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How can short-term investors make money in today’s property market?

External pressures are converging to force a rethink of how property can work as an effective investment asset. But with the right approach there are still strong returns to be found.

As one of the major asset classes alongside cash, shares and bonds, property has typically delivered strong income, diversification and yields relative to other investments. However, the world of property investment is fast moving and ever changing, forcing sophisticated investors to rethink paths to profitability.

Identifying the pitfalls in traditional property investment models can help to synthesise an alternative approach.

Pinpointing the pitfalls: Buy-to-let

Probably the best-known approach to property investing is buy-to-let. For over two decades, buying a property to rent out was viewed as a relatively straightforward investment model, with landlords reaping the benefits of both capital growth and significant monthly income.

However, the buy-to-let landscape has changed considerably in recent years, with landlordshit by a range of additional costs and new regulation, including:

  • The 2016 introduction of a 3% stamp duty surcharge on second homes[1]
  • The tapered reduction of mortgage interest tax relief, to the basic rate of 20% for all landlords by 2020[2]
  • Tighter regulation of buy-let-mortgages and stricter eligibility criteria
  • The threat of interest rate increases affecting mortgage affordability

These factors, added to the everyday practicalities and costs of maintaining properties and recruiting and managing tenants, have led many landlords to cut their losses and exit buy-to-let for good.

Pinpointing the pitfalls: Property funds and unit trusts

One alternative to buying a rental property, which has risen in popularity with private investors over recent years, is to invest in a property fund or trust.

Many property funds are unit trusts or open-ended investment companies (OEICs). Known as ‘collective investments’, these pool your capital with that of other investors to invest it in a basket of property of assets.

Investing in a fund or trust has advantages. They are a relatively liquid asset and the minimum investment threshold is low. However, investors need to bear in mind that:

  • Transparency can be limited in terms of knowing what properties you are invested in
  • The value of trusts listed on the stock market can fall or rise as a result of wider market and macroeconomic factors
  • Actively managed funds typically attract fees which can eat into your overall profits
Pinpointing the pitfalls: Self-managed property development

A third option, which peaked in popularity during the last property boom, is to buy an individual property to renovate and resell.

For the entrepreneurial spirit this approach can be very appealing. However, for the serious investor looking for strong returns rather than aiming to indulge their grand designs, there are some clear reasons for caution:

  • Fixed costs include estate agent, solicitor, architect and surveyor fees
  • Stamp Duty Land Tax is payable on the initial purchase*
  • If building work is delayed or a property takes time to sell, additional mortgage payments can quickly eat into profits
  • Suitable properties with the potential to add value can be hard to source
  • Project managing building work effectively involves both expertise and detachment
  • Construction costs can escalate due to increases in the cost of building materials or labour
A better path to profitability: Investing via private equity and mezzanine loans

Our unique platform connects investors with high-quality property development opportunities that were previously only accessible to ultra-high net worth investors. It allows investors the freedom to pick and choose the projects that best fit their investment requirements and to build a diverse property investment portfolio. We do this by offering investors who qualify two distinct investment vehicles:

Private Equity: Our investors collectively take an equity stake in a property development through a Joint Venture Agreement (JVA) with the developer and share any profits with them upon exit (typically a 50/50 split). The investment is secured against the title deeds of the property, backed up by a personal guarantee from the developer. Cogress ensures the JVA includes clauses specifically inserted to mitigate investor risk. The approach is exit-orientated, so timeframes are typically 18 months to three years from initial investment to cashing out. Expected returns are 15-20% p.a.

Mezzanine Debt: Our investors collectively provide funding in the form of a Mezzanine loan to the developer. Investment returns on the project take the form of interest on the loan plus an agreed share of the profits.The investment is secured with a second or third charge against a property, alongside a personal guarantee from the developer. Returns of 12-18% p.a. are expected from this approach, with an 18-month to 3-year timeframe for exit.

