in popularity as did Germany.

The USA was the big winner in October with low priced investment opportunities like the pre-tenanted apartments in Florida attracting a new generation of investors from the UK. New York in particular saw a large increase in searches which can be attributed to increased advertiser activity, but will also no doubt be fuelled by the well publicised Hurricane Sandy and the US election,ђ said Shameem Golamy, Head of Rightmove Overseas.

Interestingly the UAE has made it back into the top 20 for the first time since Feb 2010 and we are waiting to see if it can possibly return to its former glory,ђ he explained.

Spain however still remains the firm favourite for UK buyers, with over a million searches in October, accounting for nearly 30% of the entire traffic to Rightmove Overseas. Portugal also benefited from a rise in interest,ђ he added.

Charles Purdy, managing director at Smart Currency Exchange, said that it was not a  surprise to him that Spain and the US continue to be as popular. Our clients are delighted at the property bargains they are finding. Even with the US dollar being significantly stronger than a few years ago the collapse in USA property prices still makes the sterling property cost significantly less than they were then,ђ he pointed out.

In Spain we have seen the euro weaken, so in sterling terms the property prices are even better still. Uncertainty in future exchange rates are still high as we see difficulties in how the Euro zone is sorting out its debt problems and the USA faces its fiscal cliff of increased taxes and reduced government expenditure,ђ he added.

Scottish House Prices Fall In September As Market Feels Olympic Jetlag

Prices of residential property in Scotland fell 0.3% in September as the market became a victim of a post Olympic slowdown, the latest LSL/Acadametrics index shows.

The data also shows that housing transactions fell by 17% in September compared to the previous month and year on year prices are down 2.9% with the average house now costing £143,406.

‘House prices lost some of their altitude in September, but this wasn’t a simple case of the market losing thrust. The Scottish housing market was still jetlagged following the distraction of the Olympics, with the absence of buyers hitting the streets in August feeding through into a reduced number of sales in September,’ explained Gordon Fowlis, regional managing director of Your Move, an estate agency owned by LSL.

‘As fewer buyers competed for homes, reduced competition sent prices gliding down. Prices aren’t heading for a crash landing however, we’ve already seen sales figures rebound in England and Wales, and Scotland’s likely to show a similar improvement in the last quarter of the year as buyers make up for lost ground over the summer,’ he said.

But he added that it is clear that the housing market is still facing severe structural challenges. ‘While the affordability of house prices have improved for the average Scottish buyer, the limited availability of mortgage finance is still a significant drag on activity, and the number of new buyers entering the market is still historically low,’ said Fowlis.

‘But there are reasons for optimism. The economy is growing once again, while inflation is slowing, which should help buyers’ spending power take off. On top of this, the government’s Funding for Lending is showing signs of helping the mortgage market start climbing again. While lenders’ ability to boost the number of first time buyers to anything like pre-crunch levels is being hampered by capital adequacy requirements, any improvement in the lower tier will be felt throughout the wider housing market as chains are unlocked,’ he added.

The index also shows that there are considerable regional differences. While 22 regions have seen prices fall over the last year, 10 have bucked the trend, with Inverclyde and the Orkney Islands seeing annual rises of 5.5% and 5.4% respectively. West Dunbartonshire saw the biggest fall with prices down 16.9%.

‘The future performance of local markets in the long term will be closely tied to the performance of their immediate economies and labour markets. A key factor in whether these micro-markets see prices rise or fall in 2013 will be how hard they are hit by new public sector austerity measures in the New Year,’ said Fowlis.

‘There are also clear signals from the Scottish Government that they wish to travel their own road in respect of housing policy and we are about to see an interesting experiment as policy North of the border increasingly deviates from that in England and Wales. Time will tell which approach bears the most fruit,’ he added.

Recession Hit UK Commercial Real Estate Sector Not Set To Recover Until 2023

The UK’s commercial real estate construction market faces a long, slow recovery as output values drop and demand falters, it is claimed.

Overall output values dropped by 32% between 2007 and 2011 to £28 billion, their lowest level in 10 years and representing a £13 billion loss to UK Plc.

Peak to trough decline in commercial real estate construction follows GDP, and highlights a clear double dip in the British economy, says the report from RSA, the UK’s largest commercial insurer.

