So you are looking to buy an UK property...

The wife and I first got into the UK property scene back in July 2012, in a rather funny sort of way.

 

We recalled having some free time on our hands that fine Sunday afternoon, so we decided to check out an “Open House” for a residential project located near Bond Street that Colliers was marketing. For those of you who are not too familiar with what’s where in London, Bond Street is probably akin to our Orchard Road.

 

When we got to the venue, we realized that the project was fully sold out. To be fair, it was a rather small development of less than 20 units. And because of the location and price quantum, it was quite an easy sell. But being the enterprising marketing person that she is, the Collier lady started “selling” us another development that was located in the Camden area. Camden is a tad further out from London City Centre (but still within Zone 1 – which we will talk a bit more about later) and is a quaint little township famous for its canals and weekend markets. It also houses quite a large Asian community.

 

Between us, the wife was the de facto “expert” when comes to London, as she had spent some years studying there. She had always liked the Camden area, as it is located away from the hustle and bustle of London city and yet within convenient commute to the city, both by bus and tube (aka MRT).

 

After some deliberation (like for about 15 minutes), the wife and I decided to put money on a 2-bedroom unit of about 700sqft that faced the canal. The payment scheme was 10% down with balance payment due upon legal completion. The expected gross rental yield was around 5%. The project has subsequently TOP in January of this year and we sold it within 2 months after finding a buyer.

So what are the Pros and Cons of investing in a London property? Here are our thoughts:

Pros:

1.       London (and for the most part of UK) is primarily a rental market. The average Londoner has supposedly been priced out of the property market so they mostly rent. As such, there is a large captive market for residential rentals.

2.       Housing prices in London are rising at its fastest rate in almost 4 years. This is largely attributed to a huge influx of foreign buyers over the past 2 – 3 years.

3.       There is no ABSD or SSD to content with when buying/selling a London property. Also, no capital gains tax is currently applicable for non-residents making gains from UK properties. However we understand that the UK government is preparing to introduce such a tax by April 2015.  

 

Cons:

1.       Price rise is showing signs of slowing, with some market watchers believing that prices are already plateauing. This is largely due to more and more properties coming onto the market in the last 1 - 2 years.

2.       Rental yield has suffered considerably as properties in London becomes more and more expensive, due to the strong demand from foreign buyers in recent years.

3.       Rental income for non-resident landlords are taxable at a rate of 20%. However, certain recognized deductions (e.g. interest portion of mortgage payment) are allowed.
 

So what have the wife and I learnt from our first UK property venture? Below are what we deemed as the "lesser known trivia" from our Camden experience:

Trivia #1:           Location matters, not just because of rental yields or resale value.
Recall when we talk about Camden being in Zone 1? The zones are actually derived from the London transport maps – these consist of 6 main concentric rings around London. Zone 1 and 2 are in Central London while zones 6 – 9 covers the outer edge of the Capital.  What this means is that areas in Zone 1 are the closest to London City Centre. It also means that properties in Zone 1 are typically the most expensive in London, as they are most sought after by both occupants and investors.

So when someone is trying to sell you a property in London, where (or specifically, which zone) is the property located is an important consideration. Putting it in Singapore context, you could be comparing a property in say, River Valley to one that is located in Woodlands!

While talking to our bankers for our mortgage loan, we also discovered that the loan amount that the bank is prepared to extend may differ depending on which zone the project is located – we were told that for zone 1, our bank can lend up to 80% of the purchase price, but this drop to 70% for the other zones.

Trivia #2:           Resale is prohibited until legal completion

This is apparently a standard rule all over the UK. So investors looking to "flip" his property ((i.e. selling before legal completion) will be solely disappointed. It also mean that you better get that mortgage loan in order prior to legal completion, as you will definitely have to pay first before you can sell later. The wife and I only learned about this restriction after we have purchased the property.

(* Apparently there is some discrepancy between what we understand and what one of our reader was able to do. The wife and I are currently on vacation and will sort this one out when we return next week. *)

Trivia #3:           Review the Contract of Sales carefully before signing and returning

The Contract of Sales is sent by the UK lawyer handling the conveyancing to you. You are supposed to sign and return the copy back to them. The process is called exchange of contracts between Seller and Buyer.

For our Camden property, the wife and I were told that the down-payment was 10% and the same was also indicated in our Reservation Form when we put down the deposit. But the developer (in view of better than expected sales), has decided to charge a 15% down-payment subsequently. And our contract had stated that an additional 5% was payable 6 months after the signing of the contract. We refused to sign the contract and managed to argue our case successfully for the deletion of the "additional 5%" clause.

Trivia #4:           Go with a Managing Agent
At every foreign property launches in Singapore (for UK property at least), there is always representatives from the Management Company that the developer has appointed for the said project present. For a fee of about 10 - 15% of the monthly rental, these managing agent will help you "manage" the property that you have purchased, right from assisting you with the legal completion process (e.g. collection of keys and checking for defects), to finding you a tenant and purchasing the required furniture (i.e. if you are renting out the property) and even help you with refurbishment of the unit in between old and new tenants. Last but not least, the managing agent will also help compute and advise you on the taxes applicable on your property.

Appointing a managing agent will save you the hassle of doing all the above by yourself. This is especially if you do not intend to travel to manage your property at any regular interval of time.

Trivia #5:           Not all conveyance lawyer are built equal

This may also apply in Singapore but we have always worked with the same lawyer that we have gotten to know (and comfortable with) whenever we transact a property in Singapore. But when you buy a foreign property, you will probably go along with whatever solicitor that the developer appoint (since they are paying the lawyers' fee anyway).

Our experience with the UK law firm that was handling the coneyancing work for Camden has leave a lot to be desired. Maybe it was just our luck, but it has taught us to take ownership of the process else we could have been left hanging. So if you know that something is supposed to happen at that point in time but nothing seems to be happening, be proactive and contact the person (usually a legal clerk of sorts) that is handling your case. Do not simply sit and wait for things to happen. If we had just waited, we might have missed the completion dateline on the sale of our Camden property!

Trivia #6:           Opening a UK bank account

This is necessary when you want your tenant to deposit their monthly rental, or in the event that you sell your property. Some banks have branches both in Singapore and UK, which will enable you to open a Sterling Pound account in UK and have whatever monies that are due to you deposited into your local UK account. After which, you can transfer the money from UK to Singapore via intra-bank transfer at your own leisure. The advantage of this, as compared to say TT Remittance, is that the transfer is almost immediate and there is no charge if you do it over the internet.  

HOWEVER, the wife and I have discovered that opening an UK account and to have this linked with your Singapore one is not as simple a task as one might assume. The phone verification process for UK account opening is a real pain and if you think that is bad, trying to link both the UK and Singapore accounts so that you can transfer money over the internet can make you wanna tear your hair out! Having said that, the transfer process is a breeze once everything is set up properly. So it will be best to set this up early and not try to do so like a week before you need the UK account.

So there you have it. Hope the above is of some help to those who are thinking of investing in a UK property. And if anyone has more experience or advice to share, the wife and I will be most delighted to hear from you!