By Camilla Dell
As a professional consultancy, our role is to guide our clients and managing expectations is an important part of this process. Some of our investment clients have a clear focus and vision of what they are trying to achieve; others are happy to be led and guided by us.
During the boom years of Dubai’s real estate market, clients would regularly ask us why they should be investing in London, with a 4 to 5 per cent yield and a 5 to 10-year hold period, when returns from Dubai property were so much greater. We would, from time to time, lose potential clients to the Dubai property market, and there were times when I wished we could offer our services in Dubai as well.
But something told me not to enter into a market I didn’t understand. When clients would tell me about the wonderful returns they were seeing and the flipping of properties, I would shudder. I didn’t understand the dynamics of the market.
Who was going to live in the tens of thousands of apartments that were being built and kept on being built? Where was the demand coming from? What was supporting the huge rise in prices? I decided that I simply couldn’t advise on a market I didn’t understand, but more importantly, was not an expert in.
Post the credit crunch and debt situation, the stories are still flowing out—investors who risked everything, even the roof over their heads, on betting the market would continue to go up and up. This isn’t to say that some investors haven’t done extremely well out of Dubai. There have been many success stories by those who got in and out at the right time.
Timing is everything. Even now, there are developers re-entering the Dubai property market, confident that the market will turn around. One developer recently unveiled a three-year plan to build The Heart of Europe Resort, a sixisland development on The World cluster of islands. He is betting on both a market recovery and also that interest from overseas buyers will be strong.
And Dubai should be congratulated. Recognising that one day the oil will run out, they have created a financial centre and a huge tourist destination from scratch, a feat I doubt we will ever see repeated anywhere else in the world. And while we don’t see Dubai as the place to make a quick return in a short space of time, over the long term, investors should do well.
At Black Brick, we firmly believe that diversity is the key to success when it comes to investing in property. Our investment approach with clients is very conservative on the whole. For investors looking to buy just one property, we keep it simple and stick to only the very prime areas of London. Here we know property will rent easily and stand the best chance of capital appreciation.
For clients looking to buy multiple properties, we expand the search areas, we may acquire one or two properties in secondary areas where the yields will be higher, but make sure we balance this with acquisitions in prime areas.
London is an attractive investment opportunity for non-residents of the UK seeking capital appreciation. The combination of a drop in London market values and the weak sterling, effectively provide dollar and euro buyers as much as a 50 per cent discount on previous levels in this assets class. In addition there is no UK capital gains tax for foreign investors.
We believe that it is important to take professional advice in the search and acquisition of London real estate as there is fierce competition for the best properties in the range of £500,000 to £3million. We were recently asked to source a prime property with a tenant in situ.
We sourced a suitable investment property in a prime location with a tenant already paying £721.61 per week. We negotiated aggressively and saved our client £75,000 off the asking price securing a gross yield of 5.7 per cent, above the market average of four per cent.
London, unlike Dubai, has limited space and very tight planning restrictions. We can’t just build and build, and if you believe in London and that it will recover and come out of recession, then it is a good place to own property.
In addition, London also attracts the globally wealthy, and people choose to own property here as a second home, as a base for children going to school in the UK and as an investment.
One thing, 2009 showed London’s resilience to the economic downturn. While property prices tumbled more than 50 per cent in Dubai, prices fell more moderately in London and actually rose 9 per cent during 2009. Prices in prime central London stand at just 13 per cent below the peak of the market today.
To conclude, it is important to take advice when investing property in any market, not just London. Markets differ greatly from one another and it’s never a good idea to pile everything into one location, no matter how tempting the returns may look. Diversity, timing and specialist knowledge is the key to success.