London Update

Issue 35

Feature Article: Taking Stock
The World's Commitment to Canary Wharf
Economic and Market Roundup
Regeneration News
Latest Young Group News
About Young Group

Feature Article: Taking Stock
Young Group

To say that 2008 has been an interesting year may be understating the shifts that we've seen in the global economy over the last 12 months. At the beginning of the year, who would have predicted that 2008 would have seen the collapse of Lehman Brothers, one of the USA's preeminent investment banks, UK banks being nationalised and governments across the globe cooperating in measures to stave off worldwide recession?

There's no denying that 2008 has kept everyone involved in the investment and property sectors on their toes and the end of the year seems an opportune moment to take a step back, take a breath and take stock.

“We've never been interested in predictions; it's long term trends that we focus on”

The past twelve months have seen a polarisation within the property investment sector. Those who had turned to buy-to-let to 'get rich quick' or to 'make a killing' have fallen by the wayside. As have the majority of property clubs and educational seminar providers that touted their flawed approach to investing; luring a surfeit of unsuspecting devotees to stretch themselves to the financial limit and purchase properties of questionable quality in regional locations up and down the land that just didn't have the rental demand to support the resulting over-supply.

Conversely, those who have weathered the storm are the investors who have taken a professional, analytical approach to property investment; building contingency and realistic yields into their projections. The importance of selecting investment assets that are affordable, at the correct value, in the right location and aimed squarely at the prevailing tenant market has never been demonstrated so strikingly.

So what does 2009 hold for residential property investors?

Economists and journalists set their store in trying to predict the future, but most are now explaining why their previous predictions were wrong! We've never been interested in predictions; it's long term trends that we focus on as these give us confidence for the future.

Nationally, house prices are still double those of 10 years ago and have only fallen in five out of the past 50 years. Putting current house price falls into context prices have fallen by a total of 10% in 2008 whereas at the time of writing, the FTSE 100 has fallen by more than three times that amount, dropping 36% in the past year.

With interest rates now down at unprecedented levels, 2009 will be another interesting year. Most commentators expect an increase in the number of mortgages offered reflecting the lower interest rates.

This more readily available, and cheaper, finance will enable investors to capitalise on the long term value currently present in the sector's assets with an eye to significant gains. Young Group has been monitoring the situation with interest and will be contacting Premier Clients early in the new year with details of new investment acquisitions, enabling clients to leverage this value to their best advantage.

It is at times like these that the companies you deal with - and indeed the people that you trust - become ever more important. At Young Group we have always worked on the basis that the products and services we offer to our clients must be sensibly priced, well communicated and professionally delivered. We have never believed in using 'marketing hype' to inflate prices and we're very proud to be different.

It's as a result of our property investment strategy that, together with our clients, Young Group has taken important strides forward throughout 2008.

• All investments successfully completed, with clients adding more than 225 apartments into their portfolios this year.
• We have opened our agency office - Young London - which has around 300 property assets under management.
• Our mortgage business - Young Finance - has had its most successful year, arranging the finance on the majority of our clients' purchases.
• Many clients' portfolios are seeing yields around 6%.
• Young Group's own portfolio has increased, in line with our strategy of holding investments alongside our clients.

The vast majority of our clients are benefiting from the base rate cuts as Young Finance has been recommending tracker mortgages for the past 12 months as we anticipated the downward base rate trend.

This final point demonstrates very well the importance of having the correct investment advice. One of the media's main areas of focus has recently been on property prices. However, rental income is also an important part of the investment picture. We're pleased to report that many clients who secured mortgages earlier in the year now have mortgages with interest rates of just 1.6%, resulting in positive cashflows in excess of £15,000 per year.

Taking a step back once more, the buy-to-let sector as a whole is often unjustly maligned, but it's arguably the world's second oldest profession and provides much needed housing for those who cannot, or choose not, to purchase their own home. People will always need somewhere to live and buy-to-let accounts for more than 11% of the UK's housing stock – that's a staggering £185 billion of property assets. The sector is currently unregulated, but Young Group is actively lobbying for regulation to promote professional guiding principles and redress within the sector.

Perhaps 2008 will be looked back upon as the year that separated the wheat from the chaff and heralded a new commitment towards professionalism in the prooperty investment sector.

Neil Young
CEO Young Group

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THE WORLD'S COMMITMENT TO CANARY WHARF

With 644 private residential apartments our development, The Landmark, in Canary Wharf is the largest that we're currently involved in. This, along with our commitments to Ability Place and Lanterns Court, means that Canary Wharf is of particular interest to us and a significant number of our clients. As we prepare to enter a new year, now is an opportune moment to take an in depth look at the area.

