Print
version
version
(1).jpg)
– What's going on in the UK market lately? How would you assess what is happening?
– I would prefer to concentrate on individual segments. For example, the residential sector has shown growth last year, because the authorities have taken measures to support it in the UK (like in several other countries). The country has abolished stamp duty, which is a tax on the purchase of properties cheaper than 500,000 pounds. The first 500,000 pounds were also not taxed in larger transactions. This led to the higher activity of buyers and pricing growth.
On average, prices in the UK increased by 4% last year, and, for example, by 6.5% in Manchester and in the north-west of the country as a whole.
– But is the growth so great that it can seriously affect the attitude of private investors? The general statistics are hardly decisive for a buyer who is interested in a particular property.
– True, but we are talking about the fact that stable growth has been observed for many years and is still expected in the future. The UK is chosen by investors of a certain type who focus more on the growth of the price, rather than on rental income. Today, real estate is treated the same way as a few years ago they looked at foreign currency deposits. In addition, if you sum up the yield, it can reach 10% per annum in foreign currency.
– If you think in terms of stereotypes, the European markets can be divided into several groups. In the north, prices change little and grow slowly. In the south, on the contrary, they fluctuate. You can win in the moment, but you can also lose. And there is stable Central Europe. How would you define the UK's place in this scheme?
– It's the geographical location that determines it. The three largest economies in Europe are the United Kingdom, France, and Germany, and traditionally they attract the largest capital. Another thing is that private and institutional investors behave differently. For example, private investors are not very fond of French real estate, since the purchase process is very bureaucratic, and many documents are only in French.
Germany and the United Kingdom are more tolerant in this sense, so a person who only looks at the investment component is likely to choose these countries. Another thing is that the choice is often influenced by personal emotional preferences and other reasons. Such as "golden visas", for instance.
– So, real estate in the UK is an option for investors who need to abstract from the words "like" and "want", right?
– Yes. After all, some clients declare their desire to buy an apartment in Manchester. It is not purchased by city lovers, but by those who understand what they expect from their investment.
– But money loves silence, and there has been a lot of noise around the UK in recent years, mailnly because of Brexit. The volatility of the pound is also confusing…
- Nevertheless, the pound is among the top 4 most traded currencies in the world after the dollar, euro and yen. In addition, the pound is growing: during the uncertainty associated with Brexit, dollar investors massively entered the UK market because of the pound-to-dollar ratio of 1.23–1.25, and now it is already 1.41. Even if it does not return to the historical figure of 1.6, it makes sense to keep it in the investment portfolio alongside with the euro and the dollar for currency diversification.
– Why the same offer has a different price in different countries?
– If you mean that the same property for some reason is sold at different prices in different countries, then the answer is definitely a "no". The property itself costs the same. But if we talk about objects at the same price in different countries, the final cost for the buyer will be very different. It is influenced by many factors: who pays the commission, who pays the legal and notary fees, taxes on the purchase, sale, inheritance.
The price of an real estate object is a very abstract quantity. Real estate for 100,000 pounds, offered in London and in Moscow, are trwo completely different things.
– Moving on to the student apartments. How do they appear on the market? Who decides that they should be built?
– To begin with, student apartments as a separate type of real estate formed about ten years ago. Before that, there were places on campuses and residential coompounds where students were renting out. Then developers began to build properties specifically for students, and the purpose built student accommodation segment was allocated.
It's evolving. Previously, peeple had been commonly living in shared apartments with living rooms-kitchens and bathrooms, now studios are popular. Surveys during the pandemic have shown that they will be in demand. Now there are cinemas and gyms in the student dormitories. The project's liquidity depends on its compliance with current trends.
– To what extent do the universities participate in such projects?
– British universities have campuses. But usually they are small and old. Students become more demanding: they need high-speed Wi-Fi, modern interiors, etc. Developers see this, correlate the number of students at the university and the number of places on campus. Separately, they count foreigners and organize seat reservations from abroad. After all, the main suppliers of students are China and India.
Sometimes the university has an agreement with a new hostel and recommends it officially. But the complex may simply be an alternative to other housing.
– So, student accommodation projects may not be related to the university itself.
– Correct, although the term PBSA refers specifically to student dormitories. They receive building permits as student housing. Random people can't live there.
.jpg)
– Lockdown has changed the way we look at real estate investment. Student dormitories do not look promising largely due to the activation of online learning. Do you think that everything will be fine eventually?
– For me, the most striking indicator is the number of institutional transactions in 2020, after the start of the pandemic. Their number in Europe and the UK is slightly higher than in 2019. I don't yet take into account the iconic purchase of the iQ portfolio by the Blackstone Foundation for almost 4.7 billion pounds. When institutions invest such funds, it is clear that the sector is trustworthy.
Then in 2019, the UK adopted a program that assumes an increase in the number of international students from 480 thousand to 600 thousand by 2030. From July 1, 2021, the two-year work visa for students will be returned. Thanks to this measure British universities recorded a 23% increase in applications from China and India.
– Is the student apartment market doomed to grow?
– Absolutely. The idea of online education is popular, but I think many people can only learn in an organized environment. In addition, the university provides social connections that help you throughout your life. Finally, some professions are simply not taught online.