It highlights reduced demand for new development across all UK regions, except in central London and says that positive growth is not expected until 2014 and no return to pre-crisis highs until 2023.

Despite latest GDP figures confirming that the UK is officially out of recession, the country's construction industry still faces a challenging trading climate.

It shows that the recession has led to a peak to trough decline of 42% in commercial real estate construction output, which closely follows GDP. In fact, between 2007 and 2011 the value of CRE construction activity fell by as much as 32% from £41 billion to £28 billion. Looking forward, this figure is predicted to drop again in 2012 to £27 billion and is not expected to return to positive growth until 2014, when only a modest 0.3% rise is anticipated, far below the rate of growth currently reported on a national level.

The decline seen at a national level is echoed across the UK regions, although a North/South divide is clear. Scotland and the North West have been hardest hit by the downturn, experiencing sharp 51% and 49% drops respectively. At the same time, London and the South East have shown more resilience, with smaller falls of 16% and 24%, respectively.

 

‘The commercial real estate sector has been hit hard by the recession, and with CRE construction growth so closely tied to GDP, it's not surprising that we've seen such a sharp decline in output values since 2007,’ said Paul Greensmith, RSA's director of risk managed business, global specialty lines.

‘While a return to the pre-recession highs of 2007 may not be wholly realistic, what's important now is that developers approach new investment opportunities sensibly and with sustainable growth in mind,’ he added.

The study also reveals that demand for new projects has stalled across the UK. Over the past five years, the value of CRE construction output has declined across most sectors, with warehouses and offices seeing the largest declines at 62% and 51% respectively.

Retail has also seen a significant drop in output at 27% at a time when demand for retail space remains subdued and vacancy rates are climbing. Of the eight cities examined in this report, only central London saw an increase in retail rents between 2007 and 2011, where average rents rose by seven per cent.

At the same time, retail vacancy rates have eclipsed pre-crisis levels, rising from almost 8% in the second quarter of 2007 to over 10% in the same quarter of 2012, suggesting a sizeable over supply of retail property.

 

Similarly, in the office sector, rents have fallen by an average 16% across the UK. With vacancy rates in the first quarter of 2012 standing at 12.6% and employment in financial and business services predicted to fall, demand for new prime office real estate is likely to remain weak for some time.

‘High vacancy rates are set to become a huge issue for the commercial real estate and construction industries as recovery remains elusive, threatening profits and presenting new risks associated with empty sites and buildings,’ explained Greensmith.

‘Adequate security and regular checks are recommended for property owners in this situation to mitigate the increased risks of burglary, arson and water damage.  However, despite vacancy issues and the growing trend of ‘mothballing' developments to save ongoing costs, there is still an appetite for the right kind of development. The City skyline is a prime example of that, with builds such as The Shard in London demonstrating that certain projects, particularly mixed use developments, are still going ahead,’ he added.

Prices And Rents In Prime Central London Both Rise Strongly After Slower Summer

Following the expected Olympic lull in London’s prime property market in early summer, the post Games rebound has seen capital and rental values rise, according to the Cluttons Residential Investment Monitor for the third quarter of 2012.

Average house prices across the capital grew by 3.1% in the third quarter after a more modest rise of 0.9% in the second quarter.

Cluttons says that this healthy growth leaves average property values in prime central London some 3.33% above the market peak in the third quarter of 2007 market peak and 7.1% higher than this time last year.

Cluttons also reports a surge in London’s rental values with growth of 1.5% in the third quarter following three quarters of negative growth. This leaves annualised rental growth unchanged compared to the third quarter of 2011.

International private investment trends in the capital showcased a distinct geographical divide. Property investors from India, Western Europe, Russia and other Eastern Europe countries are increasing their focus on low yielding prime core assets.

But investors from the Asia Pacific region have remained primarily interested in the new build offering of central south east London, which includes east London sub-markets and key areas south of the Thames, where gross yields are higher. 

Cluttons says that the common denominator for private investment remains the generally shared focused on long term performance, with Russian and other Eastern European investors being equipped with the highest budgets of £5 to 20 million, closely followed by Western European investors with budgets varying from £2 to 15 million.

Domestic lending remains restricted for both development funding and investment, with overseas banks becoming more and more of a financial alternative, with a clear upturn in lending by key players like Barclays Singapore and Bank of China.

