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bambam

Prime Yields

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Was strolling through Pimlico today, Warwick Square, nice garden square with private access (tennis courts, etc.)

Saw in the estate agents window - it's surprisingly affordable.

E.g.,

http://www.winkworth.co.uk/rent/property/flat-to-rent-in-warwick-square-london-sw1v/470652

At £28,600 per year for 760 sq ft, it works out £38/sq ft/yr.

This one is a little smaller, only 1 bedroom, but the space looks better if you don't mind not having the spare bedroom:

http://www.zoopla.co.uk/to-rent/details/31836758?search_identifier=b812ee2d350caf615429fb8860ba61f9 again £38/sq ft/yr

Fully furnished and ready to move in, and unlet after 2 months and the price slashed by 20%, this is a lifestyle on a plate - an elegant flat in an elegant square. You'd expect it to have appeal to all manner of foreign expats, a mile to Harrods, five minutes by tube to Oxford Circus, etc., and relatively flats are easier to let than houses.

But apparently all of those millions of people who we are told are desperate to live in London, aren't desperate enough to rent a Regency square in prime Pimlico.

Still under offer for this though:

http://search.knightfrank.co.uk/bgv130165

£1.475 million 832 sq ft, or £1772/sq ft.

Yield roughly 2%.

I could understand the desire to spend £50 million on two houses and knock them together and remodel and so on, but buying flats it doesn't seem so sensible.

There certainly appears to be no shortage of rental supply.

Perhaps there aren't in reality that many people with £2500/month to spend on housing? Or have all of those people with that much money to spend convinced themselves that housing is an investment first, and somewhere to live very much as an afterthought, and hence they 'don't want to be throwing money away on rent', when they could be 'paying off the mortgage instead'.

I guess at this level in the market, north of £1k+/sq ft, nobody wants to live in it anyway, it's purely an investment for foreigners, who then rent it out at whatever price.

This is by no means the most extreme, in Grosvenor Square, which boasts a rather scrubby square full of sundry immigrants applying for visas at the various embassies at any given time, prices are now beyond £3,000 sq ft.

http://www.zoopla.co.uk/for-sale/details/30997452 - £3750/sq ft (there are several cheaper with stupid short leases, this seems to be about the going rate)

Here the rents seem to be around £72 sq ft /year, which is actually even worse in terms of yield, even if it translates to rents starting at almost £10k/month

http://www.zoopla.co.uk/to-rent/property/london/grosvenor-square/

I'm not sure if these places find tenants, there is certainly a huge supply of them.

It seems to me that these properties serve primarily as an investment vehicle, and the residential element is entirely an afterthought.

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I don't know about the prime areas, but certainly in the 'burbs people seem to have totally forgotten about yields.

This is partially because even a few % is better than current savings rates but mainly because HPI makes housing a good investment even if you don't bother renting it out at all. Lock it up and leave it and take your 20% at the end of the year.

Madness.

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Here the rents seem to be around £72 sq ft /year, which is actually even worse in terms of yield, even if it translates to rents starting at almost £10k/month

http://www.zoopla.co...osvenor-square/

I'm not sure if these places find tenants, there is certainly a huge supply of them.

It seems to me that these properties serve primarily as an investment vehicle, and the residential element is entirely an afterthought.

From that link there does appear to be a load of supply, and seems that way to me too, investment trophy assets at ever higher prices. Even with ever more projected HPI (Housing Minister seems to love it), pays to rent in London, it seems to me.

11th February 2014: London is currently the most renter-friendly location in Britain. After seven years, a typical London renter would be £82,412 better off than a buyer with a 10% deposit of an equivalent property. It would take 18 years for a London buyer with a 10% deposit to begin to be financially better off compared to the equivalent renter. These calculations are based on a conservative estimate of 4% annual house price growth in the capital.

http://www.zoopla.co...rent-in-london/

Good job so many hpc-ers were so adamant buyers were victims at superbubble 1.0, with every excuse for those who'd pushed prices to super heights. It stopped human suffering.

This Pimlico property-investor guy I seem to recall, from research long ago, had quite a lot of property-interests. Protecting the over-indebted has stopped his human suffering, of perhaps having to sell some at lower prices. Now foreign money pouring in because super-low rates "not earning anything in the bank" for superbubble 2.0. Well done apologists. Human suffering averted. Welcome back rampant good old HPI, and more buyers pushing and falling over themselves to pay higher prices.... 2 and 3 times what I'm prepared to pay, in a better position than most of them - but they're entitled, enabled, and decide buying is value.

http://www.dailymail...ity-horror.html

http://www.rightmove...country=england

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April 1, 2014 16:50 GMT

Rents in high-end London areas fell during 2013 as many of the City's top bankers and executives saw their bonuses slashed or were tossed out of their jobs.

According to the Prime Global Rental Index compiled by Knight Frank, a property market research firm, rents rose by 4.8% on average during 2013 across the 17 markets studied.