– How much does the investment in PBSA start with?
– The minimum threshold is 65,000 pounds (just over $92,000 at the moment).
– How to estimate the possible income? And what risks does a private investor have in this scheme?
– Determine the profitability is simple: bets in the location minus your expenses. Of course, the risk for a private investor is still higher than for those who can buy the entire hostel. In the hotel sector you can count on a part of the total profit, but here you get income from a specific room. If the occupancy rate in the region drops for some reason, there is a chance that your room will be empty.
– How can I minimize this risk?
– The occupancy rate of the segment as a whole is 100%, since in the UK there is one place in a hostel for three students, and this ratio will not change soon. Nevertheless, profitability is always a matter of location. If the university is located in the center, and the hostel is nearby, then everything is fine. But if the university is on the outskirts, then it is important to assess what dormitories there are in the area. In fact, this is the analysis we are doing.
| Property type | Student apartments | Residential real estate |
|---|---|---|
| Investment threshold | from 63,000 pounds | from 120,000 pounds |
| Net return in pounds | 6-10% | 4-6% |
| Frequency of payments | Once a trimester | Monthly |
| Delivery date | September 21/22 or secondary market | Ready made or under construction Q2 22 - Q4 24 |
| Guaranteed Return | Yes | Sometimes |
| Back option | Sometimes | No |
| Ownership of a specific object | Yes | Yes |
| Return on investment period | 5+ years | 5+ years |
| The potential for growth in the value | 1-3% per year | 2-7% per year |
| Liquidity | Medium | High |
| Passive investment | Yes | Yes |
| Compliance | Basic | Basic |
| Risk level | Medium | Low |
– There are offers in different cities. Some even have guaranteed returns. Since the investor will not live in the property, what arguments can there be in favor of a less profitable option?
– I urge you to focus on real profitability. The guarantee is a developer's tool that allows you to sell an investment product and promise income for the first years, while the hostel is being promoted. But the warranty period will end. For me, it's better to consistently get 8-9%, than three years of 10%, and then 7%.
– Which object would you choose for yourself?
– For example, Stock on Trent. There are three universities, where 25 thousand people study. There are about 4,500 seats on the campus. Private dormitories give about a thousand rooms. That is, another 19 thousand students have to rent housing somewhere, and the city is small, and there is not much to rent. As a result, the real rental rate is the same as the declared guaranteed one –about 9%. Approximately 150 pounds a week – for this price, rooms are rented in already functioning projects.
By the way, the average rate increase is 3% per year for studios and 2.6% for rooms with a private bathroom.
– You say there are many applicants for such a property. If demand is so high, why don't investors get more? What is holding back the prices?
– The alternative is residential real estate. If you raise the price, then for similar money you can already rent a house with similar characteristics. Now student apartments for the tenant are still cheaper than a regular apartment and even part of it.
– Would you call such a purchase a passive investment?
– Of course. For the period of guaranteed profitability, the owner can not even make demands on the tenants, it is up to the management company. Then you can ask the management company to make additional checks, as well as change the rental price.
Usually, a management company has one manager who communicates with all the owners. But the UK is a fairly bureaucratic country, so communication can sometimes be delayed.
– Students are not the most disciplined people. How is the issue of legal liability of tenants resolved?
– The management company is required by law to carry out minimal checks, they are universal for both residential apartments and dormitories. The specifics of the sector are the conclusion of contracts for 51 weeks a year without the right to terminate. Another week is given to the fact that the Criminal Code can make some cosmetic repairs.
Payment is made according to one of two scenarios. If the student does not have a British sponsor, he pays immediately for the entire year. If there is a guarantor, you can pay in trimesters. There are almost no very difficult cases when the tenant does not pay and does not move out. For the tenant and his guarantor, this is fraught with a damaged credit history.
If a student has problems with payment, the CC can offer an installment plan. However, this may affect the owner of the room, since utilities and land fees have not been canceled.
Finally, for a very cautious investor, there is insurance Rent Guarantee & Legal Expenses. It is issued for all types of apartments and covers all risks if the tenant becomes insolvent. In addition, all legal costs of up to 50,000 pounds are covered in order to restore income.
– And in conclusion, let's talk about the unstable world in which we live, and the risks associated with it. How is the actual verification of the buyer carried out?
– Any British company conducts the KYC (Know Your Client) procedure. To do this, you do not need a lot of documents, only a passport and proof of address. However, the registration in a foreign passport is not such a confirmation. A utility bill or a bank statement with an address will do.
As for the rigidity of compliance, we see a tendency to tighten around the world. Even in the UK a year ago, the procedure was easier, although now the documents require an extract showing the movement of funds in the account for the last three months, and an extract confirming the availability of funds to make a purchase. Also, the investor will be required to submit a questionnaire in the form of a lawyer about how the money was earned, and a certificate from the place of work indicating the amount of salary or proof of business ownership.
– Can they find fault with the status of a person?
– No, the lawyers don't even ask if you are a PEP.
– But you said that the procedure was tightened. Does this mean that if a person was allowed to buy a product a year ago, they will probably be banned now?
– No. Just more body movements to collect documents. You only need to declare the income.