‘Despite the promising growth in rental values this quarter, we expect average rents in prime Central London to end the year marginally negative, or flat at best. This is due to a market readjustment following the unusual and unsustainable pace of growth recorded in 2011. However, as demand is still outpacing available properties, we are expecting a slight adjustment rather than a significant decrease,’ said Sue Foxley, head of research, Cluttons.

‘Central north west London was the best performing London region during the third quarter of 2012, with an outstanding upturn of 7.5% in capital values being recorded. Calculated yields in Maida Vale and St. John’s Wood are consistently high, reaching 6.38% and 6.36% respectively,’ she added.

Olympic Legacy Creates Desirable Housing Neighborhood

Stratford's new Olympic Park neighbourhood, is expected to become one of London's most desirable postcodes when homes in the area become available in 2013, it is claimed.

A study published by the Centre for Economics and Business Research (Cebr) assesses the fundamental features of London's newest postcode, in effect London's first Olympic legacy neighbourhood, to compare it to the capital's other key residential areas.

The Cebr's London Residential Fundamentals Index concludes that the combination of transport links, quality of life, local services, and access to employment opportunities in E20 rivals such well established and desirable north and west London districts as Highbury and Hammersmith.

At the heart of the area is the East Village development. When it is ready for occupancy next year, it will provide more than 2,800 high quality homes. Almost half are designated affordable homes, while the remainder will be available for private rent, giving the choice of buying or renting to people with a range of incomes.

East Village has been described as ready to be one of London's best connected residential areas, with train journeys to St Pancras taking six minutes, to the City 10 minutes, Canary Wharf 12 minutes, and the West End 20 minutes.

It is claimed that this super fast connectivity will support employment in the area, along with the proximity of Westfield Stratford City and the International Quarter, a new commercial hub within the E20 postcode itself.

The liveability factors in E20 which Cebr took into account included access to vast areas of outdoor space. Each property in East Village will have access to private balconies and communal courtyards, as well as being surrounded by public gardens, an orchard and wetland area.

There are also world class sporting facilities, highly rated education at the new Cobham Academy, part of the renowned Harris Federation, and state of the art medical facilities. The community will be further supported by around 30 neighbourhood cafes, restaurants and shops.

This much maligned corner of east London, neglected for decades, is set to become a success story. The regeneration associated with the Olympic Games will soon give rise to one of London's most exciting residential areas,ђ said Cebr analyst Oman Ismail.

It's an outstanding living environment, contributing much to the broader regeneration of east London. Our prediction is that E20, and East Village in particular, will be a highly desirable place to live,ђ he explained.

The neighbourhood will suit a range of needs including families who want more space, professionals who want a safe and desirable place to live, and key workers and ex-service personnel who want high-quality homes in a thriving area. Our research indicates that, based on its unique combination of assets, E20 will compete with the likes of Hammersmith and Highbury, and offer its residents far more than many established London hot spots,ђ he added.

Prime City Rents Increasing, Especially In Emerging Markets, Eurozone Remains Weak

Prime rents in key cities worldwide rose by 2.3% in the year to June as corporate demand, particularly in the world’s emerging markets, is driving rents higher, according to the latest index from Knight Frank.

However, although the index recorded annual growth of 2.3% in the year to June, this modest performance remains some way off the double digit growth seen before 2008, suggesting that the prevailing economic conditions continue to impede growth. The index shows the Eurozone remains weak.

The performance of prime rents across global cities is intrinsically linked to employment, business confidence and recruitment, says Knight Frank.

At the top end of the world’s rental markets corporate demand is increasingly influential, accounting for up to 85% of prime rental demand in some cities.

As in the prime sales market, it is those cities that generate strong foreign demand that have seen the strongest uplift in rents since the global recession hit in 2008. Prime rents in London, New York and Hong Kong have risen by 25.7%, 23.9% and 35.6% respectively since their recessional lows.

While the latest results show prime rents continue to push higher in New York, annual rental growth is weaker in London and Hong Kong.

‘London’s current weakness in headline rents is not due to a wider downturn in demand from tenants. Instead, affordability constraints and the weaker performance of London’s economy are limiting the scope for rental growth,’ said Jemma Scott, Knight Frank’s head of Corporate Services.

