Tag Archives: alternative
UK Property Market Fragmentation Creates Room For Nimbler Investors
http://www.ft.com/cms/s/0/bf00a9dc-2ab4-11e3-8fb8-00144feab7de.html#ixzz2iRwPOhUv October 16, 2013 UK property market fragmentation creates room for nimbler investors By Ed Hammond The war of words being played out by politicians and economists over the UK housing market offers a concise explanation of the biggest issue facing the country’s commercial property market. For those looking at London, the country is in an unsustainable housing bubble, fuelled by the deep cash reserves of overseas investors. For everyone else, the market is as placid as it has been for the past five years. In the office, industrial and retail property markets, which form the backbone of many institutional investment funds, the trend is identical. London has pulled away from the rest of the country in terms of value and rental demand. So much so, that trying to analyse the national market with London at its head increasingly obscures, more than clarifies, the reality. Statistics do not always provide a clear indication of fact. Yet there is one fact that highlights the predominance of London’s property market: last year foreign investors spent more money on the city’s real estate than they did in any other European country – and more than three times the amount invested in the UK excluding London. But just as the economic slowdown caused by the financial crisis created a stark divide between London and the rest of the country, so the story of the rebound is one of increasing fragmentation. “The game has changed – the success now is coming from choosing the right [properties] in the right places, rather than taking some sort of broad investment philosophy and trying to deploy a large amount of capital,” says a principal at a leading private equity fund. The argument has been underscored by the recovery of certain sectors, such as warehouse property, which have been coveted by investors for the prospect of high rental yields. Similarly, demand has returned for out-of-town shopping centres, reflecting expectations that consumer trends will be geared more towards large malls and away from high streets. Overall, however, the picture is still bleak for most commercial property located outside London, the southeast of England and a few larger city centres. During the past 18 months, rental growth across the UK commercial property market has been flat, according to CBRE, the property consultancy. Meanwhile, capital values have declined moderately during the same period. Hans Vrensen, global head of research at DTZ, the property consultancy, says: “It is not any more a question of London and everywhere else: there are opportunities emerging in different parts of the UK, but it is very asset- and location-specific. Arguably the largest single structural change to the UK commercial property market during the past decade has been changes in the debt market “There are pockets of demand, especially from those investors for whom London has become too competitive, but they tend to be focused on single assets or small portfolio deals. A lot of parts of the country are still seeing very little interest in terms of new investment.” The fragmented market has presented opportunities to the more nimble investors, who can deploy small amounts of capital and take on more risk than the institutional investors, such as pension funds, which have traditionally dominated the property market. Private equity funds, in particular, have taken advantage of some of the opportunities outside London. For example, Blackstone of the US has been among the most active investors in the industrial sub-sector, creating a specialist logistics and warehouse property business. Arguably the largest single structural change to the UK commercial property market during the past decade has been changes in the debt market. Banks, traditionally the main sources of capital for the industry, have been pulling back their lending to property companies. The resulting gap has drawn in new debt providers, including some of Europe’s largest life assurers. The likes of Legal & General, Axa and Generali have all increased their lending to property business as a way of getting exposure to the asset class. Perhaps the worst affected area of the UK property market has been the high street. A string of high-profile retailer failures and continuing low levels of consumer confidence has wrought destruction on town centre shopping districts. One of the main issues facing the high street is that the properties tend to be owned by multiple landlords, impeding the route to a single solution. “Property owners range from major institutions, to private equity groups with multiple investors in their finite-life funds, to families, charities and private individuals,” says Stephen Barter, head of property at KPMG, the consultancy. “Each has a different ownership and investment rationale, different time horizons, different ways of making decisions, and different management behaviours.” Continue reading
Property Investors Warm Up To UK Regional Opportunities
