Fall in GDP can spell a growth in opportunities

By Martin Skinner,

Martin Skinner
Martin Skinner

At home in the Skinner household Jack is growing up fast and the focus is now on education.  Magdalena is teaching him English, Polish, Chinese, swimming, walking, and maths. And I’ve been chipping in with football, video games, iPhones and blowing raspberries.  Is this a good modern example of division of [parental] labour?

Jack Skinner onwards and upwards
Jack Skinner onwards and upwards

Speaking of education, Mark Weedon at the IPD has been teaching the property industry one of its best kept secrets.  Despite residential property appearing to produce a lower net rental yield compared to commercial property, it has actually been on par over the last nine years when commercial value depreciation is taken into account.

“These findings indicate that relative residential income return is significantly devalued by its superior capital growth. In fact, residential property can deliver as much net income receivable as a percentage of original outlay to commercial for an equivalent sum invested in both. Therefore, the residential sector is now able to boast that it not only offers superior total returns but also that the cash returns from rental income can match commercial even if the percentage yield and income return remain noticeably lower” (2010, Mark Weedon, Head of UK Residential Services, IPD)

9 year income performance residential vs commercial
9 year income performance residential vs commercial

This means that, despite the rhetoric, UK residential property not only outperforms commercial property (and all major asset classes) on capital growth, but it also matches commercial for income return too.  The arguments from institutional investors against investing in this £6 trillion asset class are steadily being whittled away.

You can find the full International Property Databank (IPD) presentation here and their biannual research reports are available here.

Additionally, why not take a look at some recent Jones Lang LaSalle research forecasting house price inflation rising back towards its long term trend of above 7%p.a.  It makes an interesting read. Nationwide estimate that house prices rise by 2.9%pa in real terms, whereas researchers broadly agree that commercial property depreciates by around 1.5%pa in real terms.  This reflects the fact that commercial properties typically become obsolete and require replacement much faster that residential.

JLL UK residential property price increase forecast
JLL residential price increase forecast

So no wonder UK residential has historically provided a hedge against rising inflation, rising in value by 274% in real terms over the last 50 years compared to a 55% drop in commercial values.  Those interested in comparing the overall returns from residential with other asset classes should have a look at Tim Watts’ article from last year.

On the ground I’ve also noticed the effects of the ongoing supply shortage during the traditional moving season of November and January. Demand for vacant rooms and flats in our own buy-to-let houses in London’s Docklands was so enormous that we pushed rents up considerably and got them straight away, on top of substantial advance rents from Chinese students.  Yep, we should have asked for more…

Our vacancy rate is 0% and Inspired Asset Management’s partner Urban Share has also enjoyed near 100% occupancy for most of 2010, even after increasing rents by between 10-40%!  According to Knight Frank, residential rents in London have risen by an average of 16% over the last year.  They offer very rewarding and attractive returns for equity rich investors increasingly – and rightly – concerned about rising inflation.

Spareroom.co.uk (the UK’s leading website for finding and letting rooms) told me that they are now placing more adverts for rooms wanted than rooms available for the first time since they began in 1999.  That’s really quite remarkable when you think about it.

With no significant improvements in the debt funding environment or in local authority demands for affordable housing, supply will continue to fall short. At the same time, babies continue to be ‘born every day’ and more and more migrants are moving to London, whether from southern Europe or northern England.  I think I’m safe in making a new year’s forecast that London and the south-east will experience substantial increases in real residential rents over the next 5 years.  And that’s great news for current and future landlords.

Even the recent shock drop in UK GDP could prove to be good news for investors in London residential property – assuming that the recovery resumes relatively swiftly.  The shock has without a doubt pushed back future interest rate rises, while a weaker Sterling will continue to attract cash rich foreign investors.  There should also be some more exciting property deals available to experienced parties that are prepared to look and work hard enough.  Here endeth the lesson.

Sophisticated investors interested in deploying capital into London residential should contact me on 07968 790 611 to discuss the ways in which my partners and I can help you to enhance your returns.


It’s a new dawn, it’s a new day …

By Martin Skinner,

Martin Skinner
Martin Skinner

Well after keeping radio silence for what seems quite a while, I’m proud to introduce a new member of the team to everyone.  Jack Christopher Skinner was born on the 26th March 2010!

Jack Christopher Skinner
Jack Christopher Skinner

Jack has already chosen his football team (Tottenham Hotspur needless to say) and is also starting to show signs of his parents’ impatience.  Like most youngsters these days, he’s also better at the high tech stuff than they are and is fully operational with his own Facebook, Twitter, You Tube and Google Buzz accounts.