‘Lettings volumes were strong in the second quarter as the Olympic Games prompted some corporate tenants to arrive early to secure the best properties. Demand from US and French tenants proved particularly strong,’ he added.

In Manhattan prime rents are at their highest since the recession. An improving regional economy, rising employment and strict bank lending has helped drive rents upwards as potential buyers have opted to rent until mortgage lending rules are relaxed.

In Hong Kong and Singapore a heated sales market in recent years has seen prime prices rise by 76.5% and 31.2% respectively from their recession lows. Affordability pressures accompanied by rising interest rates and growing demand from foreign tenants have boosted prime rents.

 

But rents in Hong Kong and Singapore still trail prices, with growth of 35.6% and 20.6% respectively over the same period.

Knight Frank says that future rental growth is likely to be focussed on the world’s developing markets as business globalisation increases. Nairobi, Tel Aviv and Guangzhou’s positions at the top of the rankings this quarter are not incidental.

 

In sharp contrast to many western economies, Kenya, Israel and China are forecast to see chunky GDP growth of 4.7%, 2.3% and 7.8% respectively in 2012, due in large part to a surge in foreign investment.

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Noticeable Decline In Interest In Buyers For Top End UK Properties Due To Tax Changes

Tax changes have resulted in a noticeable decline in interest in property worth over £2 million in most regions of the UK, it has been revealed.

The highest activity in the prime property sector in the third quarter of 2012 has been in the £1 million to £2 million price range, according to the Buying Solution, the independent buying consultancy of Knight Frank.

The super wealthy are turning their backs on London and looking to the Home Counties where there has been a substantial increase in transactions in the £15 million plus range and good quality farm land is also selling well.

‘In both the London and country markets, there has been a noticeable falling away of interest in property above £2 million which is almost certainly due to the stamp duty increases announced in the March 2012 Budget. We believe that a number of buyers are sitting on their hands awaiting the outcome of the proposed annual Capital Gains Tax charges on properties priced above £2 million owned by non-natural persons,’ said Philip Selway, managing partner and head of London at the firm.

‘This does not appear, however, to deter wealthy overseas buyers, who continue to drive the prime central London market with investment as well as lifestyle purchases. The continued global financial uncertainty, particularly in a number of European countries, means that the UK is even more attractive to the overseas buyer, not only because of history and culture, but also because of political stability and a secure legal system,’ he explained.

‘In the long term, I don't expect that increased property taxes will deter buyers; they might lower values around the £2 million price range perhaps, but people do tend to carry on as normal once they have assimilated tax changes into their financial structures,’ he added.

In the Home Counties of Berkshire, Buckinghamshire, Surrey, South Oxfordshire, and West Sussex the majority of the market activity has been focused on property priced up to £1.5 million. Nick Mead, associate in the Home Counties, said that most buyers are needs driven UK buyers who are moving out of London for schooling and more space.

 

He pointed out that the £2 million to £3 million market has been significantly affected by the increase in stamp duty, and the proposed mansion tax has further dampened this market. ‘We're seeing a continued flurry of price reductions which, if anything, has grown in recent weeks. Ultimately, those who are likely to bear the brunt of a mansion tax are likely to be those who are already suffering the effects of middle class poverty, that is the asset rich and the cash poor,’ he said.

‘The sooner plans for the mansion tax and proposed higher rate council tax bands are finalised, the better, as the uncertainty and speculation is weighing heavily on the market. On a short to medium term basis, it is likely to actually lead to a reduction in the revenue that the exchequer might receive due to a fall in transactions,’ he added.

Mark Lawson, partner and head of the Home Counties team, added that the top end of the market has been incredibly active. ‘To our knowledge, in 2010, there was just one transaction at £15 million plus, last year there were eight in total, and this year, there have already been 12,’ he said.

‘This increase in transactions has been fuelled by international buyers who are seeing better value outside of prime London with prices approximately £1,000 per square foot for a top quality property in the Home Counties, compared to more than £6,000 per square foot in prime central London,’ he explained.

In the Southern region covering the M3/M4 corridors including West Berkshire, Hampshire, Wiltshire, Dorset and Somerset, there have been fewer transactions that the third quarter of last year.