http://www.ft.com/cm…l#ixzz2iRueiSOU October 16, 2013 11:47 Property investors warm up to UK regional opportunities By Kate Allen England’s regional commercial property markets are once again starting to gain interest from investors. Regional commercial property has been deeply unpopular as an asset class in the past few years, in sharp contrast to the boom in London. But, according to analysts, this is beginning to change. “Now might be a good time to look at the unfashionable regions,” says Mat Oakley, director of commercial research at Savills, the estate agency. “Office take-up rose in the first half of 2013 across the majority of [English] cities and availability is falling. The proportion of investment that is outside London also rose in the first half of 2013.” Take-up in the first half of 2013 is nearly a quarter higher than the long-term average, according to CBRE, the commercial property group, with more than 3.8m square feet acquired by occupiers. Adrian McStay, CBRE national team managing director, says that Leeds, Manchester and Bristol have fared particularly well. “Since March we’ve seen a good uptick in both occupation and investment. Big corporate [tenants] have strong balance sheets and are now looking at their real estate strategies,” he says. We have seen a real move out into the regions, not just by UK money but also overseas investment. Two years ago you couldn’t even find a buyer for some regional offices. – John Slade, BNP Paribas Real Estate chief executive There are three main reasons for investors’ change of heart towards the regions. First, the UK’s economy has begun to claw its way back to growth this year, rising 0.7 per cent in the first half, which is feeding through to demand for office space. Intense competition among investors in the London market is also pushing demand outwards in a search for other opportunities. Third, supply is falling as new development remains frozen. As a result, yields are beginning to fall. According to BNP Paribas Real Estate, prime regional office yields have dropped to 5.75 per cent from 6.75 per cent at the start of this year. “At the start of the year we forecast investment starting to flow into the regions and that is now happening,” said John Slade, BNP Paribas Real Estate chief executive. “We have seen a real move out into the regions, not just by UK money but also overseas investment. Two years ago you couldn’t even find a buyer for some regional offices. The market picked up last year and now yields are falling and are under pressure to fall further.” Darren Yates, partner at Knight Frank, the estate agency, agrees “locations outside central London are now on the radar of international investors”. He cites Manchester and Leeds as being particularly well-placed “due to their very diverse commercial base”. By contrast, Liverpool and Sheffield are seeing less demand, he says, noting that the economies of these two cities are more reliant on a public sector that is facing spending cuts. “We will see yield compression in the next six to 12 months, and the prospect of rental growth in the medium term, perhaps as early as next year,” Mr Yates says. Perhaps most crucially for future prospects, supply remains subdued, with little new space under construction other than in parts of southeast England, which is strongly influenced by the London market. Figures from IPD, the property value benchmarking group, show that the likes of Cambridge, Guildford and Brighton are doing particularly well – partly thanks to their proximity to the capital. Just six speculative office developments are planned for completion in the next two years, according to Knight Frank, all of which are in Manchester, Glasgow or Bristol. The developments will deliver less than 1m square feet of space between them. Manchester is the only regional city to have more than 200,000 sq ft of new space under construction. Rising demand in recent months has eroded an overhang of supply left empty since the start of the financial downturn. So much so that Mr McStay is now forecasting a supply crunch within two years. “In most places there has been no new development at all since 2007. Most cities now have less than 500,000 square feet remaining. That is a problem – you just need one or two big occupiers to come along and that takes up all the available space.” Developers have started to respond. Mr McStay cites schemes in Bristol and Glasgow as the first new supply of the most prized and sought-after “Grade A” space in six years. But the time lag between starting a new development and tenants moving in means that more needs to be done. “Construction takes a minimum of two years, and it can take three to four years depending on . . . planning permission,” he says. There are also still reason for investors to be cautious. While high-quality property is in demand, most regional cities still have some unwanted poorer-quality stock that is unpopular with both occupiers and investors. Birmingham has perhaps the greatest oversupply of office space, according to data from Jones Lang LaSalle, the property group. Its vacancy rate of about 16 per cent is the highest of the UK’s major regional cities, with 3m sq ft remaining empty. “There is a lot of second-hand stock that is almost obsolete,” says Mr McStay. This situation could be eased in the coming months by forthcoming changes to planning laws, which would permit empty office buildings to be converted into housing. Some experts predict that this could help to erode the remaining volumes of secondary- and tertiary-quality stock sitting empty in many English cities. Continue reading
How To . . . Minimise Inheritance Tax
http://www.ft.com/cm…l#ixzz2hyRHU65O By Lucy Warwick-Ching Few taxes are quite as emotive – or as politicised – as inheritance tax (IHT). In 2007, George Osborne, the chancellor, promised he would “take the family home out of inheritance tax” by increasing the nil-rate band to £1m. He was promptly accused of “betraying ordinary families”. But as property prices rise, so too do receipts – the Treasury expects to collect £3.3bn in the 2013/14 tax year. And far from increasing, the nil-rate band is set to remain frozen at £325,000 until 2018. IHT is payable at 40 per cent on the value of an estate over that tax-free nil-rate band. However, according to unbiased.co.uk, more than £472m could be saved each year through careful IHT planning. FT Money explains how to cut the amount you pay to HM Revenue & Customs (HMRC). ——————————————- Make a will This is the first step toward avoiding IHT. “If you die without making a will, known as dying intestate, your assets are distributed according to statutory rules and this may result in a higher IHT bill than might otherwise