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London Update January 2008 The Long and Short of Long-Termism The Long and Short of Long-Termism – Paula Hawkins Perceived wisdom tends towards the view that investing for the longer-term, rather than attempting to get rich quick, is the sensible way to approach wealth generation. Property investors are more likely than most to take the long view: figures from the Association of Residential Letting Agents (ARLA) suggests that the average property investor plans to hold onto his or her investment for 15 years, while a quarter of property investors consider an even longer timescale, of 20 years or more. In property, the preference for long-term investing comes naturally. There may be a small minority of investors who attempt to ‘make a fast buck’, however, for the majority of buy-to-let investors a short timeframe makes little sense due to the costs associated with property transactions. But there are good arguments for taking the long view, practicalities aside. Saving for retirement provides an ideal example. A 25-year old who puts aside £200 a month and retires at 65 will have a pension pot of £305,000 (assuming an annual return of 5% and inflation of 2%). If he delays starting his retirement fund until he is 35, he will end up with a pot of £166,000. If he waits until the age of 45, he have just £82,000 in his pension pot. The advantages of planning for the long haul are not restricted solely to the financial arena. Examples can be drawn from across a number of different disciplines. Take football for instance. In France, the approach to building a national team starts at the grassroots level with the selection of young talent which is then nurtured at one of nine elite youth academies. The most famous of these, at Clairefontaine, near Paris, has produced such talents as Thierry Henry, Arsenal captain William Gallas, Nicolas Anelka and the Manchester United striker, Louis Saha. The success of this long-term approach is evident. Eight years after the Clairefontaine academy opened in 1988, France won the World Cup. Two years later, in 2000, the French team won the European Championship, and after a disappointing World Cup in 2002, returned to form in 2006, finishing as runners-up to Italy. Infrastructure projects offer another good example of the importance of forward planning: by their nature, they tend to be very expensive and seem to take forever to complete, yet they can have enormous long-term economic benefits. Crossrail is a timely example. The new railway, which will traverse central London, linking Maidenhead and Heathrow in the west to Abbey Wood and Shenfield in Kent and Essex, will not be completed until 2017 and is expected to cost a total of £16 billion. This seems like a huge amount, but is clearly worthwhile when one considers that the economic advantages to London and the south-east are expected to be around double that at £30 billion. Speculators
take a short-term
Strategies to combat climate change tend to focus on short-term measures to achieve long-term goals. Consumers are urged to turn down their thermostats by a degree or two, or to switch off appliances instead of leaving them on standby. The environmental impact of such small scale measures is unlikely to be felt (if at all) for a long time – although there is an immediate financial payback. On a larger scale, investments in renewable energy are expected to have an impact decades down the line. Last year, the amount invested in clean energy was $117 billion (£59 billion), according to figures from New Energy Finance. While the financial return on those investments is expected to be significant – witness the number of new investment funds dedicated to environmentally-friendly companies and technologies – the environmental return will be much harder to gauge and the potential impact may yet take decades to become apparent. In addition to short-term measures to tackle the reduction of carbon emissions, the other challenge for governments, which has yet to be tackled, is to address the damage which has already been done. In the west, this would mean “climate-proofing” cities by constructing transport systems and buildings which can withstand extraordinary weather conditions such as severe storms and flooding. Again, in order for such projects to be successful, a long-term view is required. Early assessment of the potential risk and payback associated with taking action, coupled with appropriate planning and action is imperative. Returning to financial services, an area where there is a desperate need for a cohesive long-term strategic approach is that of personal finance education. Senior figures within the financial services industry have long stressed the point that, so long as widespread ignorance of financial products such as pensions and investment funds persists, the savings gap will continue to widen. Meanwhile a lack of understanding of even very basic products such as credit and store cards continues to contribute to the burgeoning consumer debt burden. Speaking at a roundtable on retirement income last year, Tom McPhail of Hargreaves Lansdown, the financial advisers, warned that thanks to the “ignorance problem” we are likely to face serious shortfalls in pensioners’ incomes 10 to 15 years from now. And while there is no way to defeat this “ignorance problem” in the short term, a serious approach to personal finance education in schools could help improve the situation in 30 or 40 years time from now. The difference between taking a long and a short-term view has been described as the difference between real investment and speculation. While speculators are concerned primarily with the performance of a particular market [their aim is to foresee price changes in a particular asset], investors are interested in an asset’s prospective yield, gauged over a number of years, coupled with capital growth. There is no doubt that there are considerable gains to be made from speculation: in the day-trading heyday of the late 1990s, there were plenty of traders who made a killing by rapidly churning technology stocks, although there were no doubt many more individuals who lost equally large sums. Indeed, an academic study of Taiwanese day traders has found that while 82 per cent lose money, the successful ones are very successful indeed, making average gains of around five times the average annual per capita income. Nevertheless, for most of us, taking the long view remains the wise option, not least because the longer your investment timescale, the lower the risk. Moreover, investors, as opposed to speculators, need not concern themselves as much with market fluctuations; rather their investment decisions are based on trends over a 15 to 20 year time frame. Written by 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. Paula has also written a guide to personal finance, published by Penguin Books.