In the Cotswolds and central region covering Gloucestershire, Oxfordshire, Warwickshire, Northamptonshire, Herefordshire, Worcestershire, the market is more buoyant than a year ago.

  

‘We are seeing most activity in the £1 million to £2 million price range which is unsurprising in light of the increase in stamp duty. There have been some significant sales at the £5 million plus level which just shows that best in class properties will always create interest, especially if within a one to one and a half hour journey from London,’ said Bobby Hall, head of the Southern region.

‘However, the biggest issue as we head into the autumn market is supply, and what does come onto the market needs to be correctly priced to spark interest. Buyers are prepared to purchase, but only if the price is right. If a house looks expensive, it can be quickly dismissed,’ he pointed out.

He explained that in towns such as Oxford and Cheltenham the market is still pretty strong due to the usual pull of good schooling. Further out where there are now fewer second home buyers there are some good deals to be had.

Good quality farmland is still selling well despite the weak harvest this year, according to Mark Lawson, the firm’s head of Home Counties and Country Estates, partly due to their being less on the market this year compared to last year, leading to a shortage of good quality farmland to purchase.

He added that as there are still good tax advantages for investing in farm land it is still deemed a good investment.

Prices For £4 Million Plus Prime Country Houses In UK Continue To Rise

The most expensive country properties in the UK are still seeing prices going up although those worth less than £4 million are seeing values fall, according to the latest index from Knight Frank.

Price growth is continuing particularly in an around Oxford, Guildford and Esher but prime country house under the £4 million mark have seen prices fall by 0.9% in the third quarter of the year. This comes on top of a 1.5% decline in the second quarter of 2012.

Grainne Gilmore, head of UK residential research at Knight Frank said that average values have been on a downward trajectory for much of the last two years but overall there has been a varied performance in the prime sector.

‘On average, homes worth up to £2 million have seen a 4.3% fall in value over the last year. Perhaps unsurprisingly, given the increase in the stamp duty charge levied on properties worth £2 million and more from 5% to 7% in March, homes worth between £2 million and £3 have seen the biggest falls in price since this time last year, dropping by more than 7%,’ she explained.

Rupert Sweeting, head of Knight Frank’s country department, pointed out that the upper end of the sector has bucked the trend, and prices continue to rise. ‘Homes worth between £4 million and £5 million have climbed in value by 1% over the last year, while properties valued at £5 million and above have risen in value by 3.2%, showing demand is still strong for the very best and unique country homes,’ he explained.

There are also some localised areas of outperformance. Prices in and around Oxford are up 2.3% on the year, while prices around Guildford have risen by 2%. Home owners in Esher have seen the value of their prime property rise by 4% over the last 12 months.

‘The rises in these areas partly reflect the increase in buyers from London who are looking to take advantage of record high prices by selling and moving to the country. International buyers are also a more significant feature in these markets. Indeed web searches for prime country property on Knight Frank’s global property search engine from the US, Germany, Canada and Spain have risen notably over the last three months, especially for properties worth £5 million or more,’ said Sweeting.

Activity in the market is steady with viewings up 1.3% in the third quarter of the year compared to the same period last year. ‘While the number of exchanges fell by 8%, the data on sales subject to contract, which captures transactions data earlier in the sale process, shows a 14% increase,’ said Gilmore.

‘The market is characterised by uncertainty at the moment, however, with transactions taking longer than they usually would and more deals de-railed before completion. Constrained mortgage lending continues to cast a pall over the market, especially in the lower price brackets, while the clarity on the new tax rules for offshore buyers expected in early December can only help bolster confidence in the market,’ she added.

Overseas Buyers Dominate The Top Of The London Property Market

The extent of interest from overseas in London property is demonstrated by one agent in the capital who has not sold a single property to a UK buyer since 2005.

Fine & Country’s Mayfair Office is dealing exclusively with foreign buyers who see London as a safe haven for investment, especially the upper end of the market.

The top 5% of property by value in London continues to outperform those of rival locations in New York, Paris and Hong Kong, according to Julian Lilley, of Fine & Country Mayfair.

‘It is seen as a safe haven both from a security and a financial perspective. London’s property market seems to defy gravity,’ he said.

Not only is the central area covered by Fine and Country Mayfair far exceeding other locations in the property stakes internationally but nationally as well.

