Exceptional demand continues in the UK’s private rental sector, new figures from estate agency firm, Countrywide, show. In the three months to the end of September, tenant demand per property increased 10.8% compared to a year earlier, having shot up by almost 12% since the summer. The group, which operates across 1,300 branches, also recorded [...]
investors
Buy-to-let investment revival
As the private rental market continues to boom, more people are considering buy-to-let as an investment opportunity. According to letting specialist, Leaders, both those new to the sector and seasoned investors are showing greater interest, having shunned alarmingly volatile stock markets and low savings rates. In contrast, rents in the private sector are strong, as [...]
Cash buyers make up 40% of house purchasers
Figures from the Council of Mortgage Lenders (CML), seen by the BBC, show a huge rise in the proportion of home buyers paying in cash. In January, nearly 40% of purchasers had no need of a mortgage, meaning that the proportion of loan-free buyers had more then doubled since CML records began, in 2005, the [...]
Rents slip as buy-to-let attracts investors
Rents in England and Wales fell slightly in January, as the buy-to-let market saw a growing number of investors.
According to the latest Buy-to-Let Index from LSL Property Services, average rent dropped by 0.3% (£682) compared with December but remained 4% higher than a year ago, with signs of renewed growth in several areas.
The January movement [...]
British Property Federation – Property chiefs call for REITS change in pre-budget report
- Real estate investment trusts (Reits) should be allowed to count stock dividends towards their 90 per cent income distribution requirements, say the country’s biggest developers.
The British Property Federation (BPF) has written to the Treasury calling for the amendment to be made in the upcoming pre-Budget report.
The trade body, which represents developers, investors and agents, believes the amendment would help real estate firms conserve cash during the recession and leave them better placed to expand over the coming year.
The federation’s director for finance policy, Peter Cosmetatos, has emphasised that the change would not cost anything to the Exchequer.
In its submission, the BPF says that allowing the amendments would help Reits conserve cash, strengthening their balance sheets and making it easier for them to invest in the current economic climate.
Reits are required to distribute 90% of their property income into the hands of the investors in return for not paying corporation tax. Currently, they can offer shareholders the alternative of taking stock in lieu of a cash dividend. But this does not count toward the 90 per cent distribution requirement, which must be in cash.
John Richards, vice-president of the BPF, said:
“Refinancing by the Reits over the last year has shown strong confidence in the sector and many are now assessing opportunities for new investment. Allowing Reits to have greater flexibility over how they manage their cash will benefit our economy as we begin to see improvements in occupier demand. Without the necessary government support, we could quite possibly see a more serious under-supply in new space, and increased upward pressure on rents, reducing new employment opportunities. This amendment, however, would be a win-win move for the government.”
Peter Cosmetatos, BPF director for finance policy, said:
“This change would allow Reits to manage their way through difficult times while maintaining shareholder value by giving shareholders the option of accepting cash or a stock dividend. We are of course acutely aware of the state of the public finances – but as tax would still be collected when the distribution is made, the Exchequer would not lose out under these proposals.”
Chris Grigg, chief executive of British Land, said:
“Reits are obliged to pay out a higher proportion of profits in cash than other listed companies, so this straightforward amendment would level the playing field, have no downside to Government as tax paid would be the same, while giving REIT investors the choice of leaving cash efficiently in the business. Under the current set-up, Reits and their shareholders are disadvantaged by a legislative approach already deemed ‘unduly cautious’ by the House of Lords Select Committee on Economic Affairs.”
Francis Salway, chief executive of Land Securities and former BPF president, said:
“The Reit legislation has stood up well in the face of the extreme stress testing of recent market conditions, but it is clear that both companies and shareholders could benefit from the increased flexibility of being able to offer stock dividends.”
Ian Coull, chief executive of Segro, the UK’s largest industrial developer, said:
“There would be no loss to the Exchequer as stock issued is taxable in the same way as cash property income is. The benefits of Reits being able to strengthen their own balance sheets, conserve cash and maintain buoyancy, would have positive consequences for the property market and the wider economy.”
