BLOG: Opportunities in direct property

Written by: Rob Noble Warren
Investors are inundated with information on funds. The alternative is to invest directly. In the first of a mini-series, financial planner Rob Noble-Warren looks at property.

For high net worth investors, buying property directly has advantages – transparency; control of expenses; and individual customisation. Dr. Knowles, a dentist in London, found his fortune in a highly individual land development. Within a company, he had bought and sold three houses in London before the banking crisis unfolded, with slight losses, and two years of hard work. Then he picked up a parcel of land in North London for half a million, applied for planning permission, got it, and sold the development for £3 million, taxed at the special 10% gains tax rate.

Developing a particular site is about location, that is true: but sometimes one can wait decades for a deal to arrive. Richard Fortsecue, a British engineer with inherited land in Cyprus has a prime location property in the equivalent to Oxford Street in Nicosia, which has been empty for twenty years. Richard is waiting for the Greeks and Turks to find a political resolution: and may have to wait several more decades yet.

For those without this kind of patience, private consortiums invest in developments such as those in Bahrain, Macau, Sydney, and Rio de Janeiro. Since the last banking crisis was created by ‘irresponsible’ lending on property, many central banks are now expected to actively forestall a property boom, including the reserve banks in Australia, China, Sweden, the UK and Canada. South American property markets are not so constrained. Partly for this reason, Michael Keeley organised on behalf of a single investor to buy development apartments in Brazil prior to the last Olympic games: even so he has found that a reasonable 5% yield from these properties has been impossible to achieve in the face of Brazil’s uncertain economy,

Shirley Daniels, in Australia, however, was able to combine a stable economy, 88% mortgage funding, with individual tax breaks to create a plan for retirement. She comments “We bought mostly steady-as-she-goes properties, in independent regional areas where there is income growth expected. After an initial 18 months of break-even, I am now expecting about 5% per annum for the next 7 to 10 years. Excluding interest, about $33k of our $100k rental income is used for expenses to run the properties. Including interest, we run at a $17k loss, but after our tax refund, we run on $7k profit.” She plans to make 5% p.a. on $5m of property for 7 years and then sell for a before-tax $1.75m: and she is on track.

There is more to investing directly in property than location – there is the local economy; central bank control; currency conversions; cash management, and tax breaks. Given good planning, it can work well.

Rob Noble-Warren, an author, award-winning planner and chartered tax adviser, is writing in for high net worth investors who like making their own decisions, and find that investing directly gives them more choice, less charges and more customisation.



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