Being such a global financial hub it's unsurprising that Canary Wharf has featured in the press alongside news of the economy's financial issues. Yes, redundancies have been announced by some of the large banks that inhabit the area but these amount to a fraction of the overall workforce and many companies, and new office buildings, are already committed to coming to Canary Wharf.

“Four further commercial buildings will be completed at Canary Wharf next year”

A total of almost 6 million square feet of office space is currently under development in the area, set to house an additional 25,000 to 30,000 workers.

JP Morgan has confirmed its much rumoured plans to move into Canary Wharf's Riverside South development. JP Morgan is reported to have paid £237 million for a 999 year lease on the 1.9 million sq ft development, currently under construction just a stone's throw from The Landmark, after the Bank shunned a development in the City of London.

In addition, four further commercial buildings are due to be completed next year at Canary Wharf which have been largely prelet or presold to future occupiers, including the accountants KPMG, the rating agency Fitch, its parent company Firmalac and State Street, the American bank.

Canary Wharf has also received the green light from Tower Hamlets local authority and London Mayor, Boris Johnson for its 10-15 year development of a seven million sq ft project known as Wood Wharf. The joint venture between British Waterways, Ballymore Properties and Canary Wharf Group sees the development group pay £50 million towards further local amenities, together with a £100 million contribution towards the area's new Crossrail station.

Meanwhile, Canary Wharf is set to become even better connected internationally. The business community's local airport, City Airport, has received consent to increase the number of take-offs and landings by around 50 per cent to accommodate soaring passenger demand. Volumes have risen by more than 20 per cent a year throughout both 2006 and 2007.

Over the next few years there are other residential developments completing in Canary Wharf, which can only enhance the sense of place. However, due to construction funding restrictions, few new development schemes are coming to market; good news for demand (both in terms of sales and rentals) for developments such as The Landmark, Ability Place and Lanterns Court.

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ECONOMIC & MARKET ROUNDUP

Base Rate Cut to a 57 Year Low of 2%

The Bank of England's Monetary Policy Committee (MPC) cut base rate by a further 1% in December; making a 2.5% cut over the last 2 months. The announcement was met with mixed feelings, Martin Weale, director of the National Institute of Economic and Social Research, said: “The 1% cut is likely to have more impact than sacrificing a goat, but it is difficult to have any real conviction that it will do much good. It is widely recognised that the underlying problem is a lack of credit and it is quite probable that appreciably more money will need to be put into the banks before this problem is resolved.” Charles Goodhart, a founding member of the Bank's MPC, agreed that with banks and other investors, hoarding funds, action was needed to stimulate lending: “A response to that is to make liquid deposits so cheap that there is an incentive to use the funds more productively.”

Buy-to-Let Repossessions Remain Low

According to the Council of Mortgage Lenders' latest report into repossession rates and arrears, the number of buy-to-let mortgages taken into possession during the third quarter of 2008 was 900, the same figure as in the first and second quarters of the year. This represents 0.08% of all buy-to-let mortgages, compared with a higher repossession rate of 0.1% across the mortgage market as a whole.

Private Rented Sector Valued and Praised by Government

The government said there is no sense “over-burdening” landlords with further regulation, at the first conference of the National Landlords' Association. Speaking at the NLA conference in Birmingham in early December Ian Wright, the minister with responsibility for the private-rented sector, said the government has no plans to introduce knee-jerk legislation that will hamper the growth of the sector and instead would continue to target rogue operators. Speaking to delegates he pointed out that the private rented sector had become a “great tool to help house the people of this country”, and that he wanted to see the sector “not just survive over the coming months and years, but thrive.” The buy-to-let sector currently accounts for 11% of the UK's housing stock - that's 2.3million homes.

Lenders Likely to offer a Lifeline

Homeowners were offered a government lifeline this month in the form of a £1bn scheme that will allow interest payments to be deferred for up to two years. Gordon Brown, speaking at the start of the debate on the Queen's Speech, said eight of Britain's biggest banks were backing the scheme. The government hassaid the scheme will apply to mortgages of up to £400,000 and cover households that experience a “significant or temporary loss of income”. The deferred payments would be added to the loan and the mortgage extended to be paid over a longer period.

House Price Fall Eases

The rate at which house prices are falling eased in November. The Nationwide house price index found that the average cost of a home declined by just 0.4% during the month, compared to a fall of 1.3% in October. However, the lender warned that the weakening economy would hinder recovery of demand in the housing market. The latest Land Registry figures show a 10.1% annual decline in house across the England and Wales. Prices were shown to be falling most rapidly in Wales, dropping by 12% over the year. London saw the slowest annual rate of decline, with prices reducing by 8.6%.

