London Update
Issue 34
Feature Article: Property, However do you Manage?
Economic and Market Roundup
Regeneration News
Latest Young Group News
About Young Group
Feature Article: Property, However do you Manage?
Paula Hawkins
Sir Bryan Carsberg published his list of recommendations regarding the reform of the residential property market earlier this summer and one of the key problems he identified was the fact that most people – buyers, sellers and tenants – do not understand what the key players in the market – sales agents, lettings agents and managing agents – actually do. What's more, they don't know how the various agents operate nor what qualifications and experience – if any - they need in order to do their job.
Many tenants, as well as many amateur landlords, are ignorant of the distinction between a lettings agent and a managing agent. Lettings agents find and vet tenants on behalf of landlords and in some cases they may also have a team of property managers who manage the specific properties, carrying out inspections, organising repairs and maintenance and ensuring that the landlord complies with regulatory demands. However, when we refer to managing agents, we are generally referring to something quite different, that is the professional management of entire blocks or buildings containing, in some cases, hundreds of units.
A good way to visualise the distinction is that lettings agents' property managers take responsibility for things within the property itself; making sure that appliances are repaired or replaced if they fail and liaising with tenants on behalf of landlords. Managing agents on the other hand typically represent the freehold owner of the property and are tasked with taking care of a building's shared communal areas, grounds and the fabric of the building itself; essentially, everything outside a specific property's front door. This upkeep is funded by an annual service charge that property leaseholders have to pay to the freeholder.
Some apartment blocks do not have managing agents: in some cases the role is played by the freeholder themselves or by the tenants or owners if they have formed a resident management company. However, there are distinct advantages to employing a professional managing agent to do the job and they can be a real asset to a development. Not only do they ensure that buildings run smoothly and efficiently, are well maintained and comply with the prevailing building and safety regulations, but also that owners' interests are protected.
Anecdotal evidence suggests that property prices and rental income is higher for well managed developments. Selecting the right managing agent can have such an impact on a residential development that increasingly freeholders are involving managing agents at an ever earlier stage – in some cases even before the buildings are actually built. For example, Young Group, freeholder of The Landmark development in Canary Wharf - a residential development comprising 31 and 45 storey residential towers - is already working with managing agent Rendell and Rittner.
The Landmark will not be fully completed until 2010 but Young Group is already using Rendell and Rittner's expertise in assessing the most practical and efficient way to manage the development once it is finished. Evaluating and implementing minor tweaks during the build process can result in significant future benefits in managing the building.
Turning to individual rental properties, the main advantage to landlords of a property management service is in ensuring that the increasingly onerous legal and regulatory burdens placed upon them are being met. In addition to annual gas and electricity safety checks, landlords are now required to have an energy performance certificate (EPC) available for their tenants to inspect (although they do not need to obtain a new one for each tenancy as EPCs last a decade). They must also ensure – and be able to prove – that tenants' deposits are held by a third party or placed in an insurance-backed scheme, while landlords who run houses in multiple occupation (HMO) [typically bedsits or properties with shared kitchen/bathroom facilities] must obtain special licenses and comply with a plethora of rules and safety regulations set down by the Government and local housing authorities. Clearly a minefield, and a time consuming one to negotiate!
“There is a rental premium for properties that are well managed”
In addition to arranging any or all of these, a good lettings agent will also provide landlords with the necessary financial information regarding income and expenditure associated with their rental property well in advance of the self-assessment tax deadlines.
Fees charged by agents for property management services range significantly, not least because not all professional agents offer the same breadth of services. However, paying for professional management is worth it – so long as landlords select the right manager for the job. Tenants often prefer a rental property that's professionally managed as they know that any issues that may arise will be dealt with swiftly, and there is a rental premium for properties that are well managed, simply because they are more desirable. Paying for professional management is, of course, a business expense and can therefore be set against your tax bill.