A More Evolved Approach

Cogress are at the forefront of this more evolved approach to property development investing. With investment starting at £20,000 and new property development projects launching every month, our registered investors can pick and choose those projects that best fit their investment requirements to build a diverse property investment portfolio via either private equity investing or financing mezzanine loans to developers. There are four key ways in which Cogress differs from a basic partnership or crowdfunding model:

  • Thorough and meticulous due diligence including analysis of line-by-line costs, risks, saleability and market comparables;
  • Underwriting of every project by Cogress to ensure all financial and investment prerequisites are met for commencement – we fulfil any shortfall in fundraising to guarantee the development goes ahead as planned;
  • Ongoing portfolio management including monthly site visits and quarterly reporting to investors;
  • Absolute transparency and clarity provided to investors on every aspect of the investment process and on each stage of every property development.
Find out more

To find out more about the Cogress approach to property investing, explore the How it works pages of our website, or get in touch with our Investor Relations Team.

*From 1 April 2016, you’ll have had to pay an extra 3% on top of each Stamp Duty band when you buy an additional home or a residential buy-to-let property.

[1] UK Government, ‘Higher Rates Of Stamp Duty Land Tax (SDLT) On Purchases Of Additional Residential Properties’, UK Government, 16 March 2016. Available at: https://www.gov.uk/government/consultations/consultation-on-higher-rates-of-stamp-duty-land-tax-sdlt-on-purchases-of-additional-residential-properties/higher-rates-of-stamp-duty-land-tax-sdlt-on-purchases-of-additional-residential-properties

[2] UK Government, ‘Restricting Finance Cost Relief For Individual Landlords’, UK Government, 6 February 2017. Available at: https://www.gov.uk/government/publications/restricting-finance-cost-relief-for-individual-landlords/restricting-finance-cost-relief-for-individual-landlords

[1] John Pye Auctions,‘Lifting The Lid On Key Property Market Insights’, John Pye Auctions, 30 May 2018. Available at: http://www.johnpye.co.uk/property-market-insights/

[2] Mark Ivimy, ‘12 Months To Go: Brexit And The UK’s Defiant Housing Market’, Prinvest UK, 12 April 2018. Available at: https://prinvest.uk/property-market/8694/12-months-to-go-brexit-and-the-uk-s-defiant-housing-market

[3] Dr Walter Boettcher,‘Brexit Property Impacts: A Summary By Sector’, Colliers International, September 2018. Available at: http://www.colliers.com/-/media/files/emea/uk/research/market-overview/colliers_international_brexit_property_impacts_0918.pdf?la=en-GB

[4] Largemortgageloans.com, ‘Two Years On, How Are The UK’s Stamp Duty Tax Changes Continuing To Affect Buy To Let Landlords’, Largemortgageloans.com, 20 March 2018. Available at: https://www.largemortgageloans.com/two-years-on-how-are-the-uks-stamp-duty-tax-changes-continuing-to-affect-buy-to-let-landlords/

[5] Nishant Kumar,‘London Luxury Homes Face New Hit As UK Plans Foreign Buyer Tax’, Bloomberg, 1 October 2018. Available at: https://www.bloomberg.com/news/articles/2018-09-30/may-plans-to-hike-u-k-property-tax-for-foreign-home-buyers

[6] PWC, ‘UK Economic Outlook July 2018 – Prospects For The Housing Market And The Impact Of AI On Jobs’, PWC, July 2018. Available at: https://www.pwc.co.uk/services/economics-policy/insights/uk-economic-outlook/july-18.html

[7] CBRE, ‘Global Investor Intentions Survey 2018’, CBRE, 15 March 2018. Available at: https://www.cbre.com/research-and-reports/Global-Investor-Intentions-Survey-2018

[8] Mark Ivimy, ‘12 Months To Go: Brexit And The UK’s Defiant Housing Market’, Prinvest UK, 12 April 2018. Available at: https://prinvest.uk/property-market/8694/12-months-to-go-brexit-and-the-uk-s-defiant-housing-market

