Firm seeks returns with ex-Local Authority buy-to-lets in the capital
A firm seeking to produce returns from advising on buying and enhancing former local authority properties in central London is seeing a significant increase in interest in its business.
Dominic Field, (pictured) Temple Field Property’s chief executive officer and co-founder says: “We all have a visualisation of ex-local authority property as the tower block in Peckham in Only Fools and Horses, but there are some very desirable ones.”
His firm advises on buying low rise, low density and accessible properties close to good transport links in the more desirable corners of London. Many of them are sited on bomb infill sites from the Second World War and are located next to houses selling for GBP2-3 million but sit at a discount of 30-40 per cent per square foot.
The trend is rising and spreading from Kensington & Chelsea and Westminster through to Battersea, Nine Elms and Clapham.
Ex local authority properties have large floor plates” Field says, allowing investors to convert a large sitting room into a smaller sitting room yet adding a bedroom and possibly bathroom, thereby taking a two bed to three bed or three bed to four bed investment and significantly boosting the rental yield. Temple Field will design and project manage these refurbishments.
For investors, the firm advises on buying typical lot sizes of GBP400,000-GBP600,000 and requires a minimum investment of GBP150,000. The firm charges 2 per cent on negotiating a purchase.
“Half of all sales in London fall through post-offer for various reasons” Field says. “For a vendor and an agent, price is important but deliverability is very relevant and we provide that because the fact that a buyer has a buying agent on board means they are serious and going to carry through with the purchase.”
Changes in the July Budget will put first time buyers on a level pegging with investors, which is clearly a good thing, Field says. With the shortage of housing, rents in London are likely to rise materially over the next few years, meaning that they will likely cancel out any loss of return resulting from the Budget changes.
Typical investors are Bank of Mum and Dad people, who don’t want to pay rent for their children who are moving to London; divorcees who have a lump sum and want to invest in property and retirees seeking to invest in property from their pension funds and others who want a retirement income.
The average income from a property investment like this is 6 per cent growing to maybe 9 per cent over five years, plus the capital growth of the underlying properties.
The firm boasts a very strong track record in this market. Temple Field CIO Ben Temple’s former firm ‘Temples’ has, since the year 2000, acquired some 66 ex-Local Authority properties at a cost of GBP13.5 million, inclusive of the cost of refurbishment. Today, the portfolio’s total value is estimated at GBP26 million and has delivered an estimated total unleveraged return of 15.6 per cent per annum on average on purchases between 2003 and 2013 – significantly higher when utilising borrowing from one of the many buy-to-let mortgage providers in this sector. On average the gross annual yield on this portfolio is 5.1 per cent, Temples’ comparable modern and period portfolio delivering 3.8%.
The firm gives an example of a recent purchase in Carroun Road SW8, which it says typifies the value-add and high income strategy the firm is pursuing on behalf of its clients.
Purchased on 14th July last year at a price of GBP495,000, the three to four bedroom, one bathroom ex-Local Authority freehold is located ten minutes’ walk from Vauxhall Station (Zone 1), with a gross yield at purchase of 4.2 per cent. Refurbished during August at a cost of GBP50,000, to incorporate five bedrooms and two bathrooms, the house was rented to five young professional sharers on 14th September, just two months after purchase, on one Assured Tenancy Agreement.
The property was let at a rental value of GBP695 per week, producing a current gross yield of 6.6 per cent on the purchase price, factoring in refurbishment costs. Today the property has an estimated capital value of GBP650,000, representing a capital uplift of approximately 20 per cent and a 56 per cent uplift at 75 per cent Loan To Value.
“The Capital continues to enjoy heavy demand for housing given the very significant and increasing shortage of affordable property available to either purchase or rent”, says Field.
“Rising rental and capital values have forced both tenants and purchasers to consider other options, with fast-changing perceptions about ex-Local Authority housing attracting growing numbers of professional renters and purchasers. We expect this trend to further accelerate as the Capital and its economy continues to grow in size, and London becomes an even more attractive place for investment. Investors seeking a relatively passive investment, offering high income and capital growth potential, in a sector which is fast becoming more mainstream, are unlikely to find better value than in ex-Local Authority London Real Estate right now.”