arise. Plus, the intestacy rules might not fulfil your actual wishes,” says Julia Rosenbloom, an associate tax director with Smith & Williamson, the accountancy and investment management group. “With thoughtful tax planning you can pass on assets to family members more effectively,” she says. www.willwriters.com www.ipw.org.uk ——————————————- Transfer your assets Andrew Cameron, a private client lawyer and partner at Charles Russell, says all transfers between married couples and civil partners are exempt from inheritance tax. In terms of transfer to other people, any amount can be transferred or given away free of tax provided the donor survives for another seven years. However, it is important to note that the person giving the assets away cannot retain any interest in the assets. For example, if you give your house to your children, but continue to live there without paying a market rent, then the house will remain in your estate for IHT purposes. Also, keeping proper records of transfers is essential. www.charlesrussell.co.uk ——————————————- Donate to charity Since April 2012, estates that leave 10 per cent or more of their total assets to charity pay a reduced 36 per cent IHT on the remainder of the threshold. “The savings on the tax can fund the charitable donation so this could be particularly worthwhile if you want to make charitable donations anyway,” says Ms Rosenbloom. www.cafonline.org/legacies ——————————————- Set up a trust If you want to make a gift for tax planning purposes but do not want the beneficiaries to have the asset now, you could use a trust. Once the gift is made, any future growth is regarded as outside the estate for tax purposes. There are two main types of trust. Discretionary trusts are governed by trustees, whereas fixed trusts allow one or more people to receive the income, but the capital is held in the trust. In either case, you may like to leave a non-binding letter of wishes to your trustees, explaining how you would like them to exercise their powers. You can gift assets, including cash, property, or shares, worth up to the £325,000 IHT threshold through a trust without any tax charge. You can gift more than this, but you will pay a 20 per cent charge on the amount above the IHT when you establish the trust and a periodic charge of 6 per cent on all assets above the IHT threshold every 10 years. The trust fund may be subject to IHT when the initial capital is transferred out. This exit charge is based on the rate of IHT paid at the last periodic charge, the time elapsed since the last periodic charge and the amount being distributed from the trust. Solicitors can usually set up a trust; the cost is generally between £1000 and £5000, depending on complexity. www.smith.williamson.co.uk ——————————————- Use business property relief Investments in unquoted companies are exempt from IHT if you hold on to the shares for at least two years, under Business Property Relief (BPR). Companies listed on the Alternative Investment Market (Aim), also qualify for BPR, as do investments in companies that qualify as enterprise investment schemes (EIS). EIS investments allow you to invest up to £1m a year and you can carry forward the previous year’s unused allowance. You get 30 per cent income tax relief but any dividends are not sheltered from tax. Significantly, there is 100 per cent inheritance tax relief after two years, provided the investments are still held at the time of death. FT Money Show Relief at last for annuity buyers as gilt yields inch higher. Are emerging markets worth the extra risk? And how to minimise the impact of inheritance tax. Click here to download the FT Money Show podcast Ms Rosenbloom also says agricultural land which is rented out can become IHT-free after seven years and could be IHT-free after two years if you farm the land. If land and property cease to be used for agricultural purposes, agricultural property relief will no longer be available. If the new activity represents a business in its own right, then business property relief may be available instead, but this relief may not extend to the farmhouse. Where the new activity generates investment income rather than business income – this would include renting a farm cottage or leasing land for solar power, then both agricultural property relief and business property relief could be lost. www.hmrc.gov.uk/inheritancetax ——————————————- Death benefits Lump sums paid from pension plans upon death are normally exempt from IHT. However, it is important that they are not simply paid directly to a surviving partner otherwise the funds will become taxable on the second death. Ms Rosenbloom also makes the point that if you are wounded in military service and this contributes to your death then your estate may become IHT-free. www.hmrc.gov.uk/pensioners/passing-tax.htm ——————————————- Don’t wait until you die The easiest way to reduce your estate for IHT purposes is to make regular gifts during your lifetime. There is an annual “small gifts allowance” of £250, which you can pay to as many people as you like without triggering an IHT charge. A larger annual gift allowance of £3,000 is also available, and you can make one-off tax-free wedding gifts of £5,000 to your children (£2,500 to grandchildren). You can make further regular contributions from excess income. This is defined as any earnings that are not used for living expenses and would not cause a detriment to your standard of living if you gave it away. But you must be able to prove to HM Revenue & Customs that you have “spare” income above your needs. You can give more than the annual limits mentioned above, but you must then survive for at least another seven years for such gifts to be IHT exempt. If you die within this time, your descendants have to pay IHT on a sliding scale: 40 per cent if you die within the first three years, down to 8 per cent if you die after six years. Continue reading