[9] GIHLondon Property Investment, ‘Outlook On UK Property Prices In 2019’, GIHLondon Property Investment, November 13 2017. Available at: https://prinvest.uk/property-market/8694/12-months-to-go-brexit-and-the-uk-s-defiant-housing-market

[10] Julia Kollewe,‘Northern England House Prices To Rise At Faster Rate Than London’,The Guardian, November 2 2018. Available at: https://www.theguardian.com/business/2018/nov/02/northern-england-house-prices-to-rise-at-faster-rate-than-london

What type of investor are you?
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Always seek independent advice. This blog has not been approved as a financial promotion by Cogress Limited. We are not responsible for the content of external websites. Potential investors must rely on their own due diligence prior to investing.

The post How can short-term investors make money in today’s property market? appeared first on Cogress Ltd.

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Property market uncertainty: investment challenge or opportunity?

Political uncertainty, higher taxation and stricter lending criteria are causing disquiet in the UK property market. But behind the headlines lies a strong rationale for the right investment model.

A cursory glance at media coverage might give the impression that the UK housing market is struggling. But property remains one of the key pillars of investment with good reason.

Armed with a proper understanding of both the challenges and the opportunities, informed investors can still use property investment to generate strong returns.

Causes of concern

In a recent survey of property professionals, some 38% of respondents cited uncertainty around Brexit as the biggest challenge affecting the sector. A further 24% pointed to higher taxation, while stricter lending criteria was a concern for 17% of those surveyed.[1]

Despite this, 60% agreed that there is a greater range of property investment opportunities available now compared to five years ago.

Brexit effects

The UK’s divorce from the EU creates a range of scenarios for exchange rates, interest rates, economic growth and wealth generation.

However, the market impact of Brexit has been far more subdued than many commentators predicted, and post-Brexit it’s reasonable to expect the market to bounce back. As Mark Ivimy, Business Development Director, Prinvest UK, comments: “Once Brexit concludes, in whatever fashion it takes, the fundamentals of the property cycle – supply and demand – will continue to work unabated, with low levels of stock continuing to support house price growth.”[2]

Research indicates that Brexit has affected the mass market through both supply-side impacts (such as increased costs for building materials and labour shortages) and demand-side issues (including stagnated real wage growth and affordability constraints).[3]

Policy impacts

A range of government policies has actively sought to cool the market. These have included non-dom taxation, stamp duty revisions, inheritance tax reforms, unexplained wealth orders and a clampdown on offshore structures.

It’s been over two years since the Government increased the amount of Stamp Duty Land Tax (SDLT) buyers need to pay on second homes, adding 3% over the standard rates. Data suggests that landlord purchases have remained low ever since, but, as expected, first-time buyer mortgages have increased.[4]

Since September 2017, mortgage providers have had to adhere to a more rigid lending process for clients seeking a second mortgage. Investors unable to prove they can make the monthly repayments may find it harder to secure a good deal.

Meanwhile, in October 2018, Prime Minister Theresa May announced plans to impose a 3% stamp duty surcharge on foreign buyers of UK properties who do not pay UK tax (overseas buyers account for roughly half of all residential transactions in central London).[5]

Optimistic outlook

However, despite these issues the UK property market remains resilient. In its UK Economic Outlook released in July 2018, PWC predicted house price growth in most regions. Even London, where it projects house prices could drop by nearly 2% overall in 2018 compared to 2017, was expected to pick up in the medium term.[6]

Meanwhile, real estate services firm CBRE’s 2018 Global Investor Intentions Survey found that investors planned more purchases in 2018 than in 2017, reversing a three-year trend in the other direction.[7] Looking further forward, both Savills and Knight Frank predict double-digit house price and rental growth over the next five years, having made their forecasts in 2017 when the UK’s future was arguably at its most obscured.[8]

More recently, property prices have slowed as an outcome of Brexit negotiations but property values in all British regions will still rise above this year’s numbers by 2019, according to a number of the UK’s biggest property developers. They predict that property prices will rise by 1.5% across the region this year. The end of the year looks more positive with an estimated 2% added price increase as well as 3% more by the end of 2019.[9] Also, estate agents Savills said on November 2, 2018, that it expects house prices across the UK to climb by 14.8% on average between 2019 and 2023. This increase would add about £32,000 to the average house price by the end of 2023, taking it to £248,086.[10]

Making the most of market uncertainty

In any market, the balance of demand and supply will determine whether prices rise or fall. With ongoing uncertainty impacting the level of new property development but demand for the right kind of properties remaining high, there are clearly opportunities for the savvy investor.

