Overseas property with 10 percent yields

Sponsored Content: Why property investors should look overseas to secure the best returns
Tue 10 Oct 2017 08:04 AM

Research from UAE property experts at Cluttons suggest that slow economic growth and low oil prices are contributing to the cautious property outlook for the region. The Abu Dhabi Property Market Outlook for Spring 2017 confirms that the city is seeing high vacancy rates in both the residential and commercial markets. Forecasts project that rents will slide by up to seven percent this year while sales values could slump by as much as ten percent.

Meanwhile in Oman, the rental market slumped by as much as 11 percent in 2016. According to Clutton’s Spring 2017 Muscat Property report, three quarters of the sub-market experienced a decline in rental income, with Al Hail/Mawaleh experiencing 4.9% decline in Q1 2017. Oman’s economic situation is further exacerbated by the fact that 40 percent of the government’s revenue is obtained from oil exports. The recent credits rating downgrades by both Moody’s and S&P indicates further uncertainty.

These regional factors mean that Middle Eastern investors should consider investing abroad. The United Kingdom could potentially be good place to invest because the currency (GBP) has devalued 14 percent relative to the US dollar over the past two years. The UK is seen as a relatively safe place to invest even though there are some short term hurdles such as Brexit. It is important to remember that the U.K is Europe’s biggest customer and that the majority of tariffs continue to move towards zero, according to the World Trade Organisation. This means the UK will be in a good position to negotiate fair trade deals.

So what are the options when looking overseas?

The Luxury Retirement Home Sector

The UK’s aging population has created opportunities for profitable property investment and development to cater for the growing need for luxury retirement homes. A National Health Service (NHS) study reveals that life expectancy in England and Wales is projected to continue to rise from the 2012 average of 79.5 years for men and 83.3 for women, to 85.7 for men and 87.6 for women by 2030.

The figures speak for themselves. In 1995 the percentage of over 65s was 15.8 percent. In 2015 that figure had risen to 17.8 percent. And by 2035 that number will rise to 23.6percent. So the fact that people are living longer, and that the number of over 65s currently represents almost 20 percent of the UK population, are indicators of strong demand.

And while there is already a distinct undersupply, which is evident in the demographics, only four percent of those aged over 65s in the UK live in retirement or extra care villages according to a survey in 2016 by Laing and Buisson survey. That figure rises to 16 percent of those aged 85 or more.

This is in stark comparison to other western countries. A study by The Housing Learning and Improvement Network (Housing LIN) in 2011 indicated that 17 percent of over-60s in the United States and 13 percent in Australia and New Zealand live in dedicated retirement communities, although many of those homes will be simply age-restricted. Analysis by ARCO suggests the provision of Extra Care type housing in these countries is on average 5.3 percent of older people, compared to only 0.6 percent in England.

This presents investors with a market that is ripe for growth. Especially as there is the option to buy a luxury retirement property investment. One Touch Property Investment has examples of these developments located in the picturesque counties of Somerset and Cornwall, in the south west of England and the Isle of Wight.

The business model is to acquire a retirement studio within a retirement village which is then leased back to the care home operator on a 10-year lease with a 10 percent net income. The care home operator runs their business from the premises and is responsible for the upkeep and running costs related to the property.

This can present an attractive, hands-off option for the overseas investor. According to the Financial Times, “A recent study by Berkley Care Group confirmed that the group makes around £30,000 of profit per bed each year before tax, interest, depreciation and amortisation — and around £2m a year per home.”

The UK student property sector

At the other end of the age spectrum is the opportunities that investing in the student market presents. The UK has 16 universities out of the top global 100 university rankings and is the world’s second most popular country for overseas students.

The implications of Brexit have been the devaluation of the British pound means that it is now cheaper to study in the UK. European students only make up six percent of the UK student population, so the implications are not significant.

To give some concrete examples, overseas students make up over 20 of the student population in cities like Liverpool and London. In the case of Liverpool the attraction is not only the fact that it has three universities and over 70,000 students, but also that it was the European City of culture in 2008 and is home to the Beatles and Liverpool Football Club.

Investors could purchase a self-contained studio in a project called Sir Thomas House which will generate a net income of eight percent per annum. This property will be rented to students as well as visitors seeking a serviced apartment within Liverpool’s city centre retail shopping district.

There is also buoyant demand via websites like Airbnb and frequent P&O cruises that depart from Liverpool port. Local lettings company Golding Estates manages the properties on behalf of International investors and the income is paid quarterly, net of all running costs.

Compared with the five to ten percent gross rental yields of currently being obtained in the Gulf states, it certainly could be worth considering.

This article was sponsored by One Touch Investment which is a UK property investment company that sources high yield property investment options such as care homes and student accommodation. For more information visit http://www.onetouchinvestment.co.uk/

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