South Bank's Regeneration Boost Continues Liverpool developer, Beetham Organisation,
has gained consent for its £600m Beetham Tower on London's South
Bank after agreeing to reduce the height of the 52-storey, 170 metre
high building by 10 metres.
Beetham Tower will House a 6* Luxury Hotel The Ian Simpson Architects-designed tower, which will house a six-star hotel run by Jumeirah International and apartments next to the Thames at One Blackfriars Road SE1, was given the go-ahead by Southwark council at the end of December following modifications agreed with English Heritage. The modification means that almost 50 metres has been slashed off the height of the scheme since it was first proposed in July 2005. Beetham had planned to build a 219m, 68-storey tower but scaled it back to 180 metres in November 2007 following criticisms from government architectural watchdog CABE. Victoria Interchange Will Protect Palace Views Despite calling for the developer to change its proposals for the £2bn redevelopment of Victoria Station for the second time, Westminster council claims it is still in favour of Land Securities’ plans for London’s Victoria Transport Interchange. The council’s planners have now called for LandSec to reduce the height of two KPF-designed towers by 30% in order to protect views of Buckingham Palace. East London Line to Arrive on Time Transport for has confirmed this week that the East London Line extension project is on schedule to open on time, in Summer 2010. The £1.4 billion scheme is part of plans to create an orbital railway around London to carry commuters to destinations such as Canary Wharf. Much of the viaduct work, on which most of the northern extension will run, has already been carried out during the lengthy wait for final approval of the project, giving it a healthy head start. Royal Bank of Scotland Shows Market Confidence The Royal Bank of Scotland (RBS) has confirmed
£90m of funding for the first phase of Oracle Group’s Indescon
Court development in London’s Docklands. Phase 1 of the development,
being developed with Galliard Homes will bring 362 new homes, together
with additional office and retail space, to the burgeoning Docklands
community. The level of funding secured during the much-publicised ‘credit
crunch’ demonstrates the financial community’s confidence
in the Dockland’s housing sector. The second phase of the scheme,
will include a further 950 homes in building up to 32-storey’s
high, a 108-bedroom hotel and further leisure, retail and commercial
space.
RBS Confirms £90 million Funding for Docklands Scheme Silvertown Surfing Surfing is coming to London’s Royal Victoria Dock as a result of a £20m Venture Extreme project at Silvertown Quays, which this month won outline planning permission from Tower Hamlets council.
ECONOMIC UPDATE & MARKET COMMENT Buy-to-let Attracts Long Term Investors Latest research from the Association of Residential Letting Agents (ARLA) confirms the long term view taken by the majority of landlords, finding that 90% have no desire to sell property during the next 20 years. ARLA’s figures show that 40 per cent of landlords are seeking to buy further properties during 2008. The findings mirror those of our own Young Index, which at Q4 2007 showed that 54% of investors intend to buy in London within the next 12 months. According to ARLA, buy-to-let landlords are not overstretching and borrowed an average of 70 per cent of the value of a property when setting up a new investment during the final quarter of 2007, down from 74% in the previous quarter. Landlords expected these investments to remain for an average of 17 years. London Bucks the Trend The Land Registry has released its latest house price figures, for November 2007. Often considered to be the most accurate measure of the housing market, the figures represent actual achieved selling prices and show a UK market wide annual increase of 8.1%. Flats achieved the highest increases over the period, of 9.8% and property in London lead the way with year-on-year growth of 15.6%. The monthly change for November 2007 was 1.1%, taking the average property price in the Capital to a little over £355,000. Nationwide reported that in the twelve months to the end of 2007, average house prices in London rose by almost £100 per day. Buy-to-Let Remains Buoyant Fionnuala Earley, the chief economist at Nationwide, said interest rate cuts and the strong demand from tenants will help to keep the buy-to-let market buoyant in 2008. "There will be those investors who want to crystallise gains, but those will be the speculators who are struggling to get tenants. We are in a market where there is great tenant demand because first-time buyers are unable to get on to the housing ladder." London continues to be characterised by chronic undersupply of property that will cushion it from the softening within the market.. First Time Renters The Council of Mortgage Lenders recently revealed that the number of buy-to-let landlords outstripped first-time buyers for the first time last year and figures from Halifax confirm that the number purchasing a home for the first time is falling; 300,000 first-time buyers entered the market last year, 44% fewer than five years ago and the lowest level since 1980. This is driving the rental market, which saw average UK rents rise by 10% over the past year with London once again outperforming the rest of the country. Average annual rental returns in