However, London alone saw rents fall by 2.3% over the same period – the second lowest performance of any city. New York saw a 3.5% increase in prime rents, which is defined as property in the top 5% by value of the housing market in a city.

http://www.ibtimes.co.uk/prime-london-rents-drop-bankers-lose-jobs-bumper-bonuses-1442942

and in more detail...

http://www.theguardian.com/money/2014/apr/01/rents-london-prime-properties-fall-2013

article-2534669-1A73B9EF00000578-853_634x494.jpg

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Perhaps there aren't in reality that many people with £2500/month to spend on housing

And that explains why the hope of EAs and investors that prices will increase 10% y/y is so pathetically desperate.

Those that are a bit smarter know this and are planning their exit. Like the psychological games in financial markets, a shrewd speculator will try to anticipate market sentiment and the behaviour of investors who are less smart.

If everyone is overpaying for their property and thinking that prices will continue increasing at the same rate for 5 years and you know that it's not sustainable for more than 2 years? You can make profit simply based on understanding this.

Risk-averse investors are always advised to look at the underlying fundamentals (i.e. is the asset overvalued or undervalued?) and make a long-term investment rather than playing the risky game of predicting the market.

On the face of it, rental yields of 2 or 3% show that prices can't increase any further by relying on fundamentals: you can expect some investor to materialise and allow you to get 10% y/y returns but someone has to eventually live in the property! That person will be on London wages. Rents are already a huge part of any Londoner's budget and you can't squeeze blood from a stone.

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Anecdote from me.

Not really talking prime by any traditional definition but decent, wandsworth, amongst my wife's circle of friends with oldest offspring aged 3-ish, quite a number are fleeing London for the home counties, but the number who are actually selling up is much smaller. a good many are hanging onto their flats & houses, say in today's market worth £500k-£1.5m depending on the size etc] & renting them out.

I'm seeing that, amongst these people, yields of 3% would be considered quite 'good' given the above. To the extent that people are thinking about yields at all they're diong so with reference to the price they paid for their houses/the amount of outstanding residential mortgage left on them. All they're thinknig about is capital gains.

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Anecdote from me.

Not really talking prime by any traditional definition but decent, wandsworth, amongst my wife's circle of friends with oldest offspring aged 3-ish, quite a number are fleeing London for the home counties, but the number who are actually selling up is much smaller. a good many are hanging onto their flats & houses, say in today's market worth £500k-£1.5m depending on the size etc] & renting them out.

I'm seeing that, amongst these people, yields of 3% would be considered quite 'good' given the above. To the extent that people are thinking about yields at all they're diong so with reference to the price they paid for their houses/the amount of outstanding residential mortgage left on them. All they're thinknig about is capital gains.

Doesn't capital gains effectively kill this now with the new 18 month rule? If you bought a place 10 years ago for £300k and it is now worth £1m, you only have 18 months before you start paying some capital gains tax on that £700k you have already 'earned' as well as any further increase in value.

I know it only creeps up for the first few years before it reaches the full 40%, but that would be enough to put me off if I could be taxed on money I have effectively already made as well as getting a very low yield for my trouble,

I suppose that it is all insignificant if HPI keeps on marching at 20% a year like most people expect it to, but you would have thought some people would be thinking about it.

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Doesn't capital gains effectively kill this now with the new 18 month rule? If you bought a place 10 years ago for £300k and it is now worth £1m, you only have 18 months before you start paying some capital gains tax on that £700k you have already 'earned' as well as any further increase in value.

I know it only creeps up for the first few years before it reaches the full 40%, but that would be enough to put me off if I could be taxed on money I have effectively already made as well as getting a very low yield for my trouble,

I suppose that it is all insignificant if HPI keeps on marching at 20% a year like most people expect it to, but you would have thought some people would be thinking about it.

yeah, who knows. an important thing to remember obviously is that my sample of people diong this is not only tiny but also made up of people who know, and are to some extent likely influenced by, each other.

i think with a lot of these people it's more, uh, fear than greed that's driving them to do this - say they're worried that if they just maybe wanted to move back to London in 20 years' time, when their kids will all be through school & whatnot [or very possibly it'll be the kids who'll need housing in london], they'll not easily be able to do so if London HPI were to outstrip other HPI over that period - .

Edited by the flying pig

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yeah, who knows. an important thing to remember obviously is that my sample of people diong this is not only tiny but also made up of people who know, and are to some extent likely influenced by, each other.

i think with a lot of these people it's more, uh, fear than greed that's driving them to do this - say they're worried that if they just maybe wanted to move back to London in 20 years' time, when their kids will all be through school & whatnot [or very possibly it'll be the kids who'll need housing in london], they'll not easily be able to do so if London HPI were to outstrip other HPI over that period - .

no question this present market is driven by fear, not as much as greed or certainly need.

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