The case for regulation
The cost aside, one of the reasons that some landlords opt not to use professional property management is simply that an unhealthy proportion of property management companies do not provide a good enough service. At present, there are no regulatory requirements on agents – while there are codes of practise laid down by various trade bodies, these bodies can do nothing to prevent the activities of rogue agents – they can only regulate those who choose to be regulated.
Some of those bodies, including the Association of Residential Managing Agents (ARMA) and the Royal Institution of Chartered Surveyors (RICS), have joined Young Group in repeatedly calling for proper regulation of the industry. Speaking on his appointment as chairman of ARMA back in 2005, Duncan Rendall commented that it was “impossible to think of another sector where the management of people's homes and literally hundreds of millions of pounds is controlled by unregulated parties.”
Regulation was also the recommendation of the Carsberg Review. The report stated that letting agents, managing agents and even some landlords should be subject to stringent regulatory requirements. However, the Review, which was jointly commissioned by the RICS, the Association of Residential Letting Agents (ARMA) and the National Association of Estate Agents (NAEA), is simply a list of recommendations: the government may choose to implement some of the suggested reforms. Equally, the Government may choose to ignore it altogether.
Choosing an agent
Until statutory regulation comes into force – if indeed it ever does – landlords and leaseholders looking for agents to manage their properties will have to rely on existing codes of conduct to protect them and must do their homework in selecting a company that has experience and the right customer service ethic. This means that landlords should always opt for licensed agents – those who belong to a relevant trade body – if they are to have any form of redress when things go wrong. Managers should have a qualification recognised by the Institute of Residential Property Management and must have professional indemnity insurance. In addition, any agents should be able to provide you with references – clearly it makes sense to seek out those agents which have experience in managing similar properties to your own – and they shouldn't be afraid to let you speak to their existing landlords if you want to research whether their service meets expectations.
Paula Hawkins
Paula writes on the residential property market for a range of national newspapers including The Times, The Independent, The Sunday Telegraph and the Evening Standard.
“Economic Measures Working”; Mervyn King, BoE Governor
The Bank of England was forced to rethink its forecasts for Britain's prospects this month but Governor, Mervyn King, (pictured, below) was largely unapologetic despite the Bank unveiling the biggest overhaul of its assessment of the economic outlook since it was handed independent control of interest rates in 1997. King insisted that the regime for the Bank to steer the economy was working effectively, and it should not have been expected to act sooner to shore up growth. Until recent “extraordinary” events, he argued, it had been vital for him and colleagues on the base rate-setting Monetary Policy Committee to take account of the dangers of previously soaring inflation. These had imposed conflicting pressures. Yet since the collapse of US investment bank, Lehman Brothers, in mid-September and the escalation of the credit crisis, “the world has changed” and this had “transformed the outlook”, he said. The Bank had then responded with the first of two successive rate reductions in October.
Ups and Downs of Inflation Could Mean More Rate Cuts
The scale of the change in the Bank of England's analysis is emphasised not only by November's 1.5% cut in base rate to 3% - which is the lowest for more than half a century - but also by its indications that it is poised to cut rates further. King conceded that the scaling back of the Bank's forecasts for inflation was the largest in the MPC's 11-year history. Economists said the Bank's expectation that inflation will plunge below 1 per cent by 2010 suggested that interest rates could be cut by another percentage point by Christmas, to 2 per cent, and fall to 1 per cent next year.
Boris to the Rescue as Mayor Plans to Save London
Mayor of London, Boris Johnson, has announced that he is developing an Economic Recovery Action Plan designed to support Londoners and businesses in the capital through the current economic conditions and to prepare the capital for future economic upturn. Initiatives already in place include refocusing the London Development Agency's £400m budget towards promoting jobs, skills and economic growth, investing £600m in training to give Londoners the skills they need to find and stay in work and pushing ahead with over 50 major infrastructure projects, such as upgrades to the tube and Crossrail, to ensure that London remains globally competitive.
Under the new plans, the Mayor aims to deliver more affordable housing by removing the rigid rule that 50 per cent of all new homes built must be affordable [making many developments economically unviable]. He will also continue to lobby for a competitive tax regime to ensure London remains a global centre, and revamp the international promotion of London to ensure that we remain a global magnet for tourism, business and talent.
