INVESTMENT
occupancy levels and improve rack rates. Property Frontiers is now offering
investment in the 204-room Holiday Inn Express at London Excel. Ray Withers of Property Frontiers says the London hotel market is expected to show double-digit growth for 2011, and this property allows investors to gain affordable entry to the market. The yield should grow to 10.5 per cent by year five, with a £125,000 in-price. Some earlier hotel room schemes
foundered on the lack of a resale market. To address this, the Holiday Express investment includes a buyback scheme. It’s also managed by Holiday Inn, a major global name, rather than being a one-off hotel brand. Assetz also offers hotel properties;
currently, a Cape Verde hotel scheme with a seven per cent fixed income over the first ten years. Unlike residential property, Assetz points out, hotel room investments are fully SIPPable, as long as there is no personal use element. That may make such properties popular with IFAs hoping to find tax efficient investments for their clients.
THE KNOWN-UNKNOWNS
However with all properties, and particularly overseas properties, interest rates and currency movements remain, as Donald Rumsfeld would say, “known unknowns” – there are many and widely conflicting opinions on what is likely to happen next. UK interest rates, for instance, have
remained at all-time historical lows for nearly three years now, something no one expected when the rate was reduced to 0.5 per cent back in March 2009. That has certainly helped property owners, by keeping mortgage rates low. Whereas at the peak of the boom, many new buy-to-let landlords were subsidising their properties, with mortgage rates at six or seven per cent and rental yields at only three or four per cent, now the gap between
residential yields and buy-to-let mortgage costs has closed up. But what is likely to happen to interest
rates in future? Currently, the slackening of inflation together with low economic growth mean that most economists don’t expect rates to rise in 2012, and some are forecasting low rates till 2014 or 2015. However, complacency could be
misplaced. It’s evident that a large number of homeowners are in financial difficulty; figures from the Council of Mortgage Lenders show 827,000 households in
18 FEBRUARY 2012 PROPERTYdrum
Interest rates and currency movements
remain ‘known- unknowns’; what happens next?’
THE CHALLENGE OF EUROPE
The biggest challenge, though, remains Europe. The difficulties of solving peripheral nations’ debt problems while retaining the Euro have created a highly volatile environment. If the euro does collapse, or one of the peripheral nations defaults, there will be a knock-on impact on the UK market and we’ll almost certainly see a second credit crunch – in which case, all bets are off. So far, the euro has been muddling
through, and it could continue to do so. But currency will continue to be a major consideration for buyers of overseas property – more so now than ever before, as even strong currencies such as the Japanese yen and Swiss franc have devalued. Currency fears have certainly led to
many buyers steering clear of the Greek market. If Greece does leave the euro, the successor currency will certainly devalue and that could wipe 40 per cent or more off the sterling value of a property overnight. For borrowers with euro- denominated mortgages, devaluation could leave them heavily in negative equity. Even French property, long a favourite with British buyers, could be a poor investment if the euro suffers. Of course, one man’s euro fear is another
man’s opportunity. Smart Currency Exchange has seen an increase in buyers looking for money transfers to buy in France. As the euro has fallen against sterling, French properties have become attractively priced. None of these figures give a hard and fast
answer whether this is the right time to invest in residential property. But at least, it appears to bear the comparison with other asset classes over the long term – which says that while most of us will be buying a home to live in, it’s still perfectly appropriate as an investment, too.
negative equity, or eight per cent – that’s almost exactly the same level as the CML’s expectation for total housing market transactions next year – while 166,000 mortgages are in arrears by more than 2.5 per cent of the outstanding balance. That figure is expected to increase by more than eight per cent next year. Banks and building societies have
already been ratcheting up their mortgage rates over the last few months; so even with stable base rates, it’s possible we could see mortgage rates increase, and that will put the squeeze on financially- challenged owners.
Good news – the euro falls against sterling!
Do you have any views to share?
www.propertydrum.com/articles/investJan12
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