‘Whereas most of Europe and many parts of The UK are showing declines in the market in excess of 10%, Central London prices continue to rise, with reports of some areas, such as Mayfair and Knightsbridge, showing increases of over 20% in the last year,’ explained Lilley.

A further pull for overseas buyers is the world class education provided in London. ‘Following the summer, our many Middle Eastern clients are returning to London eager to buy houses or to rent apartments for their student offspring. London is also an historic and cultural centre with a reputation for tolerance as well as being a funky place to live,’ he added.

The demand from overseas investors for expensive homes is reflected in the number of developments currently under construction in London which are presently priced at £38 billion.

REITs Look Attractive – But Volatile

Listed property companies offer private investors a potentially high income stream and portfolio diversification – but performances can vary significantly, advisers warn.

Real estate investment trusts, or Reits, are listed companies that invest in physical commercial property, such as offices, shopping malls, retail warehouses and industrial units.

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“Reits offer retail investors access to an asset class that should provide an income, some diversification from equities and an element of inflation protection over the longer term,” notes Mick Gilligan of broker Killik & Co.

The sector launched in the UK five years ago and, despite attractive tax benefits – companies are exempt from corporate tax on income and capital gains – has struggled to take off following the economic downturn.

Advisers warn that investing in property via a Reit can be significantly more volatile than direct property investment or managed property funds.

“They are effectively equities and can therefore be just as volatile,” explains Darius McDermott, managing director at Chelsea Financial Services, a financial adviser.

But experts argue that Reits can be a cost-effective way of gaining exposure to physical property. Shares in Reits can be bought through a stockbroker or a share trading platform and are more liquid than bricks and mortar funds.

Over the longer term, they can also offer diversification benefits. However, Henry Lancaster, senior investment analyst at Coutts, says investors need to hold investments for up to three years for their correlation to the property market to become evident.

Investors are advised to consider carefully the nature of the investment because there can be broad differences between companies – and, as a result, their performance.

“Ultimately they are dependent on the performance of their portfolios and this, in turn, is tied into the fortunes of the economy,” says Tim Cockerill, head of collectives research at broker Rowan Dartington.

Price returns vary: Standard Life Investment Property Income and F&C Commercial Property have returned 5.08 per cent and 5 per cent, respectively, over the past year, while British Land and Land Securities have returned -7.68 per cent and -8.13 per cent respectively. Many UK Reits continue to trade at a discount to net asset value (NAV).

Yields also differ significantly between companies. Standard Life Investment Property Income currently yields 7 per cent, while British Land yields 4 per cent. Most typically yield between 2 and 6 per cent, with some as high as 10 per cent.

“While Reits continue to trade at a discount to their NAV their fundamentals remain solid, and many UK Reits have an extensive development pipeline in areas of strong demand and constrained supply like the City of London,” explains Peter Cosmetatos, director of finance at the British Property Federation.

Cockerill says Standard Life Investment Property Income and F&C Commercial Property Trust are high quality long-term income generating investments. However, he cautions that he would not buy them now as both are trading at premiums of about 6 per cent.

Gilligan recommends London & Stamford Property, which has recently bought more properties in London and the south east, and Hansteen Holdings.

Reits can also offer private investors a way to gain exposure to international property. “In the UK we will buy both bricks and mortar funds and Reits, but the latter are the preferred option for investing globally,” explains Lancaster.

Tom Becket of PSigma Investment Management says private investors could look at investing in Reits that provide some inflation protection. “Germany and Japan are two markets where we have been looking at commercial property for inflation protection,” he notes.

However, some advisers caution against committing money to Reits in the

current environment. “Broadly, we are still avoiding commercial property globally, as we do not believe the yields on offer compensate you both for the liquidity of the underlying investments in the Reits or the Reits themselves,” says Becket.

“Unless we were to become genuinely convinced of a re-acceleration of global economic activity, we are unlikely to soften that stance, particularly as in the UK and Europe many of the financial institutions are yet to address the property issues they collected in the boom years of the last decade.”

The woes of the eurozone have impacted many European Reits. “Many were launched a few years back and were highly geared going into the credit crisis, which created major difficulties,” says Cockerill. He points out that Invista European Real Estate Trust has fallen in value by over 90 per cent since launch.