Optimism in Buy-to-Let
Latest quarterly data from market research group Business Development Research Consultants indicates that more than a third of landlords have benefited from increased rents in the last year and 17% plan to increase rents by an average of 5.7% before the end of 2008. The group polled more than 500 British landlords, and found that increased demand has allowed landlords to hike rents, with plummeting house prices encouraging more landlords to increase their property stock. More than one in five landlords polled intends to buy another property before the end of the year. Young Group's own quarterly Index shows similar optimism focused on the London market with 32% intending to buy additional investment property in the capital within the next 12 months
Government Review Calls for Regulation of Landlords
In a move aimed at improving standards for tenants in the private sector, a Government review of the private rented sector, carried out by the University of York has recommended a new scheme which could force private landlords to be licensed. The review calls for the scheme to be policed by local authorities and industry bodies, with councils to play a leading role in targeting bad landlords, and the permit could be revoked if the landlord does not meet statutory requirements on housing quality and management. The review also recommends the mandatory regulation of lettings agencies, changes to stamp duty to support good landlords, and a new independent complaints procedure. The findings and proposals will feed into the Government's housing reform green paper due to be announced in December.
First Time Buyers Not Enticed by Stamp Duty Holiday
The stamp duty holiday on house purchases announced by Government ministers two months ago has failed to stimulate demand among first time buyers according to the Council of Mortgage Lenders (CML). In early September the government unveiled the one-year holiday on stamp duty, raising the minimum threshold from £125,000 to £175,000 in an attempt to stimulate the housing market. But the number of mortgages for new purchases fell by 15% in September, down from 41,000 to 34,900, according to the CML.
Mayor Spells Out Regeneration Commitments for London
Boris Johnson has clarified his focus for major infrastructure developments as part of his plans to protect London's economy and global competitiveness. The capital's mayor has confirmed his commitment to press ahead with Crossrail, clearing bus congestion and developing the London Overground network (which includes the East London line extension running through Dalston), and has reportedly instructed Transport for London to focus on delivering projects that will give the greatest benefits to Londoners, and not to proceed with spending money on projects that are yet to receive the necessary funding from Government or the private sector. This means that his vision for a new Transport for London would not include the £500m Thames Gateway Bridge, £1.3bn Cross River Tram, £170m Croydon Tramlink expansion, £500m Oxford Street Tram, £200m East London Transit, £170m Greenwich Waterfront Transit or £750m Dagenham Rock DLR extension.
London's Most Expensive Development gets New Park
The Middle Eastern owner of the Chelsea Barracks site has downsized the residential space at the proposed £3bn redevelopment by 150,000 sq ft and redrawn plans to include a 1.3 acre public park. The changes, which are still being finalised, follow a meeting with Westminster council in September at which the lack of green space was criticised.
Around 10% of gross residential space has now been removed from the Rogers Stirk Harbour & Partners-designed masterplan, and several blocks have been reduced in height from the original plans. The revised proposals will be lodged before Christmas and completion of the development, which is marketed as offering world class apartments for the super-rich, reportedly costing up to £50 million each, is scheduled for 2013.
Olympic Wildlife Park!
It's not only sports fans who will benefit from London's 2012 Games, thanks to plans for 100 hectares of parkland unveiled by the Olympic Delivery Authority. Thought to be the largest urban park to be created in Europe for more than 150 years, the Hargreaves Associates designs were inspired by the grand festival parks of the Victorian age. The former industrial land will be transformed into parkland featuring more than 250 species of plants, trees, grasses and herbs to create a favourable habitat for the song thrush, grey heron, otters and bats.
The Hanging Gardens of... Vauxhall
Planning consent has been granted for a 120m tall mixed-use tower at Vauxhall Cross, SW4. The Amin Taha Architects-designed Vauxhall Cross Sky Gardens proposes 178 flats and 250,000 sq ft of offices and provides two triple-height 'sky-gardens' as amenity space for residents and a series of roof gardens for the commercial areas.