Several elements are key to successful property investment in the current environment:

  • A deep understanding of local markets to identify hotspots and undervalued development opportunities
  • Rigorous analysis of costs, risks and saleability
  • Careful management of projects to ensure timely completion
At Cogress we have built a refined property development investment model around these factors, giving high net worth or sophisticated investors the opportunity to invest in high-value, high-end developments that have been carefully chosen to address specific, localised demand.

With the approval of the UK financial services industry regulator, our thorough due diligence processes are combined with our underwriting and careful monitoring of projects. Taking an exit-oriented approach, we target returns of 12-20% p.a. within time frames of 18-36 months from agreement to project completion.

Find out more

To find out more about the Cogress approach to property investing, explore the How it works pages of our website, or get in touch with our Investor Relations Team.

[1] John Pye Auctions,‘Lifting The Lid On Key Property Market Insights’, John Pye Auctions, 30 May 2018. Available at: http://www.johnpye.co.uk/property-market-insights/

[2] Mark Ivimy, ‘12 Months To Go: Brexit And The UK’s Defiant Housing Market’, Prinvest UK, 12 April 2018. Available at: https://prinvest.uk/property-market/8694/12-months-to-go-brexit-and-the-uk-s-defiant-housing-market

[3] Dr Walter Boettcher,‘Brexit Property Impacts: A Summary By Sector’, Colliers International, September 2018. Available at: http://www.colliers.com/-/media/files/emea/uk/research/market-overview/colliers_international_brexit_property_impacts_0918.pdf?la=en-GB

[4] Largemortgageloans.com, ‘Two Years On, How Are The UK’s Stamp Duty Tax Changes Continuing To Affect Buy To Let Landlords’, Largemortgageloans.com, 20 March 2018. Available at: https://www.largemortgageloans.com/two-years-on-how-are-the-uks-stamp-duty-tax-changes-continuing-to-affect-buy-to-let-landlords/

[5] Nishant Kumar,‘London Luxury Homes Face New Hit As UK Plans Foreign Buyer Tax’, Bloomberg, 1 October 2018. Available at: https://www.bloomberg.com/news/articles/2018-09-30/may-plans-to-hike-u-k-property-tax-for-foreign-home-buyers

[6] PWC, ‘UK Economic Outlook July 2018 – Prospects For The Housing Market And The Impact Of AI On Jobs’, PWC, July 2018. Available at: https://www.pwc.co.uk/services/economics-policy/insights/uk-economic-outlook/july-18.html

[7] CBRE, ‘Global Investor Intentions Survey 2018’, CBRE, 15 March 2018. Available at: https://www.cbre.com/research-and-reports/Global-Investor-Intentions-Survey-2018

[8] Mark Ivimy, ‘12 Months To Go: Brexit And The UK’s Defiant Housing Market’, Prinvest UK, 12 April 2018. Available at: https://prinvest.uk/property-market/8694/12-months-to-go-brexit-and-the-uk-s-defiant-housing-market

[9] GIHLondon Property Investment, ‘Outlook On UK Property Prices In 2019’, GIHLondon Property Investment, November 13 2017. Available at: https://prinvest.uk/property-market/8694/12-months-to-go-brexit-and-the-uk-s-defiant-housing-market

[10] Julia Kollewe,‘Northern England House Prices To Rise At Faster Rate Than London’,The Guardian, November 2 2018. Available at: https://www.theguardian.com/business/2018/nov/02/northern-england-house-prices-to-rise-at-faster-rate-than-london

What type of investor are you?
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Always seek independent advice. This blog has not been approved as a financial promotion by Cogress Limited. We are not responsible for the content of external websites. Potential investors must rely on their own due diligence prior to investing.