Jack Dribbling for Spurs
Jack Dribbling for Spurs

So as you can imagine, life has been even busier than usual in the Skinner household.  In fact, this is the first time I’ve really been able to sit back and reflect on how dramatically things have changed over the last couple of months.

We’ve created a new family, the country has new leaders (hopefully better than the last lot), and Inspired has made its first great property acquisitions with Urban Share. Even the sun has come out!

Bush Road Purchased
The three properties bought so far include this 3-bed house in Bush Road, Surrey Quays, SE16 bought for £228k

Then again, some things haven’t changed and we still love London Residential Property.  Their recently published residential IPD (Investment Property Databank) report fully supports my own and Inspired’s views.

Aside from linking to the report here and the multiple award winning IPD here I thought I’d just share a few of the highlights with you:

“The residential total return index has experienced real [after inflation] growth of 86% [in the 9 years] to December 2009, compared to 33% in all commercial property. This equates to 7.2% per year in residential against 3.21% per year for commercial. The real capital growth in the residential index is the same to the total return in the all commercial property index. The residential income return on top of the capital therefore represents a real out-performance “bonus”.”

“Over fifty years real house prices have risen by 274% compared to a -55% fall in real commercial property value. This represents long run annual residential value increase of inflation plus 3.3% compared to inflation minus 1.2% per year for commercial property.”

“Residential has represented the best real return to a December 2000 investment [against equities, bonds and commercial property] at every stage throughout the previous 9 years.”

“The annualised rental growth over the 9 year period was 2.23% for residential compared to just 0.45% for commercial.”

“Residential market let investment has consistently rewarded investors with greater returns than commercial property and other asset classes since 2000 despite lower income returns.”

residential property vs other asset classes
residential property vs other asset classes

“The long term real performance of residential represents a hedge against inflation and volatility whilst maintaining impressive performance relative to other sectors.”

Property Risk Reward Spectrum
Property Risk Reward Spectrum

“The fall from peak to trough is smaller in the residential market cycles.”
Source IPD Residential Index 13/04/2010, The Strength of Residential as a long term Investment

As you’ll know if you’ve ever met me, I’ve long been an outspoken advocate of UK residential property investment – especially in London.  Discovering this report (as well as Jack’s arrival, of course) has made my 2010 !!

If you’d like to discuss the property opportunities we can offer, would like to raise finance for an amazing site, or you’ve discovered a distressed scheme or portfolio that might interest one of our funds or clients, we’re always keen to hear from you.

I’m also collecting high tech baby accessories and bargains/donations are welcome – particularly if you can offer me a great deal on one of these little beasts !

Awesome High-Chairs
Awesome High-Chairs

MIPIM and The importance of being Earnest

By Martin

For the last week I’ve been networking like crazy at a big property conference called MIPIM.  The event’s hosted in Cannes in the South of France and a is big, glitzy affair with lots of investors, developers, property fund managers, Mayors and service providers doing their best to attract attention and investment to their new schemes.

MIPIM Sponsors' Marina

Boats hired by the sponsors jam the marina

Finances are very tight these days and I had to do it on a shoe string budget travelling there in cattle class on the train and sleeping on a friends’ sofa (thanks Bradley!) for the duration.  The time commitment alone meant the opportunity cost was also high.

Martin, Sav & Bradley & the Edge Party

Martin, Sav, Bradley

Naturally, with property & finance having been hit so hard there were far fewer people there than when I last went.  Numbers were down from about 30,000 to 18,000 delegates.  It struck me that the people that were there were much more serious than before.  Discussions weren’t about the market as such but more about deals.  Those there were clearly making the most of the current climate and using their time in France effectively to speed network.

Cannes Mosh Pit

Cannes Mosh Pit

Most of the people I met there were top influencers – as an example the chap I happened to sit next to and chat with in a cafe on Saturday is developing a huge scheme in Korea.  I’m pretty sure he casually mentioned it was the largest in the world and that he had hosted 7,000 guests at the MIPIM launch party (and he owned 15% personally).  I didn’t have the money to buy a ticket to go into the main ‘bunker’ (which cost 1,600 Euros) so I missed that bit but I was lucky enough to be invited to quite a few of the lunches, boats and parties where I chatted to numerous UK property legends.

Knowing I had to make the most of my time there I collected plenty of business cards and made sure I sent them all personal emails and Linked In connection requests before I left.  In the months that follow I’ll aim to turn at least a few of those brief business card swaps into coffees events, coffees into mutually beneficial exchanges and as a result some new business all round.

