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11 November 2013

London Calling: A city of opportunity

Our regular columnist Marianne Abib-Pech interviews her future
real estate collaborator Sandra Roth-Gowen on London’s charms
as a property investment.

Author: Marianne Abib-Pech, venture capitalist and writer

The Europe correspondent for Australia’s Special Broadcasting Service called me the other day. He was working on a television report about the increasing number of French people buying property in London. More specifically, he wanted to understand the intricacies of taxation and red tape difficulties Parisian property owners face and why the UK is increasingly an attractive alternative.

The call made me think of one particular field I have been consciously avoiding over the past two years – real estate, and more specifically the London real estate market. It is about time to address it, so I asked Sandra Roth- Gowen, a former managing director of a prominent continental real estate company and now independent real estate adviser. She speaks about the industry with contagious passion.

“Most people would agree that investing in bricks and mortar is less risky than investing in other asset classes. The underlying asset usually represents and maintains at least a certain value,” she says.

But, buying real estate can also be seen as a highly emotional act. To some extent it does bring you closer to alternative Investment.

The London market is the crème de la crème when it comes to properties in size, style and, above all, valuation, and this is not going to stop any time soon.

She adds: “In the past three years, we have seen a healthy return of global investors’ appetite. Some statistics say London has been one of the most traded markets – two-thirds international buyers versus a third domestic, and the number of wealthy Asians, Middle Easterners and Russians on the look-out for lavish trophy assets is not fading.”

In investment terms, what do we need to look for and pay attention to in order to find the next nugget of value in such a highly-priced market?

Roth-Gowen’s reply is: “Triggers.” Look for potential value triggers.

First is the infrastructure trigger. Major infrastructure changes are great indicators of upward trends, particularly future railways, as these give a sign of mobility, driving increasing desirability and ultimately greater value-for-money ratio.

Cross-rail is a perfect example, according to Roth-Gowen.

This fast train service will run east-west across London from 2018. It is one of Europe’s largest infrastructure projects and will make travelling from Heathrow to west London to the east of the City an easy and fast journey.

This will no doubt enhance the attractiveness of the areas around its stations, particularly Paddington, Farringdon and Liverpool Street, so invest time in reading to stay tuned, connect regularly with your surveyor orestate agent, dissect market reports – for example those from Knight Frank – or special reports in newspapers. The Financial Times and the Guardian and Daily Mail weekend supplements are good sources of information.

Add school catchment areas to your list of criteria, particularly in central London.

Second is the corporate or institutional trigger. Try as much as possible to keep track of who is planning to move where.

The 2001 merger of Glaxo with Beecham SmithKline and the subsequent creation of their headquarters in Brentford triggered a value increase of close to 3.5% in the surrounding properties. More recently the US embassy decided to leave its historical location in Grosvenor Square, moving first to Chelsea barracks and finally settling in Vauxhall’s Nine Elms, which has triggered a frenzy of real estate speculation.

“The embassy will move about 2,000 homes and will start a wave of gentrification,’’ says Roth-Gowen.

Overall, we are talking about 16,000 homes built alongside landscaped gardens, a riverfront walk between a boutique hotel and bars, as well as restaurants, altering the skyline south of the Thames.

Come to think of it, this is what is also fascinating about real estate. Above and beyond property values and financial returns, real estate can participate in changing the identity and social composition of an area. Picture industrial warehouses, current wastelands and the derelict Battersea Power station. Then close your eyes and imagine, around the US embassy, a new green and state-of-the-art residential area, full of life and commercial activities. It sounds very much like impact investing to me.

Finally, the critical trigger is timing. This is where you have to think a bit more strategically, according to Roth-Gowen. It takes time for a real estate project to take off, so once you have identified where to buy, invest early. In respect of the Nine Elms example, investing in Battersea is now a great strategic move. Just across the river from desirable Kensington and Chelsea, and soon to abut the up and coming Nine Elms development, Battersea will no doubt benefit – even more so as there is a planned Underground extension.

If you follow these guidelines, what will you get? Maybe not quite the adrenaline rush of your first Monet buy, but something more grounded. Follow these triggers and, according to Roth-Gowen, you have a real chance to enjoy a healthy 4.5 percentage point uplift over and above the average growth of any given area in which you choose to invest, with the London market forecast to grow by 40% in the coming five years.

Furthermore, according to Knight Frank’s 2011 report, there are about 13 hotspots that will outperform the 30% increase in prices expected in prime central London by the end of 2015. Long live bricks and mortar.

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