The post Property market uncertainty: investment challenge or opportunity? appeared first on Cogress Ltd.

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Cogress Video Interviews
Lord Mendelsohn, Member of the Cogress’ Advisory Board discusses the current state of the UK property market and the key factors resulting from the triggering of Article 50.
Interview with Lord Mendelsohn - YouTube
In your opinion, what will be the key factors resulting from the triggering of Article 50 that could affect London House prices?

The main issue affecting the house prices in relation to Brexit has really been around uncertainty and that’s our biggest problem. Most of the major changes to the position of property in London are the costs that relate to the tax changes that the government has brought in which is heavily taxed property its also being the issue about house building, supply and demand and where there has been limiting supply and sometimes an over demand at certain times. But in Europe the main issue is the uncertainty that has brought on the concern about investment in London, but that has always been tempered by the fact that London is a very strong investment bet and we have seen that in the market we have seen some resilience in the market as a result of it. Brexit in an of itself is not a cause for any concern about the property market but uncertainty is always a drag and has a debilitating impact on prices.

What will the government be doing to ensure that demand for living and working in London will at least remain at current levels and if not increase?

The impact of people’s willingness to live and work in London as a result of Brexit and the obvious concerns that some people have particularly the EU citizens who are residents here is the major concern about the condition of the London economy it’s overall impact on house prices is not clear and is not clear how strong it is. But obviously within the context to the Brexit negotiations, the rights of the EU citizens in Britain and of British citizens in Europe is a key factor and of course one would hope that a less dryer and some accommodating view was taken to make sure that we will be able to have arrangements that would satisfy both and would give special terms to both almost as a form of continuation of where we are. Whether or not that is a realistic prospect to expect in the negotiations remain as to be seen and the indicators are not as optimistic as some would like. But that’s the way in which we can make sure we can guarantee a strong base for London and a stronger appeal to EU citizens.

With the devaluation of Sterling helping to buy Foreign investment into London, how will the government ensure that foreign funds continue to see the London property market as a safe haven for their investment?

The position of foreign investment in London is a very interesting story we are actually starting to see increasing foreign investment across the United Kingdom in the south-east, in other cities like Manchester and even Liverpool. Factors which haven’t really been as strong historically as they are at this moment and that’s because continually and partially because of the drop in the value of Sterling investors still see a major opportunity in holding asset and holding property both on an income basis and on an asset basis that the UK remains very solid and very strong. There is of course some areas in London where there has been an over-supply and some development and I would say that areas like Nine Elms are where there is a great risk and we have seen a real chill in overseas investments in those sorts of areas but the general story of property in the UK is that foreign investment still remains very very strong and that has been strengthened by Sterling.

This interview has not been approved as a financial promotion by Cogress Limited. Potential investors must rely on their own due diligence prior to investing.

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Meet the People Behind Cogress: The Market Analysis Team
In this blog series, we’re going behind-the-scenes to introduce you to our fantastic colleagues, the people responsible for Cogress’s fast-growth and continued success. Today, we’re meeting the Market Analysis Team. What do the Market Analysis Team do?

Every project we present to our investors is rigorously assessed by the Market Analysis Team. These guys are responsible for performing the due diligence and financial analysis on each and every development project we consider. And it’s no easy feat passing their testing. In fact, only one-in-30 developments they consider make the cut.

Meet the Team

The Market Analysis Team is led by Daniel Levene, who joined us from Management Consultancy Accenture, where he spent 8 years working within their Capital Markets practice. Avi Miller (who was off when we took the team picture!) and Cain McKinnon make up the remaining two thirds of our Market Analysts. Cain hails from a development and REIT background, and Avi is our in-house whizz when it comes to financial analysis and modelling.

