JUNE 2013
seeking. There is no single answer.” But many believed that there are considerable benefits. Martin Muirhead, head of Property at accountancy firm Kingston Smith, pointed to the widely-known tax reduction of ‘negative gearing’. “Where a property is held either partly or wholly for a rental purpose, then some or all of the interest paid on the debt can be used to reduce the taxable element of the rental income,” he said, “Therefore, from a tax perspective, debt is likely to be beneficial.” Ray Withers, Chief Executive of Property Frontiers, agreed: “You can obtain favourable interest rates on developments that offer a genuine, sustained yield that exceeds the interest rate and thus makes the investment cash flow positive.” However, Stuart Law added that the age of an investor makes a big difference. “We are strong believers in the use of gearing to enhance cash flow provided… that the investor is young enough to see the income of a property service the debt and then to repay it over a reasonable timeframe.”
What about older investors? “Borrowing can be a tactic for the growth part of their portfolio or in some cases to enhance return on cash invested,” he said. So what percentage of the property value should we borrow at? John Grant Angeletta, head of operations at BMV Property
“Only take out financing they can afford”
Investment Deals, said, “We usually say it should be capped at 75%.” Tony Hales, Managing Director of SIPP operator Stadia Trustees, who is used to people investing in commercial property through their pension plans, said, “The maximum a SIPP can borrow is 50% of its total assets.” However, after essential expenses, it is, in practice, 33%. “This should be good for lenders, although most want to ensure that the repayments are covered by the rental income,” said Tony. However,
he pointed out that, with the Financial Conduct Authority (FCA) taking steps to classify commercial property as a non-standard asset, the market for SIPPs to purchase it as an investment is expected to weaken, with stricter regulations and increased costs.
Stuart warned: “High levels of borrowing can impact on cash flow and take a cash flow positive transaction into cash flow negativity. This is no longer an asset but a pure speculation on price growth.” All of this is very reminiscent of the lead up to the 2007 financial crisis, he adds. So what is their professional advice on borrowing?
Many strongly urged that buyers should take professional advice before making any decisions and only take out financing they can afford – especially if the interest rate isn’t fixed.
They should also make sure that they understand the risks involved, and have a ‘plan B’ – enough income from other sources (such as a secure salary) in case things don’t go to plan.
17
www.opp-connect.com
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32 |
Page 33 |
Page 34 |
Page 35 |
Page 36 |
Page 37 |
Page 38 |
Page 39 |
Page 40 |
Page 41 |
Page 42 |
Page 43 |
Page 44 |
Page 45 |
Page 46 |
Page 47 |
Page 48 |
Page 49 |
Page 50 |
Page 51 |
Page 52 |
Page 53 |
Page 54 |
Page 55 |
Page 56 |
Page 57 |
Page 58 |
Page 59 |
Page 60 |
Page 61 |
Page 62 |
Page 63 |
Page 64 |
Page 65 |
Page 66 |
Page 67 |
Page 68 |
Page 69 |
Page 70 |
Page 71 |
Page 72 |
Page 73 |
Page 74 |
Page 75 |
Page 76 |
Page 77 |
Page 78 |
Page 79 |
Page 80