Cannes Flea Market

Cannes Flea Market

Residential – what’s it all about then?

By Martin Skinner

A love affair – my story
I’ve been a passionate advocate of residential property investment particularly in London since I bought my first investment property our in the far reaches of London’s Docklands in 2002.  My love affair with residential began much earlier though…

I spent my formative years from 7-18 growing up in a big house on 3/4 of an acre of land in East Sussex.  My parents had settled there after many years of travelling and teaching in far off places like Uganda & the Solomon Islands, where I was born.  It wasn’t a particularly expensive house or in a particularly expensive area but it had a big garden, big trees, a gravel driveway and a garage big enough to play table-tennis & snooker in.  And I had a bigger bedroom than I remember any of my friends having – so they often came to my place – I loved it !  An Englishman’s home is his castle and I didn’t have to pay any rent…

…  until I moved up to London for university in 1998 and had to pay rent.  From 11 years old onwards I’d always worked to earn extra money to pay for extra toys – first skateboards, then bikes and finally sports cars – and I really didn’t enjoy having to throw a whole £300 a month away on something I’d always enjoyed for free.  Have you any idea how much faster I could make my car go for £3,600 (12 months’ rent)??  My parents didn’t seem to share my pain.  “I could buy a 3-bed ex-council flat, rent out the spare rooms to friends and live rent free if only you’d guarantee the mortgage”  I explained. Mum would have helped but my dad, who was a tough old sod from an army background, threatened to divorce her and move out if she took such a huge risk on me.  And then my car got stolen.

Anyway, as soon as I had the salary to support it without a parental guarantee I bought my first 3-bedroom house.  I paid £220,000 for it in March 2002; quickly knocked the kitchen into the dining room to free up an extra bedroom and let the 3 rooms out.  I received enough rental income to pay the mortgage, all the bills and still left me with £500 a month (and my own bedroom).  I then re-mortgaged it for £70,000 extra just six months later.  It would have taken me at least 10 years to save up that much money from my £34,000 a year job and I was convinced; this was how I would earn my money.

Institutions – still flirting
Meanwhile institutional investors rarely share the passion I have for the sector and consistently struggle to get their products beyond first base.  A number of large UK institutions announced their intentions to invest last year but almost a year on they still haven’t got them off the ground.  The main reasons appear to be:

  • More active management required
  • The recent rebound in market values
  • Lower net yields compared with commercial
  • Short-term tenancies (longer-dated income is preferred)
  • Reluctance from banks to release large volumes of discounted stock

In addition to this many financial advisors struggle to differentiate between an investor (or client)’s home and their investment portfolio and therefore look to diversify into commercial property over residential alternatives.

These are not insurmountable challenges however and some including Invista Real Estate and Inspired Asset Management (who I advise) with their Urban Share Fund are succeeding with their products.

Why not just stick with commercial property?
Assets are generally valued based on multiple of their current and future income (in this case net rental yields).  And rents are still under downward pressure for offices, industrial and in particular retail where sheer weight of money meant more space was developed.  Combined with changing consumer and occupier behaviour (online shopping for example) the recovery in commercial property is likely to be much more muted.

In residential meanwhile there was a housing supply shortage/crisis before the downturn even began.  The demand pressure is building and the supply-side is hamstrung.  National house builders had to shrink their businesses to survive the recession and could take 5 years to get back to where they were in 2007 and smaller developers cannot raise the development finance they need to produce new stock.

Hybrid variants of residential including affordable housing and student accommodation are attracting more attention from investment funds but even they are both still in short supply; particularly in London where according to Savills student numbers are growing at 15 times the rate of new supply.  London is also where waiting lists for council housing have reached such extreme levels that dedicated workforces are being recruited to persuade those on the lists to look to the private sector for help.  Private landlords of course prefer to steer well clear of tenants on housing benefit after suffering huge losses when the government diverted payments from landlords to tenants who then frequently failed to pass them on.

Anecdotal evidence from West London agents suggests rents are increasing again and at quite a pace.  Knight Frank is forecasting house price increases of 34% in London over the next 5 years.  The Centre for Economics and Business Research (CEBR) expects prices in the UK as a whole to rise by 20% over the next 3 years as banks step up lending and interest rates remain low.

Historically residential property has proven to be a relatively safe asset class hence the expression ‘as safe as houses’ and:

  • outperformed other asset classes
  • offered higher income yields than bonds
  • offered an effective hedge against inflation

Whether the powerful few step up their investment programmes in Residential Property or not it’s clear that in the years ahead many students and young graduates are going to have a much harder time finding accommodation they can afford to rent let alone buy.