What do you like most about working for Cogress?

Daniel: My job is particularly varied with no two days are the same. I work alongside exceptional teams, both within Cogress and amongst the developers we fund.

Cain: I love the people and the process. It is great being part of a team dedicated to delivering ‘Best in Class’ analysis on some really interesting projects within the UK. Our diverse backgrounds and shared love of property makes this a really great environment to work in.

Avi: I enjoy analyzing and modelling new development projects in particular, and we see a lot of them at Cogress! We deal with a lot of different asset classes, and the amount of variety in my work keeps it really interesting.

What is the most challenging part of your role?

Daniel: Many investors come to Cogress to quickly build a diversified property investment portfolio. To enable this diversification, we have to offer a wide range of investment opportunities; ranging from student accommodation to retirement communities to commercial investments. This breadth coupled with the analytical depth that we demand can be particularly challenging, but equally rewarding.

How do you make a difference to investors?

Daniel: We appraise each aspect of the deal to understand all the potential risks, quantify them and attempt to mitigate them where possible. It is our job to inform the investment committee of these risks and ensure that, where the risks are too great, those deals aren’t pursued. We consider ourselves our investors’ front-line of defence.

Want to find out more about Cogress investment opportunities? Sign up below and a member of the IRM Team will be in touch soon.

Not sure what an IRM is?! Click here and get to know our Investor Relations Team.

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Always seek independent advice. This blog has not been approved as a financial promotion by Cogress Limited. We are not responsible for the content of external websites. Potential investors must rely on their own due diligence prior to investing.

Related articles

The post Meet the People Behind Cogress: The Market Analysis Team appeared first on Cogress Ltd.

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Meet the People Behind Cogress: The Investor Relations Team
In this blog series, we’re going behind-the-scenes to introduce you to our fantastic colleagues, the people responsible for Cogress’s fast-growth and continued success. Today, we’re meeting the Investor Relations Team. What do the Investor Relations Team do?

From your first enquiry with Cogress right the way through to exiting on your investment, you’ll always deal with the same Investor Relations Manager (IRM). These guys are your dedicated contact and are on hand to answer any questions you have about Cogress or your investments. They’ll let you know about new investment opportunities when they launch, keep you up-to-date on the progress of your current investments and make sure you’re invited to all of our exclusive Investor Club events.

Meet the team

The IRMs are led by our Investor Relations Director, Rachel Stark. The team is made up of Liron Hadar, Barney Joyce, Simon Brown, Emma Huberman and April Thomas (pictured above). They come from a variety of backgrounds; we’ve got individuals with expertise in asset management, commercial strategy, residential property, law, and estate agency on the team. Whatever their background, they’re all committed to the same goal: ensuring every Cogress investor receives the very best customer service.

What do you like most about working for Cogress?

Rachel: Every day is different – it keeps me on my toes!

Simon: I most like the product which in turn leads to building relationships with some really interesting people. After my first meeting with Cogress I was amazed to see the variety of schemes that they had delivered to date and was keen to be a part of it. Two years later, I know I made the right decision.

April: The diversity! Each month Cogress launch a new development so I can offer our investors a variety of exciting opportunities across the UK. 

What is the most challenging part of your role?

Liron: Educating investors about Cogress. We are still a relatively new player in a market that is inundated with crowd funding platforms. But Cogress offers something different — in terms of the product, the transparency and the end-to-end proposition – as IRMs, we work very hard to get that message out there.

April: Balancing my time. As an Investor Relations Manager I need to be fully informed on all aspects of the investments. This includes liaising with the Analyst Team and Monitoring Team, as well as our Finance experts ensuring we are constantly updated. Providing this conscientious and very personal service keeps me pretty busy and I am hugely grateful that I have such a professional, enthusiastic and co-operative team around me. For me, communication is the key!

How do you make a difference to investors?

Barney: By always being available to discuss opportunities and ongoing projects, and ensuring all our communications are transparent, honest and informative.