For more information, contact Andrew Teacher at the BPF on 07968 124545 / ateacher@bpf.org.uk
Legal risk to property investors
Off-plan buyer Euan Robertson: “The time the final brick was laid we were living in a very different world”
Investors hit by the downturn who choose not to complete property deals can still be forced to buy after court orders, lawyers have warned.
By Kevin Peachey
Personal finance reporter, BBC News
Many buyers who agreed to purchase city apartments being built in the boom now find values have plunged or have difficulty in finding a mortgage deal.
Some wrongly believe they risk only their deposit by pulling out after exchanging contracts.
But lawyers said the legal obligation to complete the transaction was clear.
Average flat prices fell by 19.5% in England and Wales from peak to trough.
The average price had risen to £175,776 by January 2008, according to the Land Registry, but then plunged by £34,211 to £141,565 by May 2009.
Quick profit
Many buy-to-let investors – including so-called amateur landlords – jumped on the property bandwagon as prices continued to rise.
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  If the completion dates were six months earlier…it would have been a completely different story  Administrator Chris Stirland
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Some who exchanged contracts, often agreeing after seeing plans of construction work, have since been hit by the squeeze on mortgage finance, or simply realise that a fast profit is no longer available.
This, in turn, has affected developers and they have put pressure on buyers not to pull out of contracts.
A developer can apply to a court to seek an order of “specific performance” – an injunction that makes the buyer perform his or her part of the contract and complete the purchase agreement.
“Such actions were rare in the boom times when finance was readily available and the value of property was ever-increasing,” said Paul Lewis, a partner in commercial litigation at Gordons law firm in Leeds.
“But with the economic downturn, builders and developers are now seeking legal advice on ways to enforce the contract or at least seek advice on how to recover their losses.”
However, he pointed out that judges would only make such an order if an award of damages was not adequate. Generally, they would be cautious when asked to force somebody to buy. Other options for the seller included:
- Rescind the contract – this is when the seller cancels the contract, keeps the deposit and retains the property in an attempt to resell it
- Rescind the contact and sue – the seller goes to court to claim any unpaid deposit and then tries to resell
- Sue for damages – if successful, the buyer who pulls out must pay the seller the difference between the contract price and the value at the date when completion should have taken place.
Suing for damages is often the better option if the buyer does not have the funds to buy the property. City-centre apartment investors might have equity in other properties and so an award could be enforced.
However, many investors remain ignorant of the rules, lawyers warned.
“There is a worryingly widespread and entrenched belief among buy-to-let investors that if they decide to withdraw from a purchase for which they have exchanged contracts, that only their deposit is at risk,” said Jeremy Raj, of City law firm Wedlake Bell.
“The legal position is quite clear. They are legally obliged to complete on the transaction.”
Administrators are currently considering legal action after the collapse of a development company which renovated a block of 112 apartments called Thames Tower in Leicester city centre.
Brampton Asset Management (Leicester) Ltd called in the administrators after contracts were exchanged on 111 apartments, but only 14 completed.
“If the completion dates were six months earlier, all those people would have paid. Mortgage products were still in hand then. The bank and creditors would have been paid and it would have been a completely different story,” said administrator Chris Stirland, of Vantis Business Recovery Services.
Defence?
Generally, buyers have a defence against these actions by developers if the development was “not substantially completed”, if the property was not adequately described or misrepresented, or if the value of the property overtakes the contract sale price or is sold for a higher value (in which case the buyer might be able to reclaim their forfeited deposit).
When a developer becomes insolvent some buyers also find that their deposits have been swallowed up by the developer instead of kept by their solicitors in a separate account.
A reputable builder will usually offer insurance to a buyer of a newly built property to cover defects and some of these policies provide for repayment of deposits in cases such as this.