Luxury Super-Yacht Hotel for Canary Wharf
A 170-metre, 158 room luxury hotel aboard a yacht is set for permanent residence in Canary Wharf. The record breaking hotel will also house meeting rooms, an on-board ballroom, spa, gym and pool, a private business club, and a celebrity chef restaurant and bar at on its top deck, permanently moored in Thames Quay, West India Docks.
1.5% Base Rate Cut: Young Finance Looks at The Winners
The Bank of England's move to cut the base rate by 1.5% was trumpeted by the media as proof that the institution is expecting inflation to fall rapidly, heading for below the 2% target. The decisive drop in base rate was seen as a bid to jolt the economy away from potential recession.
Neil Young, CEO of Young Group (pictured below) was quick to point out that base rate is becoming less relevant to the mortgage landscape as lenders opt not to reflect base rate changes in their standard variable rates and rush to raise the cost of their new tracker products - despite the Treasury's efforts to persuade lenders to reduce their stranglehold on mortgage products.
But there's no doubt that the base rate cut has helped those who already have tracker mortgages in place, and many of Young Group's clients who arranged finance through Young Finance have benefited from the cut - some are seeing in excess of £1,100 pcm positive cash flow from their investments. The rate at which banks lend money to each other, Libor, has also fallen since November's base rate cut, which should go some way towards freeing the mortgage market.
Introducing Jane Reeves, Consultant - Young Finance
Young Finance has been joined by consultant, Jane Reeves. Jane has close to ten years' experience of the Financial Services industry and is CeMAP qualified. Prior to joining Young Finance, Jane advised portfolio clients for London based broker Cobalt Capital.
Ability Place Completion Draws Near
The developer of Ability Place in Canary Wharf tells us that completion is on schedule for early 2009. With the majority of mortgage offers remaining valid for a period of 6 months, investors who have purchased at Ability Place are being encouraged by Young Finance that now is the time to arrange financing for completion.
Kelly Brook Lit Up Bond Street for Bond Noel
This year's celebrity 'Bond Girl', who had the honour of turning on the Bond Street Christmas lights in London's West End was actress and model Kelly Brook. Young Group's premier clients were invited to join us at our Bond Street offices on 20 November as part of the Bond Noel celebrations. The event featured sleigh rides, acrobats and street entertainers performing in a wintery wonderland of snow. Not only was the evening great fun, but it was also an ideal opportunity for premier clients to catch up with their Portfolio Manager and the rest of the Young Group team.
Best Buy Residential Mortgage: 4.99%
As lenders assess the impact that the 1.5% base rate cut has on their bottom line and restructure their products, we're seeing the spread between the cost of mortgage products increasing. It's never been more important to ensure that you're getting the best deal. Increasingly, Young Finance clients are asking for advice on residential mortgages, either to release equity or refinance at the end of a deal. Currently the best buy offers up to 75% loan to value at 4.99% for residential mortgages.
Call Young Finance on 0845 356 1000 to find out more
London Update Feedback |
If you have any comments, or would like to respond to any of the issues raised in this issue of our London Update, we'd very much like to hear from you. moakes@younggroup.co.uk. |
Young Group specialises in providing Property Portfolio Management services to private investors; offering the best off-plan direct investment opportunities in London, as well as access to indirect, development fund investment opportunities through its development arm, Young Property. Young Group manages the entire investment process. For direct investments this spans from sourcing the opportunities through to financing, furnishing and letting.
Young Group owns all the property that it sells, and also retains a number of units in each development for its own portfolio. As the principal in every transaction, Young Group does not realise any profits until completion and has transacted in excess of 1,700 apartments, with a retail value of £700 million. The Group’s lettings division, Young Lettings, has successfully let the majority of investors’ apartments shortly after completion.
Young Group supports NORWOOD and CHILDREN with LEUKAEMIA, two charities particularly close to our heart, donating £50 per property exchange.
t: +44 (0)845 356 1000 e: info@younggroup.co.uk