CBI Head Blames Media for Self-fulfilling Prophesies

The media has been blamed by Richard Lambert, director general of the CBI, for exacerbating the financial crisis. Lambert also chastised the Press Complaints Commission PCC for not issuing guidelines for journalists on the importance of providing accurate information. “At a time when careless headlines or injudicious reporting risk becoming self-fulfilling prophecies of a very serious nature, you might have thought that the industry's self-regulatory body would have had some guidance to offer about the special responsibilities of business journalists as they pick their way through the dangerous minefields of the credit crunch”, he remarked. “But of course the PCC is nowhere to be seen.”

Pensions Lifeboat Swamped by Shortfalls

New figures released by the Pension Protection Fund show that corporate pension funds are facing increasing shortfalls likely to swamp the mechanism put in place to guarantee retirement funds. The shortfall of UK underfunded company schemes rose to £155bn at the end of November, almost three times larger than at November last year. This is mainly due to falling stock markets and lower yields on government gilts.

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REGENERATION NEWS

Bloomberg Eyes London

Bloomberg, the media worldwide media group has shortlisted three sites for its new headquarters in London. The New York head office is considering taking 300,000 to 400,000 sq ft in either Watermark Place, the UBS and Oxford Properties development next to the Thames due to open next year; Minerva's The Walbrook office, under construction in the City; and Ropemaker Place, which is being developed by British Land.

Crossrail; Full Speed Ahead

Hot on the heels of BAA and Canary Wharf Group's Crossrail funding commitments that were reported in last month's issue, the project has received yet another boost. At the beginning of December, a deal worth up to £350m was finalised with the City of London Corporation. The City of London Corporation has agreed to make a direct contribution of £200m and will seek contributions from businesses of £150m, £50m of which it has guaranteed itself. This measure confirms the City's full support for Crossrail.

Brewery Regeneration Plans Toasted in Wandsworth

Minerva, the developer behind plans to transform the 1m sq ft former Ram Brewery site in Wandsworth, south west London, into a new hub of the town centre has received the final go-ahead. The developer has agreed to pay £41m towards revamping the area's transport system as part of the planning consent, which also sees the restoration of the site's listed building and space provided for new facilities including a micro-brewery.

The full development will include two towers on the main brewery site, one of 32 storeys, one of 42 storeys and comprises more than 200,000 sq ft of space for bars, restaurants and shops, all within walking distance of Young Group's high quality development The Retreat, situated between Earlsfield and Wandsworth.

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LATEST YOUNG GROUP NEWS

A Landmark Photography Exhibition

At the end of November, Young Group's premier clients and Landmark purchasers attended a private viewing of the Landmark Photography Exhibition. Held at the office of Chalegrove Properties Limited, next to the development site at Canary Wharf, guests were treated to an insight into the Landmark's heritage and architectural quality by Michael Squire of the projects' worldrenown architects Squire and Partners. Michael's presentation is available to download via The Landmark website, www.thelandmarkE14.com and is also included in this month's London Update feature podcast.

Many thanks to everyone who attended; we hope that it was not only a convivial evening, but productive too as our clients were able to learn more about The Landmark's excellent progress and discuss the market with their portfolio managers.

Mortgage Market Update

The government continues to take decisive steps to kick start the economy, demonstrated by December's further 1.0% cut in interest rates. Increasingly, lenders are passing the lower rates onto borrowers, albeit to varying degrees. As the constraints on the mortgage market begin to ease we're seeing marked differences between the cost of mortgage products, so it's never been more important to ensure that you're getting the best deal.

Residential 'Best Buy' 3.69% Tracker

Young Finance clients should be in a position to benefit from greater mortgage choice in the New Year as lenders are telling us that they plan to widen their product ranges.

Call Young Finance on +44 (0)845 356 1000 to find out more

Season's Greetings from Young Group

As the holiday season draws near, we'd like to take this opportunity to send our best wishes to you and your family and to let you know that our offices will close at 1pm on 24 December and reopen at 9am on Monday 5 January 2009. In lieu of mailing cards, we have made donations to our two nominated charities, Norwood and Children with Leukaemia.

...Wishing you all a happy and prosperous New Year

STOP PRESS: Young Index Market Sentiment, Q4 2008

Despite prevailing economic conditions, results from the latest Young Index market sentiment survey show that investors remain optimistic about the long term potential of property investment. Once again, figures for Q4 2008 show that investors view the London market as being distinct from the rest of the UK; 44% are considering investing in property in the capital, compared to just 18% who would but in other areas of the UK.

Investors belive that London has better price prospects too; 36% expect values in the capital to remain static or rise during the next 12 months, whereas only 11% believe the same to be true for property outside London. The majority of respondents plan to keep their investments for at least 5 years and almost 1 in 4 intend to hold for 15 years or more. Full results will appear in the next issue.

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ABOUT YOUNG GROUP

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

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