If you would like to learn more and/or discuss some of the pressing issues faced by our next generation please book your tickets for our University Challenge event.  We will be hosting a discussion involving fund managers, property managers and students at the May Fair Hotel in London from 6.30pm on Thursday the 11th February.  The last few tickets are available now on http://inspired.eventbrite.com.

Can social media save my day?

By Martin Skinner

Putting on events is H.A.R.D.!

Admittedly I’m a newbie at it and I often try to do too much in too short a period of time but seriously I have a new found respect for those that manage to get regular events running – let alone running smoothly.

To give you, the reader, a bit of background on me I’m basically a residential property investor and advisor in London.  On the one hand I specialise in ‘supercharging’ yields for investors and on the other hand I specialise in developing accommodation for student and graduate occupiers.  The aim has always been to profit through raising the bar for:

  • quality
  • flexibility
  • community
Bedroom in a student/graduate houseshare

Bedroom in a student/graduate houseshare

Having been successful at this in the past I’ve been working hard to get back in the saddle after stumbling in 2008/9.

Most people in London can’t afford much more than £500 a month and it has always been clear to me that making life easier for sharers adds significant value to both investors and occupiers.

The government has managed to consistently interfere with misguided policies on Houses in Multiple Occupation and is about to make matters worse (in a populist attempt to combat NIMBY complaints of ‘studentification’) and in doing so will only force more landlords to withdraw from the marketplace.   Many major institutional investors either don’t understand the broader residential market (let alone students/HMO’s/graduate’s) or can’t be bothered with it instead preferring fire and forget commercial property investment.

Anyway, what’s that got to do with events you say?  Well, I see bringing interested parties together for great events, regularly, as key to building momentum behind a movement to solve what I believe to be a very serious problem – housing and enabling the next generation upon whose endeavours our retirement depends.

Getting people to spend some of their hard earned cash is very, very, difficult these days though and getting people to take time out of their busy schedules to attend an event or two is also very, very, difficult.

I’m sold on their value to an individual or a business (here I represent both) once established and I’m committed to both attending and promoting our own Inspired Events and other people’s events.  Because regular face-to-face interaction builds both:

  • breadth – expanding & connecting networks and
  • depth – strengthening relationships within networks

And here are some other reasons for perseverance that I was attracted to online:

  • Entertaining clients
  • Brand differentiation
  • Increasing brand loyalty
  • Highlighting community responsibility, or corporate social responsibility

But and it’s a big but, and contrary to the famous song I don’t like big but’s, I cannot, lie I’m really struggling to get people to book tickets to come along.

Expensive direct marketing (c1,000 personal contacts and c9,000 purchased) has failed to yield meaningful results and despite pumping in expert assistance, promotions, considerable sums of money and an unbelievable amount of time I’m struggling to gain traction.

The best results so far have come from kind friends – in particular Nick Tadd, Vanessa Warwick and Tony Chads – who have endorsed the event and spread the word.

The May Fair Hotel, W1

The venue - The May Fair Hotel, W1

If we don’t get a lot more people along we’ll still have a great event (and a lot more pre-paid drinks per head) but the message from the students and the investors and managers that are getting involved will be muted.

So I’m asking you for your help to get the message out for me.  I am not as smart as all of you and I’m certainly not as effective as all of you (no matter how many hours I put in).

If you are interested in coming along please book online at http://inspired.eventbrite.com by the 7th February and/or if you know any investors, accountants, lawyers, developers or fund managers please encourage them to come along on the 11th February.

This could be you (or me)

This could be you (or me)

Thanks !

🙂 Martin

07968 790 611 or martin@inspiredassets.co.uk

Location, Location, Yield !

By Martin Skinner

Right the snow’s over everybody and it’s time to get this show back on the road!

Unfortunately it’s likely to be quite a long and bumpy road so I thought I’d kick the years blog off with a priority Top 3.  Hopefully it’ll help keep things focussed on the journey towards financial stability.

The road ahead

The road ahead

Priority numbers 1 & 2 are “Location, Location …”
I did have a bunch of great articles with lots of lovely tables and charts demonstrating the likely future variances in house price inflation between key regions however partly as a result of being pleasantly distracted by all the new social networking sites and events (and of course the snow) I’ve managed to misplace them.  Still with traditional forecasting having been all but discredited perhaps we shouldn’t rely too much on them anyway.  Therefore I’ll just share my opinions with you and you can comment if you agree/disagree.  If you happen to have the tables/charts to hand then please feel free to post them too.

