London Update

July 2007

Managing Wealth Through Property – By Paula Hawkins
London Residential House Price Trend
Economic Outlook
Market Comment
Other News
Young Group's July Highlights
About Young Group

Managing Wealth Through Property – Paula Hawkins

Four years ago, after successful careers in the corporate world, Neil and Sylvana Young, seasoned experts at the London property investment game, set up their own company Young Group, advising private clients on off-plan properties in London’s regeneration areas. Since then, Young Group has bought and sold more than 1,500 apartments in 15 developments across the capital, with a value of £630 million. The firm has gone from cherry-picking just four or six units in medium-sized developments to selecting entire developments. Its largest investment so far is The Landmark West and East Towers, at Canary Wharf, which comprises some 644 private apartments.

But Young Group is about more than just buying and selling property. The company’s focus is wealth management, centred on one particular asset class: residential property. “We believe that residential property in London is an attractive asset class,” says Neil Young, CEO of Young Group. “The gearing inherent in property investment multiplies returns: a 5% rise in this asset class on a property with an 85% mortgage results in a 33% return on monies invested.” While the vast majority of Young Group’s investments are in residential property, the firm is regularly offered commercial property opportunities and also pursues these where appropriate.

Clients receive a service similar to that which they would experience through a leading private bank or private client wealth manager: their property portfolio manager will deal not just with their purchases and subsequent lettings and management, but also monitor their portfolio, working to develop a long-term strategy; giving advice on what and when to buy, and on how to optimise gearing levels.

A key element of Young Group’s strategy has been to hold onto a part of each development within the firm’s portfolio, so the company’s interests are closely aligned with those of its clients. Also central to company philosophy is the need to stay focused:

	On new build property – because purchasing off-plan makes the selection of prime investment stock straightforward, and means that properties are ready to rent immediately following completion.
	On London – a global market and world city with property underpinned by growing demand and a shortage of supply.
	On areas that demonstrate the greatest potential for capital growth - regeneration zones such as Elephant & Castle or East London; areas with new transport links, like Dalston, or locations with new business and retail developments.

Young Group’s wealth management approach is underpinned by providing an integrated service, from buying properties and offering finance via the Group’s FSA regulated finance desk, right through to furnishing apartments and managing tenants and properties. Clients benefit from all the advantages of direct property investment, without the burden of direct day-to-day involvement. Perhaps most important of all, Young Group is staffed by property and finance professionals. Each of the principal members of the team has a background either in chartered accountancy or chartered surveying.

Royal Victoria Dock was the site of Young Group’s first purchase, when in 2004 the company bought eight apartments comprising a mix of one, two and three bedrooms. The area forms part of the largest urban regeneration projects ever undertaken in the UK: the transformation of the Thames Gateway from an industrial wasteland into not one, but several, thriving communities. Royal Victoria Dock is at a more advanced stage than much of the development in the Thames Gateway and has already developed a community of its own. It’s also well connected, linked to both the City and Canary Wharf by the Docklands Light Railway and further transport improvements are in the pipeline, including the extension of the DLR to link Royal Victoria to Stratford and Stratford International.

Another area targeted early on by Young Group was Dalston. Just two miles from the City and a short hop from the boutiques of Stoke Newington and the bars and restaurants of Highbury and Islington, Dalston had everything going for it – except the right transport infrastructure. Doubts over whether the tube would ever reach E8 were finally laid to rest in 2005 when London was chosen to host the 2012 Olympics and Young Group got in early, securing properties at The Interchange before the underground extension secured final planning consent. The East London line is now set to reach Dalston in 2010 and improvements to overground services are also planned: a rail link connecting Richmond and West Croydon with Dalston Junction should be completed before 2012.

The arrival of the tube is expected to complete the transformation of the area, once renowned for crime and urban deprivation, but now considered one of London’s trendier neighbourhoods. The uplift in prices is already evident, and local agents forecast double digit growth over the next few years.

On a larger scale, Southwark is another area of London currently undergoing a complete transformation, thanks in part to the £1.5 billion regeneration scheme underway at Elephant & Castle – one of the most ambitious rejuvenation projects in Europe. More than ten million square feet of mixed use development is either under construction or has planning approval in the borough, which will soon be home to landmark buildings such as Renzo Piano’s 310 metre tall ‘Shard of Glass’. While thousands of new homes are planned for the district, the majority of the new space will be commercial, central to Southwark’s bid to compete with the established business hubs of Canary Wharf and the City. UBS Global Management has already signed up, forward purchasing the Great Portland Estates South Bank Scheme on Tooley Street for £94 million.

Looking further east, July 2007 marks the twentieth anniversary of the purchase of a derelict Docklands site by Olympia & York (O&Y), who planned an ambitious 12 million square foot development. The early years of the Canary Wharf development were slow and torturous: by 1996, just 10,000 people worked there. But another decade on, more than 90,000 people work there, and that population is set to grow to 100,000 by 2010 as Bear Stearns, KPMG, State Street and Fitch move to the area, taking around 1.5 million square feet of offices currently under construction. Longer term forecasts put the size of the Canary Wharf’s workforce at 200,000 by 2026.

Young Group bought units in two developments on the edge of the Canary Wharf estate in 2006 – Ability Place and Lanterns Court – and at the end of the year acquired 276 units in the West Tower of The Landmark, one of two luxury residential towers on Marsh Wall, just five minutes walk from the heart of Canary Wharf. In May 2007, following the overwhelming investor response to the first tower, Young Group added the East Tower of The Landmark to its growing portfolio and secured the freehold to the entire development – including 28,000 square feet of commercial space and a further 368 private apartments.