Rachel: We provide investors with investment opportunities that they are unlikely to find elsewhere. And we provide them with the information they need to make an informed investment decision – whether that’s by providing very detailed, clear and transparent business plans or by having a dedicated Investor Relations Manager who is always available to them on the end of the phone or face-to-face to answer any questions

What do you think is the most important part of your role?

Liron: I believe in building relationships with my investors and, as a Senior Investor Relations Manager, it is my role to make sure my investors are fully briefed on our investments and have all the information they need to make an informed decision.

Emma: To bring to life the investment presentations and reports we send to investors, and to always be available to answer individual questions and providing a personal service to each investor. I’m always delighted to undertake extra research if an investor is interested in a particular element of a project or comes with a question that we haven’t been asked before.

Want to find out more about Cogress investment opportunities? Sign up below and a member of the IRM Team will be in touch soon.

What type of investor are you?
[contact-form-7]

Always seek independent advice. This blog has not been approved as a financial promotion by Cogress Limited. We are not responsible for the content of external websites. Potential investors must rely on their own due diligence prior to investing.

Related articles
Avi Miller2018-08-24T14:55:47+00:00What Would A No-Deal Brexit Mean for UK Property?
Tal Orly2018-07-24T17:13:57+00:00Playing Politics with Housebuilding

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What Would A No-Deal Brexit Mean for UK Property?

Last week the UK government revealed 84 sectors which it identified as ‘at risk’ in the event of a no-deal Brexit. An illuminating glimpse into the reality of the Brexit negotiations, the list featured a couple of curve balls, with Financial Services making a surprise appearance while Construction wasn’t featured – a positive sign for our industry. The first batch of the ‘impact papers’ are due today and are expected to detail the immediate government actions in the event of a no-deal Brexit for key areas such as the NHS, Financial Services and the Erasmus scheme.

The exclusion of the UK property sector — and Construction in particular — was a surprise to many. Recent findings by the Construction Industry Training Board (CITB) suggest that one-in-three construction firms are already suffering [1]. Our own in-house research, undertaken following Mark Carney’s frank warning that the Bank of England was modelling possible no-deal Brexit scenarios, had suggested that the Construction Industry could struggle if the government failed agree a deal. Not least because 8% of the UK construction workforce are EU nationals; a disproportionately higher number than the 5% of EU nationals that currently make up the UK population.

Even with freedom of movement, the Construction sector has felt the impact of a skills shortage. Closing the borders or making it harder to hire foreign nationals will only amplify the problem. A recent report by The Centre for Cities thinktank [2]advocated extending freedom of movement for two years beyond the 29 March 2019 deadline. This would certainly help avoid losing skilled workers already here, something the CITB has identified as a major concern for employers in the industry. Of course, a stay of any length is a short-term measure and is unlikely to increase the attractiveness of working in the UK for EU construction workers, especially if sterling continues to plummet. At the time of writing, GBP was at record lows against both the Euro and the Dollar thanks in part to Brexit uncertainty and the possibility of a no-deal.

With the likely escalation of the current skills shortage comes the inevitable increase in labour costs – particularly if we’re competing with the Eurozone for skilled workers. This, coupled with yet unknown tariffs on European building materials, could put increasing pressure on developer margins. The UK currently imports 64% of building materials from the EU and exports 63%. There are a number of trade issues which reverting to WTO rules (the default if a deal isn’t reached) wouldn’t solve, such as moving goods between the UK and EU countries. A no-deal Brexit could well impose limitations on imports and exports – even if only temporarily – that could result in anything from increased build costs to a shortage of materials. In this case, the government’s target to built 300,000 houses a year would certainly become less attainable.

In the markets, Brexit uncertainty and a weakened currency has seen foreign investment in London commercial property soar. Bloomberg reports[3] that foreign investors spent £5.6 billion on London offices in the first six months of the year, pushing the City into top spot for overseas investment in H1, beating Hong Kong Island CBD, Paris, Manhattan, and Frankfurt by a significant margin.

