An opportunistic purchase in Byfleet, South-East England
This transaction is unusual, and plays to our strengths as a cash buyer with deep market knowledge.
It’s a leasehold property where the building’s freeholder (an investor) is going through bankruptcy proceedings.
The resolution is ultimately a simple one: the freehold title will likely be sold by the administrator, who is acting on behalf of a bank. There’s an established market for freehold interests, and our Director of Property has deep experience in it – including the subset of distress sales (being the former Global Director of Residential Property at RBS).
However, administrative proceedings involving a bank can be drawn out and take several years. In the meantime, no one can secure a mortgage to buy any of the leasehold properties in that block.
‘Would be’ sellers of individual flats therefore face the difficult position of continuing to hold the asset, for what could be several years, or accept a reduced price from a narrow market, i.e. cash buyers with an appetite for legal complexity.
The flat was previously tenanted, and the landlord now lives far from London. Having failed to sell the property at auction, owing to the legal complexity involved, we were able to negotiate a 20% discount relative to the RICS certified Vacant Possession value – paying £204,540 instead of £255,000 (valuation available via the property’s ‘Reports’ tab).
Once the freehold situation is resolved, Property Partner investors will benefit from the uplift in value. In the meantime, the property will be rented to tenants at an open market rate – achieving a Gross Rental Yield of 6.5% owing to the capital discount achieved. This is unusually attractive for a property inside the M25.
We’re also strongly positive on Byfleet as an area, seeing the investment case underpinned by two further factors:
- A highly favourable location: set within one of the three ‘major wealth corridors’ running out of London, benefiting from Londoners relocating to the regions. Byfleet is only 28 minutes by train to London Waterloo, and also has good access to Heathrow and Gatwick airports.
- Strong five year capital growth forecasts for the South-East of England. The forecasts are +26.4% and +23.4% in recent reports from Savills and Knight Frank’s highly regarded research teams. We expect outperformance relative to these forecasts owing to the capital discount secured.
These points are discussed further below, or you can go directly to the property by clicking here.
Byfleet’s highly favourable location
London buyers have tended to move out along three ‘major wealth corridors’:
- South-West following the Thames into Surrey
- North via Hampstead into Hertfordshire
- South-East from Dulwich into Kent
Our Byfleet property is set within the first of these corridors, in Surrey.
The number of commuters buying in these areas is growing. 26% of sales in the ‘major wealth corridors’ were to commuters in 2014, up from 21% the previous year. This growth in demand from commuter residents is a contributing force driving capital and rental values in these areas.
Byfleet is well connected. The train journey from there to London Waterloo takes just 28 minutes. The M25, London’s orbital motorway, is just a few minutes’ drive away, giving easy access to the rest of London and the Home Counties. Byfleet is just 20 minutes’ drive from Heathrow Airport and 31 minutes from Gatwick Airport (the times don’t account for traffic). Both airports are major employment hubs.
Growth in local GDP is seen as a key driver of price growth in residential property. With its transport connections, Byfleet stands to benefit not only from local GDP, but the GDP of London and the economic activity generated by its airports.
Strong capital growth forecasts for the South-East of England
London’s population is growing at 40,000 households a year, yet its housing stock has only been growing at 25,000 a year over the last two years (and no more than that over the last 30 years). This data comes from Boris Johnson’s draft London Housing Strategy for 2014.
The implication is that London cannot house its growing population – which is resulting in emigration from the city and an increasing number of people choosing to commute from the surrounding areas instead. Lower house prices in these areas are a key motivation: the average price of a house in Surrey is £359k, 30% lower than the £465k average of Greater London (source: Land Registry).
This “ripple effect” is a major reason for the strong capital growth forecasts for South-East England: +26.4% and +23.4% for 2015-2019 in recent research from Savills and Knight Frank respectively. Both research teams are well-regarded in the industry and forecast South-East England as one of the top two regions nationally for growth.
The value of your investment can go down as well as up. Gross Rent and Dividends may be lower than estimated. You may have to wait until the next five year anniversary of the property’s listing on the Property Partner platform for an exit event. See Key Risks for further information. Property Partner does not provide investment advice and any general information is provided to help you make your own informed decisions. If you are unsure whether an investment is suitable for you, you should contact a financial adviser for advice. This financial promotion is made by London House Exchange Limited trading as Property Partner™, which is authorised and regulated by the Financial Conduct Authority (firm reference number 613499).