Property in Great Britain

There are three factors which are relevant to a decision on the purchase of a property anywhere in the world. These are location, location and location. Property in Great Britain is no different, the area in which a property is situated will be the best cushion against falling prices and the best profits are made where a property can be purchased in an area that is up and coming.

Property in England can be owned either leasehold or freehold. A freehold interest means that the land together with what any building constructed upon it is owned. A leasehold interest means that the land is owned by someone else with the lease entitling the owner to the property. This will involve either a market rent for leases of 25 years or less or a nominal ground rent (often a peppercorn) for leases of 99 years or more. Houses are usually freehold and flats are usually leasehold, although in many instances now one may have a share of the freehold in a flat through a management company. Historically, despite cyclical falls in the price of property, “bricks and mortar” have tended to out perform stocks and shares in the longer term. Commercial property is governed by the same factors as residential property both as to ownership and the importance of location. Where a commercial property is rented out, the strength of the company renting is important as it will affect the value of the property as an investment. This is usually assessed by a chartered surveyor/valuer who will calculate the Years Purchase (YP) being a multiple of the rent. This will vary dependant upon both the user of the property and the occupier and will typically be 8-12 times the annual rent.

Because of the comparatively small size of Great Britain, approximately 1,000 miles from north to south, there is a constant concern about over-development. The needs of the population both as to housing and workspace need to be constantly balanced against the desire to retain the countryside and green areas. Government policy currently favours the redevelopment of “brown field” (former industrial sites) in preference to green field sites in the open countryside. Depending upon the area where a development is proposed grants may be available for the clean up of the land. In addition, environmental concerns have caused a requirement for environmental searches to be undertaken researching the history of a particular property and whether the land itself might be contaminated. This is of great importance as a current owner could find himself responsible for contamination that occurred sometime ago if the previous owner that caused the contamination cannot be found.

Maximising development permitted on any particular site is therefore crucial importance and requires negotiations with the relevant local authority that indicate their priorities for planning in the area through a Unitary Development Plan and will normally control the grant of planning consent. Projects over a particular size or of a particular type may be referred to the Secretary of State for the Environment for approval but this is comparatively rare. If one is looking at residential property for rent, it is important to identify both the price one wishes to pay and the likely tenant that may occupy. It is also worth checking on transport links and in London underground, bus services and British Rail are important factors. In London for a one bedroom flat one can expect to pay up to £250,000 for a lease in the best areas (the West End, Mayfair, St. James`) or as little as £70,000-£80,000 in outlying regions. However, in other parts of England, £70,000-£380,000 would buy a 3 bedroom house.

Clearly, the purpose of the purchase needs to be defined. One would rarely recommend investment in property for a quick capital profit (12-18 months) unless a site has been identified where obtaining a new planning consent could significantly increase the value. However realistically, property is for a person or organisation looking at a longer term investment of 4-5 years.

Residential property is usually let under a Shorthold Assured Tenancy which can guarantee that the tenant will leave at the end of the period. These can be renewed on an annual basis.

Most property is now registered at HM Land Registry and there is therefore a central data base of properties and their owners. This can be useful when one is looking to assemble a site, owning one part and wishing to make contact with other adjoining owners.

With residential property, the rent achieved will usually cover the cost of any money borrowed to purchase but there is unlikely to be a great surplus above that. However, one is looking for a capital return in the longer term on the purchase price rather than simply a profit on the income in the shorter term. The rent will usually equate to 8-15% of the purchase price of the property per annum.

Given the changing laws in respect of leasehold ownership and the rights to renew a lease, many properties with short leases are undervalued on the market and when the lease is renewed, which requires a capital sum payment calculated in accordance with a standard formula good gains can be made.

As with other cities, a well located flat could be used both for he owners` trips to London and in the time when it is vacant, rented out for holiday lets.

In broad terms, the costs of purchasing, in addition to the purchase price, require the payment of stamp duty running at a maximum of 4% for properties above £500,000. On the sale of property commission will usually be paid to an estate agent if they have been used in the sale which is likely to be between 1.5 and 2.5% of the value of the property. Lawyers will charge up to 0.5% of the property value for buying or selling, although the conveyancing market has become very competitive in recent years. Conveyancing is simply the term used for the buying and selling of property.

Unlike many other forms of contract or agreement, a contract for the sale of a property must be in writing, and executed by both parties as a deed. An oral contract will not suffice.

Certain parameters need to be identified at the outset and include the following: is the property for occupation and/or investment; is a garden or balcony required; where is it desired to purchase the property; is a lease sufficient or is a freehold required; how much is there to be invested; is a completed property required or is the purchaser prepared to do some work or arrange for it to be done; is there a preference for modern/classical property; generally what is the character of the area? All of these are questions which need to be answered before even looking for a property.

When the search begins in earnest, one can identify particular areas and then look in estate agents` windows to see whether the type of property required is available and the price you are likely to pay for it. There are firms who will find properties for you at a cost of 3-4% of the value of the property. They will identify what is available, visit the properties and cut down a list so that only a few need to be examined by the prospective purchaser. This is particular good where people are busy and do not have the time to carry out their own investigations.

There remains a current concern that the property market is likely to suffer a downturn as the stock markets have done, but historically these only occur approx. 1 year after a downturn in the equities market. The view in the City is that prices may simply be adjusting to move away from the high increases of 8-15% pa that have been seen over the past few years to a more realistic rate of growth. There can be no guarantees that one will make money though in the long term it is a safer bet to put money in property than anywhere else. With the right investigation and proper advice, an investment in property will be both worthwhile and profitable.