It seems certain to me that the North/South divide is going to widen in the years ahead as 1) investors prioritise properties in the safest, scarcest locations and 2) the [new] government  is forced to reign in its spending.

Northern regions are more reliant on the state than southern regions and they will suffer more as a result.  Demographics were forgotten somewhat during the boom and financial engineering was often prioritised over fundamental property investment criteria like location and future supply & demand.  Sadly many investors found that agents, property clubs and developers forecasts for rental income and re-sale values evaporated and have been left sitting on flats that in some cases could take a decade or more to get back to where they were estimated to be at their peak.  And that’s assuming the local populace doesn’t move to the south in search of better pay (or just any old job).  The same can of course be said for many foreign destinations – let’s not get into Spain or Dubai here.

The good news for those that have holdings there is that Prime West London is pretty much back where it was in 2007.  Cash rich investors have continued to fight over flats and houses in Mayfair, Knightsbridge and Notting Hill throughout the turmoil.  Once again the old adage Location, Location, Location has rung true and I believe it will keep ringing loudly for at least 5 years.  Investing in the best location you can afford will continue to pay dividends.

Central London

Central London

Priority number 3 is Yield
Many buy-to-let investors (and others) have managed to hang on to their portfolios despite significant negative equity because interest rates have been reduced so dramatically.  In most cases residential property investors have in fact benefitted from significant improvements in their monthly margins as rents have only dipped about 15% overall – as compared with about 50% on commercial property – and they’re now beginning to drag themselves back up.

This means income arbitrage is back on the menu.  If you can only get 0.5% interest from the Bank of England or a c4% dividend yield on equities then property starts to interesting above that level.

But what about rising interest rates for those looking to use leverage or with debt already in place?  The debate will continue to rage on this in the months and years ahead I’m sure (hasn’t it always?) however it’s clear that they will have to rise at some point and it therefore makes sense to build in some margin for error on the yield.  This can be a little difficult if you’re borrowing 50% or more and following the golden location, location, rules because yields on Prime Central London properties can be as low as 3 or 4% gross.

So my tip, and I doubt the big fund managers will like this one, is to stay prime and consider more management intensive residential uses such as student accommodation, young professional accommodation and short-let hostels etc.  If you were offered the choice between a long lease on a bank in a regional city centre at a yield of 5% or a flat with a 9.5% gross yield (7% net) in Central London what would you choose?

Example Urban Share bedroom

Example Urban Share bedroom

If you fancy learning more about student & young professional accommodation why not come along to our event on the 11th February where we’ll reveal many of the secrets to successfully investing?

Andrew Goodwin senior economic advisor to the Ernst & Young Item Club wrote the best article I’ve read this week (in Property Week).

Overcoming Social Media Niggles

tennis niggle

tennis niggle?

Overcoming My Social Media Niggles

By Martin Skinner

The Christmas & New Year break this year gave me the opportunity to play with a lot of the sites and settings I’ve struggled to clear from my to-do list.

Two things in particular had been really frustrating me and I’ve now solved them so I thought I’d share the solutions just in case anyone else found them helpful.

Tweets away … incoming !!!

Twitter has been a revelation to me and I’m confident its’ real-time nature will be a force for good.

have you been flooded by tweets?

flooded by tweets?

With the help of research and expert assistance I’ve built up a half decent following in the time I’ve been experimenting with it.

Finding the right balance of breadth and depth of relationships with ‘followers’ is an evolving challenge and occupies many a great mind online.

Speaking as a first year student of the system it’s clear to me that following people back helps grow a following and is generally considered to be polite but it can make it difficult to keep track of close friends.

Setting up a Twitter list and importing it into Hootsuite or similar enables me to filter AND follow people back most of the time.

Facebook sensitivities
In my attempts to link up all the online social networks that are proliferating I’ve used friendfeed as a hub so I only have to post status updates in one place for them to be shown on a number of different destination sites.

Facebook niggle

Facebook niggle

However friends on sites like Facebook are very sensitive to too many tweets being fed through so I’ve been looking to filter them and found an excellent solution using Twitter favourites and a friendfeed account here.

I suggest avoiding responses like the “stop tweeting… I beg you” comment I got yesterday (sorry Jamie) by using an account with friendfeed just for the favourite tweets link to Facebook and test it carefully.

Those were mine, how about yours?
What frustrating little to-do-list items did you manage to overcome during the holidays?

what niggles did you overcome?

niggles, what niggles?