Aep What A Utter Wa****

[Corruption]

maybe he is saying that it is not a useful measure of affordability and is being deliberately used to mislead.

RK seems to think that we are now in the greatest time since the early 90s for buying a house outside of London, he's either an idiot or retarded, probably both.

Edited November 4, 2014 by Corruption

[zugzwang]

No bubble, AEP? Or is it more a case of Naomi Heaton's London Central Portfolio running out of pai gow gamblers?

At the core of Heaton’s approach is cherry-picking. She leaves the super-trophy, £5m or £10m properties to the absurdly rich. Instead she picks one-bed flats below £1m or slightly more than that for the two-bedders, spends about 10 per cent of the purchase price renovating and upgrading the property, then lets it for the term of the fund, usually five or seven years.

“We buy for a period of time only and buy for capital growth, while maximising the rental yield during that period,” says Heaton. Almost none are new-build, which of course is one of the attractions of investing in central London – there is virtually no new-build supply coming on to probably the world’s most super-constrained market.

London Central Portfolio’s experience is that while there appears to be almost no upper limit to prices, there is an upper limit to the more prosaic world of what tenants will pay. “We find that most tenants will pay up to £500 a week for a one-bedder and £850 a week for a two-bedder. It’s very difficult to push rents above the £1,000 a week level.” (Given that’s more than £50,000 a year to be found from net income, you can sort of understand why.)

It would, superficially, be easy to buy a whole block and manage it directly, but LCP says that would be foolish. “You pick up a much better return by buying individual units in a building, which can vary enormously,” says Heaton. So far, LCP has bought 350 individual units in the central London area, broadly defined as the boroughs of Westminster and Kensington & Chelsea.

The funds are leveraged, although relatively modestly. LCP’s third fund, currently open for investment, will consist of roughly 60 per cent investor equity and 40 per cent bank loans.

Interestingly, despite the drive for yield from tenants, the fund is not designed as an income play. LCP uses the yield to pay stamp duty, renovation and maintenance costs, and its own fees. “CGT is lower than income tax, so we prefer to distribute gains that way,” says Heaton.

About half of LCP’s investors are UK IFAs, mostly for Sipp and Ssas purposes. The Recovery fund, launched in February 2009, did not close until September 2010 and it took time to buy and renovate the properties for letting. Yet it is still enjoying a net asset value gain of 23 per cent. It is listed on the Channel Islands Stock Exchange in Jersey.

“The price rises in central London are not just about the problems with the euro and arrival of lots of Italian and Greek buyers. We have barely scratched the surface with the Chinese. So far they have only been buying new developments on the periphery, because that’s what they have been sold. The potential number of buyers from China and India is enormous, yet there is almost no stock.”

A bubble waiting to burst? Maybe. But Heaton insists the fundamental supply and demand factors prove that it’s not. Her major worry is tax. Driven by (understandable) discontent over the rich not paying stamp duty to buy Chelsea mansions, there is a major clampdown under way. Heaton thinks it is misjudged (and says in any case LCP funds always pay stamp duty) but even if property is targeted for more tax, it only dents rather than destroys the story.

Heaton is an indefatigable advocate of this investment story. I didn’t believe it in 2009, and got it wrong. Do you now jump in, or stick to your belief that property will correct like any other asset class? It’s a very tough one.

http://www.fundweb.co.uk/fund-strategy/issues/13rd-august-2012/join-the-knightsbridge-set-for-50k/1056109.article

Edited November 4, 2014 by zugzwang

[zugzwang]

And do you have a chart showing got borrowing/debt since 2007, as it was then that the govt took over the borrowing mantra.

Of course. It's an almost vertical straight line.

[MississippiJohnHurt]

"LCP uses the yield to pay stamp duty, renovation and maintenance costs, and its own fees. “CGT is lower than income tax, so we prefer to distribute gains that way,” says Heaton."

Hyman Minsky might be interested in this model.

[The Knimbies who say No]

IFAs punting on a naked HPI infinity play in London, what could go wrong...