For homebuyers, a no-deal Brexit will likely keep a degree of uncertainty within the property market for a longer period of time. However, the government will still have the opportunity to settle on a deal with the EU in the coming months and years after Brexit, and this is what most homebuyers will be looking for to improve market sentiment.

In short, the government’s identification of the 84 sectors most at risk in a no-deal scenario and the pending publication of the guidelines needed to ensure that those industries can survive is encouraging. However, a no-deal outcome has wide reaching implications for many sectors and, whilst it is not desirable, Westminster and Brussels still have time in the coming months to work out a deal.

[1] https://www.citb.co.uk/news-events/uk/2018/citb-research-industry-must-respond-to-brexit-skills-challenge/

[2] http://www.centreforcities.org/press/brexit-no-deal-will-lead-labour-shortages-greater-south-east-cities-unless-government-extends-freedom-movement/

[3]https://www.bloomberg.com/news/articles/2018-08-22/brexit-bound-london-beats-global-rivals-to-lure-real-estate-cash

Always seek independent advice. This blog has not been approved as a financial promotion by Cogress Limited. We are not responsible for the content of external websites. Potential investors must rely on their own due diligence prior to investing.

Related articles
Avi Miller2018-08-24T14:55:47+00:00What Would A No-Deal Brexit Mean for UK Property?
Tal Orly2018-07-24T17:13:57+00:00Playing Politics with Housebuilding
Cogress2018-05-23T17:03:19+00:00London Housing Market Going Strong, Says Cogress
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Playing Politics with Housebuilding
Housebuilding has risen rapidly up the political agenda over the last two years as the Government courts voters with the hot-button issue of housing supply.

As recently as January, Theresa May declared fixing the housing crisis her “personal mission”, yet she has now welcomed her fourth Housing Minister since the last election.

The cabinet reshuffle in early July saw Dominic Raab become the third Housing Minister to leave the job in two years. When the music stopped next, Kit Malthouse had settled firmly into Raab’s vacant seat, earning him the dubious title of thirteenth Housing Minister in 15 Years. It was a loud and public blow to an industry that has been told it’s a priority as often as it’s been proven not to be. But it wasn’t the only blow we took on the chin this month.

Barely a week before the reshuffle, the Secretary of State for Housing, James Brokenshire, delivered a speech to the Policy Exchange thinktank in which he chastised developers for the 270,000 residential planning permissions granted in London that remain unbuilt. He reprimanded developers for “wriggling out” of commitments on affordable housing and infrastructure and suggested that housebuilders are wilfully taking up to 15 years to complete building on some of the country’s biggest sites. And while he was leveraged housing supply to court an electorate increasingly forced to rent, the Housing Secretory could not have more clearly demonstrated his lack of understanding of the issues facing SME developers, a group he promised to support three breaths later.

The reality is that the UK planning system is drastically at odds with UK housing policy. Preservation measures, parking restrictions, affordable housing targets and a lack of controls around planning approval all contribute to block house building. As an example, we recently had a planning approval postponed for two months simply because one of the council’s committee members had failed to read the proposal on time. This is a needless delay with the potential to significantly impact a developer’s business plan. If there were better controls around planning approval, and local authorities were penalised for such behaviour, this type of delay would be a thing of the past.

And then we have the Secretary’s 270,000 unbuilt residential units. It is an impressive figure that’s sure to galvanise voters, but how representative is it? For developers, a planning application is the culmination of months of research. They’ve already invested significant capital in the site, and the permissions sought are the result of extensive analysis of the local market. If the approval granted deviates significantly from the business plan, then the scheme could cease to be profitable all together. How many of these 270,000 unbuilt homes were simply not cost effective based on the permissions eventually granted?

Always seek independent advice. This blog has not been approved as a financial promotion by Cogress Limited. We are not responsible for the content of external websites. Potential investors must rely on their own due diligence prior to investing.

What type of investor are you?
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