the capital saw growth of 19.3%. The strength is confirmed by the fact that the average UK void period has fallen to just 13 days (the shortest in Europe) with 30% of property renting within a week. Base Rate Held at 5.50% Consensus had been split equally over whether this month’s base rate decision would result in a rate drop. However, historically January is not a month for movement. Instead, the Monetary Policy Committee (MPC) tends to wait until the Treasury’s quarterly inflation report is available and the impact of Christmas retail trading has been quantified. All eyes will turn to February’s announcement when the next drop in base rate is expected. But lenders are unlikely to pass on rate reductions, warns the Council of Mortgage Lenders (CML). Since the MPC cut the base rate in December, most lenders have failed to reduce their fixed rate deals, which are opted for by two-thirds of new borrowers. Not only are lenders not reflecting rate reductions in their products, they are also taking longer than ever to appraise applications. Swell London is a Real Draw London’s population continues to swell. The Office for National Statistics has revealed this month that more than 1 million people moved to London from abroad over the last decade and almost 2 million people relocated to the capital from other parts of the UK. Taking into account the number moving away from the capital, the net population of London has increased by 538,000, the largest change of any area of the UK.
December 7th 2007 was the busiest day ever in the history of the London Underground. On that one day alone, the 144 year old network carried well over 4 million passengers for the first time; up 150,000 on the previous record-breaking day of December 8th 2006.
As you may already know, during 2007 we supported two charities that are close to our hearts; Norwood and CHILDREN with LEUKEMIA. We donated £50 for each property exchange and made additional contributions throughout the year. We’re pleased to continue to support both worthy causes throughout 2008 and would like to share a little more about each of them. Young Group became a Norwood ‘corporate friend’ in 2006. Norwood, whose patron is The Queen, is the community’s safety net, tackling issues which threaten its future; abuse, addiction, family breakdown, financial hardship, special education and disabilities. Norwood provides a vast range of services designed to meet the needs of people coping with all kinds of issues, for people from all walks of life. Norwood’s services cover several areas: residential facilities for those with learning disabilities, special education services, fostering & adoption and children & family services. Each year the charity supports thousands of people and operates an open door policy that’s just a phone call away. CHILDREN with LEUKEMIA is the UK’s leading charity dedicated to fighting Britain’s biggest childhood cancer and for more than 19 years has been funding research into causes and treatments as well as supporting families through welfare programmes and campaigning on their behalf. The charity receives no government funding; relying solely on donations and fundraising, having raised £80 million since 1998. Led by Founder and Chairman of the Board of Trustees, Eddie O’Gorman, during the last three years alone CHILDREN with LEUKEMIA has awarded grants of £15 million to medical researchers developing treatments which are more effective and less punishing, reducing the risk of associated side-effects.
MyBASE1 Completions With the phased completion of MyBASE1 scheduled to begin from mid March, marketing of rental apartments within the development will commence from mid-January. Investors who are planning to rent out their property but have not yet signed and returned the terms of business provided by Young Group, are urged to do so as soon as possible. If Young Group has not received investors’ completed terms of business, tenants will not be able to move into their properties.
Young Group specialises in providing Property Portfolio Management services to private investors, identifying the best off-plan opportunities in London on their behalf and managing the entire investment process - from sourcing the property through to financing, furnishing and letting. Young Group is a wealth manager with a focus on property as an asset class. Young Group owns all the property it sells, and also retains a number of properties in each development for its own portfolio. As the principal in every transaction, Young Group does not realise any profits until completion, giving investors 100% confidence that properties will ‘value up’ and that financing will be secured. Young Group has transacted in excess of 1,500 apartments, with a retail value of £630 million. Over 50% of units have been bought by multiple investors. The Group’s lettings division, Young Lettings, has successfully let all investors’ apartments within a week of completion. For each property exchange, Young Group
donates £50 to CHILDREN with LEUKAEMIA, the UK’s leading
charity dedicated exclusively to fighting Britain's biggest childhood
cancer through pioneering research, new treatment and support of children
with Leukaemia and their families, and to Norwood, the Children and
Families First charity which provides support to families facing social
difficulties. t: +44 (0)845 356 1000 e: info@younggroup.co.uk |
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