Neil Young points out that proof of Young Group’s business model is demonstrated, not only by the growth in wealth that clients enjoy, but also by the strength of the relationship between them and their portfolio manager. “Currently, around 50% of our new business comes from referrals from existing clients, and that’s something that we’re incredibly proud of. It’s testament to the fact that clients are receiving advice that they trust.”

Young Group has already come a long way, and the future is set to be just as exciting; the firm is developing further opportunities that will offer clients access to investments spanning a broader section of the development lifecycle.

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. A former deputy personal finance editor at The Times, Paula has also written a guide to personal finance published by Penguin.

London Residential House Price Trend

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Economic Outlook

	In a move that was predicted by Young Group in the last newsletter, the Bank of England raised interest rates by 25 basis points in July and some analysts have suggested they could hit 6% as early as next month, particularly after a softer-than-expected fall in inflation. Minutes from the Monetary Policy Committee meeting show that the committee’s task had been made harder by the poor weather, which made seasonal adjustment “more difficult than normal”. All eyes will be on August’s crucial inflation report.
	The Halifax believes that a decline in inflation, a slowdown in economic activity and a continuing absence of evidence of a marked pick-up in wage growth should prevent the need for rates to increase much beyond 6%.
	Latest figures from the Office for National Statistics revealed that the Consumer Price Index eased by less than economists were predicting, to 2.4% last month, from 2.5% in May. However, Bank of England governor, Mervyn King, said that he expected consumer price inflation to continue falling over the rest of the year, "We have to look through the short-term volatility caused by gas and electricity prices. In our view, inflation will come down during the rest of the year. It is likely to drop further but we will have to wait and see."

Market Comment

	The latest from Nationwide is that annual average house price inflation was 9.9% in June, thanks to sound market fundamentals. Halifax also points to the health of the UK economy. GDP growth is close to long-term average and high levels of employment are expected to underpin the market during the second half of 2007.
	Property undersupply also remains a key driver. A total of 43,329 housing completions took place during the three months to April 2007; a shortfall of more than 30% against the Barker Report’s recommendation of 250,000 new homes per year.
	Average prices for prime London property achieved yet another record-breaking month, with annual prices up 33.9%, pushing average sales price beyond £1.2 million. Ian Springett, Primelocation.com’s CEO, commented: “While the mainstream market wobbles under the strain of a succession of interest rate rises, the prime London market shows no signs of such uncertainty, as it surges relentlessly onwards. Demand has remained strong, with wealthy overseas buyers and City employees continuing to feed their insatiable desire for London’s very best properties.”
	Prime London Property Prices (Primelocation.com)
	The capital’s lettings market also continues to thrive, with Hamptons reporting typical rent increases of 5% since the start of 2007. “We are letting at full asking price and applicants are taking less time to commit to a property due to high demand. My message to the landlord is clear – hold on to your investment and you will benefit from a healthy rental market that is set to continue,” says Lesley Cairns, director of Hamptons’ London lettings division.

Other News

	London is officially the world’s leading Centre of Commerce. With a flexible operating environment for business, strong global financial connections and exceptionally high levels of international trade, travel and conferences, London has secured first place in the Mastercard Centres of Commerce Index. For the first time, the city outperformed New York to secure the global top-spot, with the report highlighting that poor national economic factors and cumbersome market regulations placed New York behind London.
	The sub-prime mortgage crisis in America has received world-wide press attention, but Bloomerg points out that New York City apartment prices have climbed by 16% in Q2. As with other global cities, New York is de-coupling from the local market, and the country's most expensive urban market sidestepped declines felt in the rest of the US.
	American Airlines will begin daily flights from New York JFK to Stansted on 28th October. David Cush, American Airlines VP for global sales, points out: "We've always been an airline that caters to the financial community and chose Stansted because it's so directly linked to the growing financial services community in Canary Wharf." New entrants have already recognised the demand, with premium carriers Eos and Maxjet already operating from Stansted.

Young Group's July Highlights

Property Portfolio Management

We are delighted to announce the appointment of Helen Fraser as Portfolio Manager. Helen has a corporate background in Business Analysis and brings a wealth of experience to Young Group. Helen has been building a personal property portfolio and understands the client’s point of view very well.

Young Property

Investment purchases at The Landmark continue to be very strong; the 30 storey West Tower is now all but sold out. The 45 storey East Tower will be launched in the early part of August to our Premier Clients. Our Union Wharf development in Shoreditch will be completing at the end of August.

Young Lettings

Whilst continuing to look after the diverse portfolio of properties under management we have been preparing to let the apartments at our Union Wharf development. Interest has been strong due to the developments excellent location and quality of the accommodation. As always, we’re looking to have all the units let on good terms for investors within a week of completion.

Young Finance

Following the latest Bank of England rate rise, tracker deals are seeing a rise in popularity again with some deals better than 0.5% lower than the equivalent fixed rates. From a buy-to-let perspective, a lender offering a tracker product with a 100% pay rate rental calculation is also proving a bit hit with investors.

Young Furnishing

With three major completions looming in the second half of the year, furnishing are busy advising clients on furnishing solutions, placing orders and coordinating deliveries and installations.

About Young Group

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.

In the last 12 months, 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